California LLC formation, end to end.

Before you file#

Most LLC mistakes happen before the first form is filed. Decisions made in the first ten minutes — name, members, ownership split, manager structure — drive everything that comes after. Take these decisions seriously.

Pick a name that's actually available#

California requires LLC names to be distinguishable from existing entities on the Secretary of State register. Names also can't imply a non-LLC entity (Inc., Corp.), can't include restricted words (Bank, Trust, Insurance) without specific approval, and must end with "LLC" or "Limited Liability Company."

Run three name checks: (1) the California Secretary of State business search, (2) federal trademark database (TESS) for direct conflicts, and (3) basic Google + domain availability. A name that clears the SOS but conflicts with a federal trademark is still trouble.

Decide member vs. manager managed#

Member-managed LLCs run by member vote (default). Manager-managed LLCs vest authority in one or more managers — the structure most multi-member LLCs ultimately want, because it lets day-to-day decisions happen without member meetings. The choice goes on the Articles of Organization and is hard to change cleanly later.

Sort the ownership split before filing#

Membership-percentage decisions made before filing are conversations. The same decisions made after filing are amendments. If two-or-more-member LLCs go in with a verbal handshake, the first dispute discovers there was no actual agreement at all. Sort the ownership split first. Sort capital contributions, profit/loss splits, and management votes before the Articles are filed.

The filing#

Form LLC-1 (Articles of Organization)#

California's Form LLC-1 — the Articles of Organization — is the actual formation document. It includes the LLC name, business purpose (a generic purpose statement is sufficient), agent for service of process (a California-resident individual or registered agent service), management structure (member-managed or manager-managed), and signer.

Filed with the California Secretary of State. Filing fee: $70 base. Online filings via bizfile.sos.ca.gov are typically processed within a few business days.

Operating Agreement#

California requires every LLC to have an operating agreement (Cal Corp Code §17701.10) — but it doesn't have to be filed with the state. This is the document that actually decides every dispute. Distributions, capital calls, dispute resolution, member buyouts, dissolution, deadlock-breaking — all of it lives in the operating agreement, not in the Articles.

Single-member LLCs sometimes skip the operating agreement. That's a mistake. The single-member operating agreement establishes the entity's existence as separate from the owner — material to alter-ego defense if a creditor ever tries to pierce the veil.

Form LLC-12 (Statement of Information)#

Due within 90 days of filing the Articles, then every 2 years. Lists members or managers, addresses, and the agent for service. $20 filing fee. Easy to overlook because it lives outside the formation packet — and easy to fall behind on once you're past Year 1.

After the filing#

EIN from the IRS#

Free, online, immediate. The EIN is the LLC's federal tax ID — required for opening business bank accounts, filing taxes, and (in most cases) hiring employees. Single-member LLCs taxed as disregarded entities can technically use the owner's SSN, but using the SSN on commercial bank accounts and W-9s is sloppy and avoidable.

California franchise tax registration#

Every California LLC owes the $800 minimum franchise tax — currently due by the 15th day of the 4th month after formation. (The first-year exemption that applied 2021–2023 has expired.) Form 568 is the LLC return, due annually. LLCs with gross receipts over $250,000 owe a graduated LLC fee on top of the $800 minimum.

Bank account in the LLC's name#

Open the operating account in the LLC's name with the EIN. Do not commingle. Personal funds in, personal funds out, and "I'll pay myself back later" are the most common ways small LLC owners undermine the alter-ego protections they paid the formation fees to set up.

Local business licenses and permits#

California cities require local business tax certificates. Many require zoning approval, fictitious-business-name registration if operating under a name different from the LLC's filed name, and industry-specific permits (food service, contractors, alcohol, professional licenses).

S-corp election (when appropriate)#

Form 2553 elects S-corp tax treatment for an LLC. Useful when net income is high enough that the self-employment tax savings exceed the added compliance cost (reasonable salary, payroll filings, separate corporate return). Generally worth analyzing once net income clears $80–120k. Below that, the S-corp election usually costs more than it saves.

Multi-member specifics#

Capital contributions#

Document who's putting in what — cash, services, equipment, IP — and what membership percentage each contribution buys. Cash contributions are simple. Services contributions ('sweat equity') are more complicated because the IRS treats received-for-services interests as taxable compensation. Sort the structure before the Articles.

Buy-sell triggers#

What happens when a member dies, becomes disabled, divorces, files for bankruptcy, wants to sell, wants to leave, gets fired (if also an employee)? The operating agreement needs explicit triggers for each scenario, valuation methodology, payment terms, and right-of-first-refusal mechanics. Buy-sell triggers that look complete on paper but don't actually trigger when needed are the most common operating-agreement failure mode.

Deadlock#

50/50 LLCs deadlock when members disagree. Without a deadlock-breaking mechanism (mediation, buyout election, third-tiebreaker, dissolution petition under §17707.03), deadlocks become litigation. The operating agreement is the cheapest place to solve this — once a dispute starts, mechanisms drafted in the heat of the moment are negotiated against the deadlock itself.

Common formation mistakes#

Filing without an operating agreement. Single-member or multi-member, the operating agreement is the document that matters. Skipping it because there's no statutory filing requirement is the most expensive corner that gets cut at formation.

Generic templates for sweat-equity deals. Online templates handle straightforward all-cash multi-member LLCs. They don't handle sweat-equity contributions, vesting, IP assignment, deferred capital — the specific structures that startup-style LLCs need.

Skipping the Statement of Information. Easy to forget. California suspends LLCs that fail to file. A suspended LLC can't sue, defend itself in court, or do business. Suspension reinstatement costs more than two years of compliance combined.

Commingling. Single most common alter-ego factor in California veil-piercing analysis. Personal expenses paid through the LLC, LLC expenses paid personally, no separate accounts, no clear paper trail — all of it puts the liability shield at risk.