DIY!!! set up an llc in CAlifornia for free!!!

Written By Su Yin

In my last article “W-2 -> LLC -> S-CORP VOILÀ”, I talked about how making money through a business type called LLC, which is short for limited liability company, can help you save taxes compared to being an employee, while running an S-Corp, which is short for subchapter S corporation, will save you even more taxes compared to an LLC. Today, I will introduce to you the process of setting up the most basic and the best business type for any new small businesses - LLC. In the following, I will show you how to set up an LLC for FREE step by step without paying money to any external service providers. You do not need to hire me, a CPA, or an attorney, or any other type of external service provider to create an LLC. It is simple, quick, clean, and organic. Since you are DIY, you pay $0 extra cost. How lucky you are! So let’s get started!

An LLC is a hybrid entity that combines characteristics of a corporation, partnership, or sole proprietorship. You can form an LLC to run a business or to hold assets. As a small business owner, you are not required to form an LLC. However, most do for one major reason - personal liability protection. That is to say, an LLC protects its member(s) from personal responsibility for its business debts or liabilities. Having an LLC also helps you open bank accounts, enter into contracts, hire employees, and get necessary business licenses and permits. An LLC that has only one member is called single member LLC.

Since I am based in California and most of my clients and potential clients are in California, I will show you a DIY process of setting up an LLC in California. There are many steps you will need to take to set up a LLC in California including (I have also included screenshots below to make it easier):

  1. Pick a name that is not already taken in California

  2. Choose a registered agent

  3. File articles of organization

  4. Receive a certificate from the state and apply for an employee identification number (EIN)

  5. Prepare an operating agreement

  6. File a statement of information

To get started, you can simply go on California Secretary of State (SOS) website at https://www.sos.ca.gov/business-programs/business-entities/starting-business/types , click on the link “Limited Liability Company”, and then click on the bizfileOnline link to create an account. Once you activate your account in the verification email you receive after registering for the account on the SOS website, you will arrive at the homepage of bizfile Online. On this homepage, you can first click on “Free Business Search & Copies” to see if your desired business name is still available. It is optional to reserve a business entity name, although some people do that within a period of 60 days before registering it in case it is taken before the business registration. The cost of name reservation request is $10. Next in the panel on the left hand side, click on “Forms” and then “Articles of Organization - CA LLC” to file articles of organization. Go through all the steps including LLC name, business address, agent for service of process, management structure, etc. Please note you can pick either an individual or hire a California registered agent service as your agent, a person who receives any legal or government documents on behalf of your business. An individual who serves as your agent must be at least 18 years old and have a physical address within California. The range of cost to hire a California registered agent is usually between $50 and $150 per year. The last step is to sign and pay a $70 processing fee. The cost of a certified copy of this filing, if needed, is $5.

Congratulations! Up until this step, you have completed the process of establishing your LLC in California. But there are a little more work to do. First of all, you will expect a certificate from the state. It confirms that the LLC formally exists. With this certificate, you can go ahead and apply for an employer identification number (EIN) on IRS website (https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online). Next is to prepare an operating agreement. An operating agreement outlines the organizational and/or ownership structure of your LLC and its operating rules. Although the state does not require you to file an operating agreement, you should keep it readily accessible. Furthermore, you need to file an initial statement of information within 90 days of forming your LLC by submitting Form LLC-12. Please note this form needs to be filed every two years after the initial filing. Last but not the least, you have taxes to pay including an annual LLC tax $800 and an estimated LLC fee which is based on your current year California gross revenue, if your California gross revenue for the year is over $250,000. The $800 annual LLC tax is due April 15 each year and the estimated LLC fee is due June 15 each year.

So other than the $70 required fee you pay to the California government to file articles of organization, you have saved at least $300 if you choose to DIY and not to go to any external party. Great work!

Su Yin