Advantages of forming in California
Many advantages exist as to why businesses form as a California limited liability company. The most common reason is the "liability protection", separating your personal assets from those of the business entity.
Often times, if assets are not clearly separate between the business entity and the individual owners, it may be hard, or impossible for courts to keep the two separate in a legal battle.
The members also benefit from having pass-through tax status similar to a partnership.
Deciding on a Name for your LLC
The process of selecting a name for your company can be both difficult and rewarding at the same time. When selecting a name for your company, take your time to develop a name that both represents your business and industry.
Never use a name for a business until it has been approved for use by the Secretary of State.
When an LLC filing has been approved, the State is unable to authorize use of the registered name in business as use may violate rights of a previous Trademark, Copyright, or Fictitious Name. When If you have doubt as to whether a name may violate the rights of another organization, you may want to consult with a lawyer.
An LLC cannot include the words "bank," "trust," "trustee," "incorporated," "inc.," "corporation," or "corp.", "insurer" or "insurance company".
Acceptable endings for an LLC are "Limited Liability Company", "Ltd. Liability Co." or the abbreviation "LLC" or "L.L.C.
When registering a new LLC, California does not check name availability against existing Corporations, only LLC registrations.
Examples of LLC names are :
Johns Pizza, LLC
Johns Pizza Ltd.
Johns Pizza Liability Co.
Johns Pizza L.L.C.
Reduce the risk of Business Debts
A California LLC is a separate legal entity from its owners, which means that the debts of the LLC are not the obligation of the members. In a sole-proprietorship or partnership, the owners are typically responsible for the debt of the business. In California, there are many risks of running a business that aren't easily noticeable. To protect your assets be sure to form either a corporation or LLC to limit your risks and liabilities.
Tips when forming a California LLC
- One member is required to form an LLC in California.
- California LLCs have an $800 minimum state tax due to the Franchise Tax Board.
- At any time, as decided by the members an LLC can by terminated by filing a Certificate of Cancellation (Form LLC-4/7) or Certificate of Dissolution (Form LLC-3).
Always keep your company in good standing
In California your LLC only requires one person, who can hold all positions in the company, such as President, CFO, or Treasurer. A main consideration is to avoid commingling your personal and corporate funds. To do this you should never pay obligations of your California LLC with your personal assets, and personal debts with your LLC assets. If you fail to maintain a very clear distinction your assets, the courts can pierce the corporate veil and find you liable for LLC debts. A common method for separation is having a distinct federal tax id number and a distinct bank and checking account from your personal assets. Be certain not to use your social security number when setting up a bank account, credit card, or on signing any contracts. If you use your SSN when transacting or entering in signed agreements, than you can be held personally liable for those specific debts or obligations.
Create an L.L.C. in CA
The California Secretary of State is the place to go when setting up either a corporation or limited liability company. Remember that an LLC is similar to a corporation in that the owners typically are protected from the obligations of the business. If you form an LLC, you will be much better off than operating as a sole-proprietorship or partnership. Even though you have an L.L.C. you may choose to classify it for tax purposes as a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), partnership or a corporation. If the L.L.C. has only one owner, it will automatically be considered to be a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), unless an election is made to be treated as a corporation.