How is an LLC formed?

By: Tamara B. Pow, Esq.

A California limited liability company (LLC) is formed by filing Articles of Organization (also known as Form LLC-1) with the California Secretary of State. A foreign business entity files a similar form (Form LLC-5) to register to do business in California. Although this can be done by mail, that could result in a delay of a month or more before you receive proof of the filing. For this reason, attorneys have traditionally used a filing service to file Articles of Organization on your behalf. This means that I have a person in Sacramento who will physically walk into the Secretary of State’s office and file the Articles ‘over the counter’ for the quickest response time. The additional cost is much cheaper than driving to Sacramento to do this yourself. Now, the California Secretary of State also allows for filings on-line. This process is very new and we don’t yet know with any sense of security what the turnaround times will be.

The turnaround time for filing done in person by a filing agent depends on how backlogged the Secretary of State is at the time it receives your filing. Lately it has been an average of 1-2 weeks. It can be twice that amount of time if you file in the second half of December or anytime in January or around a holiday. For an additional $400 expedite fee, the Secretary of State will turn around your filing within approximately 24 hours. The formation date of your LLC is the date the Articles were originally stamped as received by the Secretary of State. On the chance that your entity filing could be rejected, it is wise not to start using the entity or filing anything else (such as getting a tax identification number or opening an escrow) under that name until your filing has been confirmed.

The California LLC-1 form requires a name for the LLC, a business address, an agent for service of process, and a statement regarding whether the LLC will be managed by one manager, more than one manager, or by the members. You can change the address or the agent for service relatively easily on the Statement of Information form, but it requires an amendment to the Articles (another Secretary of State filing) to change the type of management.

The Form LLC-1 is only the start, and by no means the end, of forming the LLC properly. However, once is it filed, the California Franchise Tax Board will begin to expect the $800/year LLC annual fee, whether or not the LLC conducts any business.

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