In case you are the only owner of your business, you do not have to operate your business as a sole proprietor. In short, you can still register your business as an LLC. The reason why you should form a single member LLC in California instead of a sole proprietorship is because you would have the limited liability protection with the LLC. Moreover, you would easily be able to benefit in the tax area when the company would be an LLC instead of a single-member LLC (also called SMLLC).
Let us understand what the single member LLC is all about.
What Is a Single-Member LLC?
To begin with, LLC is the abbreviation of limited liability company. And in an LLC, the owners are called the “members” of the LLC. This means that if you form a single-member LLC in California, it would have just one owner. In short, the “limited liability” part when you form a single member LLC in California means that you would not be personally responsible for any of the obligations and debts of the LLC unless you have signed a personal agreement.
In case the LLC isn’t able to pay the bills and gets sued, then in such a case only the money and assets of the LLC would be used to cover the debt. In short, your personal bank account, car and home would not be at risk. On the other hand, when you are a sole proprietorship, you and your business is the same legally. This means that the business obligations and debts are yours too. So, if the company gets in trouble, you would be liable to pay for the losses and debts that the company has with your home, car and personal bank account.
Reasons to Form a SMLLC
From the above, it can be seen that the businesses usually choose to form a single member LLC in California due to the limited liability. But that is not all; there are many other reasons as to why establishing an LLC can be good for you which includes:
- Flexibility in Taxation: The single member LLC are flexible, means that they are normally taxes as a sole proprietorship, but it can choose to be taxes as a corporation in case they want to. To understand which plan is better, take the help of an accountant.
- Flexible Management Structure: Another reason why people prefer to start a single member LLC is due to the flexible management structure. Moreover, they also have fewer reporting and recordkeeping requirements as well.
- Protect Your Business Name: If you form a single member LLC in California, you would be able to protect your business name from the other competitors since the state doesn’t allow two businesses to have the same business name.
- Credibility: All the outsiders would see your business as a legitimate and credible one if you form it as an LLC instead of a sole proprietorship.
Steps to Form a Single Member LLC in California
With your understanding on what a single member LLC is about, here are the steps that you would need to take to form a single member LLC in California:
Step 1 – Choose a name
The very first step is to choose the name that you would want your business to have. But remember that the name you choose should end with the words Limited Liability Corporation or the abbreviated word LLC. You can also use the word Limited or its abbreviation – Ltd. And for the word Corporation, you can use the abbreviation Corp.
Other than this, your business name cannot have some words unless and until the company is offering such services as approved by the government. Some examples of these words are:
- Government agency
- Insurance Company
- Federal agency
- Secret Service
- And many others.
You can find the complete list of the restricted words in the Secretary of State of California’s website.
Moreover, you LLC should not have the name that is similar or same as an existing company name that has been filed with the California Secretary of State. So, before submitting a request for your LLC name, you would need to search and see if the name is available for use by cross checking the names in the California Secretary of State database.
For this, you would just need to do a simple and quick URL search to ensure that the name is not there. If the name you have selected is not there in the database, it means that you can use it for your own company.
Once you have selected your name, you can reserve it by submitting the Name Reservation Request Form. Mail the form with the fee of $10 to the office of the California Secretary of State. You can also deliver the form by hand to the office. But there is no option for an online submission for this form.
Step 2 – File Articles of Organization
The next step to form a single member LLC in California is to file for the Articles of Organization with the Form LLC-1. This form has to be submitted to the California Secretary of State to form your new LLC. And for your Articles of Incorporation to be accepted, there are some requirements that include:
- The LLC name where the name has to include LLC, Limited Liability Corporation, or Ltd. Liability Corp, as the last words.
- The purpose of the LLC
- LLC address
- Details on how the LLC will be managed
- Name and address of the registered agent of the LLC
- It is important for all the LLCs in California to have a registered agent that would accept any legal document on behalf of the LLC in case there is any legal action against the company. Basically, the agent you choose has to be a residing in California and should have a physical address here.
- Moreover, the agent doesn’t have to be a part of the LLC operations.
- Any event due to which the LLC would dissolve (if applicable)
- Limitations on authority of managers of members (if applicable)
- Date that LLC will dissolve (if applicable)
- Almost all the LLCs register with a “perpetual existence” where they have no plans to dissolve.
- LLC indemnification & protection information of managers and officers
- How the LLC would permit any new member to join (if applicable)
- Provisions that limit the business in which the LLC will engage (if applicable, this item is more important if members participate in other business endeavors)
Once you have filled the form, you would have to give it to the California Secretary of State. The filing fee of $70 would also have to be given along with the form. You can either give the form by hand or post it at:
Secretary of State
Document Filing Support Unit
PO Box 944228
Sacramento, CA 94244-2280
Just remember that if you are about to form a single member LLC in California, you would need to mention that on this form. For that, you can put your address and name under the Agent For Service of Process. Moreover, you would also need to select the “All LLC Members” under Section 5 if you are the only one who would be the member of the company.
Once you have filed the Articles of Organization, you would get an information request statement from the agency. You would have to complete this form and return it back within 90 days or your LLC would be dissolved after the deadline. In fact, you would have to file this statement of information every two years within the month in which you filed for the original Articles of Organization.
The form can be found on the California Secretary of State’s website. You would have to print it and deliver it by hand or post along with a filing fee of $20 to the California Secretary of State’s office. In this form, you would have to include the information like:
- LLC name
- Mailing address of the LLC (if different)
- Main office address of the LLC
- Name and address of LLC’s agent
- California Secretary of State file number
- Names and complete business addresses of any chief executive officer(s) or manager(s). And if there is no CEO or manager, you would have to include business addresses and names of all the members (in this case, just you who would be the single member of the LLC)
- Valid email address, if you want to get any notification online.
- Principal business activity or general type of business of the LLC
Step 3 – Obtain an EIN from the IRS
The next thing that you would need to do is get your Employee Identification Number (EIN) which is like the Social Security Number of your company or tax ID number. And even though you would not have employees, this number would be able to easily have your bank account created under your business name. For obtaining the EIN, you would have to file the Form SS-4 with the IRS which can be done online easily.
As soon as you have filed the form, you would get your EIN within just 10 minutes. Just remember that for filing this, the business owner would need this Social Security Number and the filed Articles of Organization along with the assigned California entity number printed on the articles for getting the EIN.
You can find out the ones that you need by visiting your nearest government agency. In fact, do not forget to check on this as you might be penalized heavily if you conduct business without having the right license or permits in your hand.
How IncParadise helps?
With all the detailed steps that you would need to take to form a single member LLC in California, you can begin working on your plan. And once you are ready and need help to register your business in California, IncParadise can help you with it. From incorporation to assistance in setting up your company, IncParadise is here for you. Visit to know more!