If you are thinking about starting a new business or launching a nonprofit startup, you likely have a number of questions about the legal side of forming a company. It is important to note that unless you plan to operate a sole proprietorship, you will likely be required to formally register your business in each state where you plan to operate. A sole proprietorship is a business structure that is maintained by a solitary owner, does not feature a personal liability shield and is taxed on the owner’s personal filing instead of a separate business filing. Many independent contractors operate as sole proprietorships. Any business structure more legally complex than a sole proprietorship must generally be officially “formed” and registered before it can legally operate in any given state.
The three primary alternative company structures available to aspiring business owners and startup founders are partnerships, corporations and limited liability companies. Partnerships operate much as sole proprietorships do, in terms of taxation, lack of a personal liability shield and a flexible management style. Corporations have the most rigid management style and are distinct as their management is beholden to stockholders. It is partially because corporate structures are so rigid and both sole proprietorships and partnerships offer no protection from business creditors that aspiring business owners and startup founders generally choose to form limited liability companies.
LLCs – The Basics
If you are interested in how to form an LLC in California, it is generally a good idea to start with the basics. A limited liability company is more flexible than a corporation, as it is not beholden to stockholders and is subject to far fewer government reporting requirements than a corporation is. However, it is not as flexible as a sole proprietorship or partnership. LLC owners (commonly referred to as members) are subject to some reporting requirements that vary according to the states in which their businesses operate. They may choose to be taxed personally (like the owners of sole proprietorships and partnerships are) or they may choose to be taxed separately (like corporations are). The primary benefit associated with forming an LLC in California is that this business structure offers members a significant personal liability shield. Practically speaking, this means that if creditors or legal judgments make claims against the business, these parties cannot demand to be paid by seizing the personal assets of the LLC’s member(s). By starting an LLC in California, your personal assets will be largely protected from any liabilities your business or organization may incur.
Starting an LLC in California
If you remain interested in how to form an LLC in California but are intimidated by the idea that the process of company formation is fairly complex, take heart. LLC formation is so commonplace that experienced business attorneys can walk you through this process without a great deal of time or resource investment on your part. Yes, the process of launching a company is complex and expensive. However, the legal formation of an LLC in the Golden State is relatively straightforward. Setting aside complex practical matters like financing and employment, the legal process of how to form an LLC in California generally begins with hiring an experienced attorney to handle the legal “heavy lifting.” While registering a business in California is not overly complex, the paperwork associated with this process can be daunting, so it is generally a good idea to work with a lawyer who understands all the relevant forms.
In order to form an LLC in California, you must choose an individual outside the company to serve as the registered agent for your LLC. This individual must maintain a physical address in California. He or she will serve as the primary point of contact between your company and the state government and will receive official documentation on its behalf. In addition, you will need to officially name your company, file articles of incorporation and a statement of information with the California Secretary of State and prepare an operating agreement. You will also need to meet all relevant tax burdens and pay necessary filing fees.
It is important to note that California does not allow the formation of LLCs for the purposes of providing professional services. If your company requires professional licensing in order to operate, you may need to speak with an attorney about forming an alternative business structure, like a limited liability partnership.
Legal Guidance Is Available
If you are interested in founding a startup, launching a new business or forming a nonprofit organization, please consider scheduling a consultation with LawTrades today. Our highly-experienced business attorneys have helped thousands of aspiring business owners and startup founders through every step of the company formation process. From financing and formal registration to intellectual property protection and hiring, the LawTrades team employs a dynamic, efficient and cost-effective approach to getting new companies off the ground. We look forward to speaking with you about your vision.