Building a business is an exciting process, and at some point you'll probably want to formalize your company for tax and legal purposes (or just to impress your friends/dates/spouses/parents). Forming an LLC can be daunting at first, but not to worry, the process isn't that difficult, and can be done (mostly) from the comfort of your laptop. All told it took us about 60 days and $150 to form our LLC, and we've compiled a cheatsheet based on our experience that walks you through all the steps.
Step 1: Choose a Name for Your Company
— / free
What may very well be the most difficult (and/or most time consuming) part of forming a company is selecting a name. We opted to just use the names by which clients and friends knew us already, but your case may be different. Whatever you choose to call your company, do a quick search to see if the name is currently in use in California or has been trademarked by someone else. All LLC names must include some form of "Limited Liability Company", "L.L.C." or "LLC", and cannot be too similar to another existing company's name. More detailed information regarding name requirements and availability can be found on the Secretary of State's Business Entities website.
Step 2: Select a Registered Agent
30 min / $50
A registered agent is a third-party individual or company that accepts legal, tax and other government issued documents on behalf of your LLC. Yes, you can technically serve as your own registered agent, but most literature (and lawyers) advise against it, and at $35 – $50 a year it really won't set you back too much. The process is very easy, and can be done entirely online; just make sure the agent you select is listed in the California Business Program's list of private service companies.
Step 3: File Your Articles of Incorporation
30 days / $75
Now comes the key step in forming your LLC. Download Form LLC-1 Articles of Organization, and fill it out with your information, including your company's name, address, managers, and registered agent. If your registered agent is a corporation remember to only put the agent's name and state (don't include their address).
Print, sign, and mail the form to the Secretary of State's office, and include a check for $70. If you want the returned copy certified — always a good idea, but it will add about a week to processing time — also include a seperate check for $5, and a simple note indicating your certification request. Alternatively, you can drop the form off at their Sacramento office for an extra $15, with the option to request faster processing (only available in person). Normal processing takes around 15 – 30 days based on our experience. To verify you're in the system you can search your company's name in the California Business Search.
Step 4: File a Statement of Information
21 days / $25
Once you've completed your Articles of Organization (and received your return copy), you'll need to file a Statement of Information with the California Secretary of State within 90 days. Download Form LLC-12 Statement of Information and fill it out. You'll find your company's "Secretary of State file number" (item 2) stamped on the top right-hand corner of the returned copy of your Articles of Organization (the long number beginning with the current year).
Print, sign, and mail the form along with a check for $20, plus a seperate $5 check and note if you want a certified return copy. Turnaround time was about 3 weeks in our case, but you can also check current processing times to get a better estimate.
Step 5: Draft an LLC Operating Agreement
4+ hours / free
California doesn't require LLCs to submit an operating agreement, however, depending on your team and management it can still be a good idea to write one. An operating agreement is an official contract between the LLC partners that typically outlines the company's financial model (how profits and losses are distributed), and managerial duties and responsibilities (who does what and when). It can also include clauses for succession planning and procedures for transferring or buying out ownership interests if a member decides to leave the company.
Step 6: Get an EIN number
30 min / free
For banking, tax and payroll purposes you'll need to apply for an EIN number, also known as a Federal Employer Identification Number. The whole process takes about 15 – 30 minutes, can be done entirely online and is completely free; just make sure you apply during their business hours of Monday – Friday, 9 – 5 EST (otherwise you'll be unable to submit your application).