This piece gets into the foundation processes when registering an LLC in California, enabling you to cover your bases:
Decide on a Business Structure
A structure does not only affect what laws to which you are subject but it also affects how much control you have over the operations. It also affects your level of protection, how much flexibility you can enjoy when running the setup and how long the establishment can run. Given the complexity of this decision, it is best that you engage professionals to help you come to a decision.
What are the types of business structures can register in California?
The state currently allows investors to take up any of the following structures:
- Sole Proprietorship- owned by an individual who has sole control
- Corporation- owned by more than one person and directed by a board
- Limited Liability Company (LLC)- can be single-person owned or have more members
- Partnership- owned by two or more people in a profession and takes on different structures based on liability:
- Limited Partnership
- General Partnership
- Limited Liability Partnership
How to choose the best ownership structure for your business?
This choice of starting an LLC in California depends on a few factors, among them how much control you would like to have over your business. With an LLC, you can pretty much decide where the company goes and when, which is the case with a sole proprietorship and even partnerships. But with other entities, your say reduces. Take a corp for example. As it grows, you find that you have to relinquish some control as a board takes over and makes decisions for everyone as whole. For people who crave authority, this may not work.
You should also consider how much paperwork and how many formalities you are open to having. An LLC is very straightforward and once it is up and running, you do not have to keep up with meetings or minutes, which would be the case with a corp.
You should also consider how long you want the business to run. With some entities, the business dies with you. However, if you want to leave the structure to your dependents, you may want to look at something more perpetual.
Other factors include limits on membership, tax structures and annual requirements.
What is the difference between LLC and S corporation in California?
Generally, both entities have limited liability protection which makes them attractive to investors. However, they have some key differences. One is how they get taxed. In an LLC California, members can pass their taxes to their personal returns, thereby enabling them to avoid making payments twice. But with an S corp, members pay both at an entity level and at a personal level, given that their dividends get taxed. It gets even more interesting. When you form an LLC in California, you can have as many members as you would like. But with the latter option, you have a limit of up to 75 members, which can limit you if you would like to bring more people on board.
How do I get a DBA in California?
The state does not provide a filing option for a DBA or “Doing Business As name and you would thus need to engage the county clerk or county recorder in the county in which you conduct your business operations. They will advise you accordingly on which regulations you are subject to when getting this service.
Unique name for business
What’s in a name? It might not look like a big deal but this is how people will identify you. Given that you will not be registering a new identifier each year, you need to be careful with your choice. You would not want the name to be one that people easily forget and coming up with a unique one would put you one step ahead of the competition.
Coming up with a name is not easy. You can try brainstorming ideas with your friends, writing down anything that comes to your mind, getting ideas from people close to you and even using online unique business name generator sites to help with the process. Each time you think you have come up with a good idea, ask yourself what it will communicate to your potential clients. Is this the brand you want to sell?
For each yes, put the name down on a piece of paper until you come up with five unique business name ideas that seem suitable. You can then move on to the next step:
How to Search Available Business Names for LLC in California
When you come up with a great idea, you must make sure that nobody else has struck the same gold. How can you do this? You can start by going to the State’s website where you can see if anyone else has used a similar identifier. You see, while your idea may be unique, there might be someone else out there who has an almost identical name. That can create confusion for your target market, more so if this other entity also operates in your industry.
The website enables you to check your full or partial name. Please note that any results accruing from this method are not considered official. If you want to go by the formal approach, you will need to send a company name search inquiry letter to the state.
The authorities will get back to you with details on whether the chosen name is available for use. Once you get this confirmation, you have two options. You can go ahead with prepping and filing your registration documents. When filling in the forms, you can include your choice of name. If you feel that someone else can come in and take your idea, you can decide to reserve the name which we will later cover.
If the name is not available, you have to go back to the drawing board and figure out which other ideas may work. That is why it helps to have at least five ideas at a time as you will likely get one that is not in use.
What are the requirements to name an LLC in California?
As much as naming should be a free process that enables you to tap into your creativity, you have to adhere to some guidelines as shown below:
- The name should end with limited liability company, or a suffix that amounts to the same. Acceptable suffixes include L.L.C, LLC, Limited Liability Co. and Liability Co.
- Some words should not be used as these allude to other entities or affiliations with professions or the government as we will later cover.
- You should not use names that have been used by similar entities.
- The name should relate to the business. For example, if you run a bakery, you cannot advertise it as ‘ABC Furniture.’
What words cannot be used in a company name
Some words are not permittable as they create the illusion that your company has the right to operate in an industry that requires licensing such as banks, trusts, trustees, insurers, and insurance company. This goes for any other name that may cause the public to associate your business with insurance activities. Also, the name should not imply that your entity is none other than an LLC. The public should also not think that you have any association with the government and you should thus avoid names that contain bureau, board, agency and division, among other names in this category.
Business Name Reservations
We earlier stated that you can protect your golden idea after doing a California LLC name search by taking a proactive step; in the name of reserving your name.
What is a Business Name Reservations?
You can ensure that nobody else can use your name, even if you have not formally registered your business. All you need to do is pay a fee and contact the state for this service. Please note that this is not an obligation and you can always skip this step if it is not necessary.
If you choose to go ahead with it, the name reservation will remain reserved for up to 60 days, after which the name will become available to the public. You do not have the option to renew the service when it is in effect and you thus have to wait until the time lapses to make another application. Instead of doing this, you are better off making use of the protection before the time lapses.
Need or not to reserve a name for the company?
Given that the state does not require it, applying for this service is optional. Some people opt to do it because they do not have their registration documents ready and thus need some time to sort through things. However, if you are ready to go ahead with filing, you can skip this step and move straight to forming your business.
How much does it cost to reserve a business name in California?
The cost to reserve is $10, which you include in a check when mailing the application form.
Where do I apply for a company reservation in California?
When filing a Name Reservation Request form, you must send the complete form as well as the processing fee to:
Secretary of State, Name Availability Unit
1500 11th Street, 3rd Floor
Sacramento, CA 95814