How to Form a Limited Liability Company in California

A limited liability company (LLC) is a type of business arrangement that affords small businesses some of the benefits that large corporations enjoy. Instead of starting a small business as a sole proprietorship or a partnership, even a single person or a two-person company in California can form a limited liability company and eliminate personal financial responsibility in the event of litigation.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Computer with Internet access
• Legal assistance

1. Consult the small business administration office in your area to fully understand all of the important points of a limited liability company. There are definite advantages and disadvantages from both organizing and tax perspectives, so make sure this arrangement is more beneficial to you than a sole proprietorship or a partnership.
2. Visit the Secretary of State office. Ask for Form LLC-1, known as the articles of organization for your LLC.
3. Ask your lawyer to help you with the operating agreement, the document that must accompany the articles of organization. Before finalizing it, work out the important (and sometimes sensitive) details between you and your partners (or "members" in LLC terms).
4. Fill out the Form LLC-1 and return it with your operating agreement to the Secretary of State office.
5. Pay the annual tax of $800, the required cost of operating an LLC in California.

Tips & Warnings

• Though it's a relatively simple process to form a limited liability company in California, it's still a smart idea to have legal help at this critical juncture. A lawyer experienced in legal start-up papers and small-business law issues will be well worth the up-front investment.
• Allow about a month for the LLC formation process to be completed.
• The LLC is not perfect for everyone, however. Liability is, in fact, limited, but the model does still require responsible management and a complete separation from members' personal affairs.