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California LLC filing, registration, reporting and tax guideliness

If you are planning to start your business in the State of California by choosing a Limited Liability Company business structure, here are some guidelines for you on how to start.

What is a Limited Liability Company?

A limited liability company LLC is a type of business entity which is managed by one or more members where the liability of the members are limited to the extent of the contributions made by each member. An LLC can have one or more owners or different classes of owners.

Before conducting business, an LLC is required to file an Articles of organization with the State of California.

What are the initial filing requirements in the State of California?

To file an LLC, you must submit Articles of organization on Form LLC 1 from the state website. Following information is required to submit on form LLC-1.

  • Complete name of your business with the words LLC, L.L.C or a Limited Liability Company.
  • Complete mailing address of your business.
  • Details of the service of process (i.e. whether you are hiring an individual agent or a corporate agent). In case of an individual agent, complete mailing address of agent should also be mentioned.
  • Details of the management structure (i.e. whether it‘s a member managed LLC or manager managed). Further, you also need to mention the numbers of managers in LLC.
  • Details mentioning the purpose of forming an LLC to engage in lawful activities as per the California Revised Uniform Limited Liability Company Act.
  • Form LLC-1 must be signed by the persons forming the LLC with a declaration that information stated is correct.

How much is the filing fee?

  • The state fee for filing Articles of organization is $ 70 along with form LLC-1. The same fee is applicable for both online and hard copy filing. (Please check the state website for relevant forms)
  • If you want a certified copy of your filed documents, an additional $ 5 fee will be charged.
  • Your application for filing your LLC can take up to 2-3 working days for both online and hard copy filing.
  • Once your California LLC is approved, the local state authorities will send you a stamped and approved copy of your Articles of Organization (along with a welcome letter). They will arrive by email if you file online or arrive by mail if you file by mail.

Why do I need to file a statement of information?

This statement serves as an insight into your business details. You are required to file a statement of information with the Secretary of state on form LLC-12 or online on secretary of state website for your limited liability company (whether domestic or foreign) along with the following details.

  • Name of your business with the words LLC.
  • Enter 12 digit entity file number. This is provided by the Secretary of State. You can use this number to access your business information on state websites.
  • In case of foreign LLC, mention the state, country or place of registration.
  • Complete mailing address of the principal place of business in the California.
  • Details of the service of process (i.e. whether individual agent or registered corporate agent).
  • Details of the principal business activity of the business.
  • If you have appointed a Chief executive, then provide complete details of him/ her.
  • Name and designation of the person signing this form.
Initial statement of information is required to be filed within 90 days of LLC registration with a fee of $ 20. After that, periodic statement is filed every two years with same fee. If there is any change or update in your LLC records, you need to update the details in the statement of information filed with the state, however, no fee is required for the same update.

There is an additional fee of $ 5 for obtaining a certified copy of the same.

Is there any penalty for non-filing statement of information?

Yes, the California Secretary of State imposes a penalty of $ 250 if your LLC fails to file the required and updated Statement of Information with the State.

What are the additional requirements if I run more than one member/manager LLC?

In this case you need to submit an attachment to statement of Information on Form LLC-12A to the Secretary of State mentioning details of each member/ manager with complete name and address. There is no additional fee for submitting the same.

What is First year tax or Franchise Tax in State of California?

Right after registering and starting its business in the California, every LLC filed and registered in the state and every foreign LLC doing business in California is required to pay a tax in the first year of its incorporation. Please note that this tax is on both domestic and foreign LLC. This tax is called first tax or franchise tax.

How much is the tax amount and when it is payable?

Once your LLC has been approved by the Secretary of state to conduct business in the State you can submit form 3522 (can be downloaded from state website) along with the franchise tax. Amount of tax amount is $ 800 and is payable on the 15th of the fourth month of the LLC incorporation for the first year and for every year subsequent year. This tax is submitted to the California franchise tax board (FTB).

Foreign LLC doing business outside the California is required to pay franchise tax on the 15th of the 4th month of the incorporation of its business outside the State. In case four months have been lapsed before it gets registered with the California state, it has to pay tax immediately right after it registers its business in the State.

Are there any penalties for non-filing of franchise tax?

Failure to pay franchise tax on due dates will impose you to a penalty for an amount calculated on the number of days for which tax payment has been overdue till the date of payment of tax. (Please visit state website).

What is the requirement for estimated fee or gross receipt fee for my LLC?

If your limited liability company registered and doing business in California and have projected to make a total revenue exceeding $ 250,000 annually, then you will be required to submit an estimated fee return on Form 3536 (can be downloaded from state website) on the 15th of the 6th month. Following are the amount of tax that you have to pay as per your gross receipts:

Gross receipts in a year Fee
Upto $ 250,000 None
$ 250,000 to $ 499,999 $ 900
$ 500,000 to 999,999 $ 2500
$ 1,000,000 to 4,999,999 $ 6,000
Please note that this fee can be deducted from your income tax amount.

How to file return of Income for California LLC?

Every LLC doing business in California is required to submit a return of Income also known as Limited liability company return of income on form 568.

Can my Limited Liability Company be classified for tax purpose?

Yes, a limited liability company can be classified into different business forms for tax purpose. You should file the appropriate tax forms according to how your LLC is treated in California for tax purpose.

If you run an LLC with one member, you will be taxed as disregarded entity and will file Form 568 (LLC return of income) to the California Franchise tax Board. Further, Franchise Tax of $ 800 will also be charged from you along with other LLC fee if applicable.

If your LLC business has more than one member, you are classified in partnership structure and required to file Form 568 (LLC return of income) to the California Franchise tax Board. You are also subject to Franchise tax of $ 800.

If your LLC is treated and classified as a Corporation for tax purpose, you will submit a return of income on Form 100 and 100S to the FTB. Similarly, you will pay Franchise tax of $ 800.

What are the penalties for late and non-filing of taxes in California?

Nonpayment of tax is subject to fines and penalties for the amount ranging from 5% up to maximum 25% of the amount of tax not paid. A further penalty is imposed on the unpaid tax for failure to file required returns of income on a timely basis.

Can a Non US resident open an LLC in California?

A Non US resident can create an LLC in the state of California Regardless of a physical presence in the USA.

What documents does a bank in the state of California request to open a bank account for an LLC?

Generally, a bank requests an article of organization California , employer identification number and an operating agreement.

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