California Series LLC: Everything You Need to Know

What Is an LLC?

An LLC is a limited liability company. These are entities that you can form if you want to start a business in the United States. The LLC structure is available in all 50 states, including California, so it’s something you can get started with once you know you’re ready.

Forming an LLC is beneficial for people who want to avoid liability, and it can also help you keep your funds separate. What’s more, an LLC can help you save money on your taxes and reduce your tax liability.

While LLCs are common, there are many different types of LLCs. For example, there are single-member LLCs, anonymous LLCs, series LLCs, and even professional LLCs (PLLC).

While you can form an LLC in most states, some of the more unique LLC options aren’t always available. Make sure you check your state’s laws to see if you can find an LLC structure that will accommodate your business. Even if a state doesn’t allow a specific type of LLC, you can usually find a workaround.

What Are the Benefits of an LLC?

LLCs offer several benefits for people who want to start a business in California. These benefits will vary based on the type of LLC, so we’ll focus on the more general perks that you’ll notice when using this legal structure.

While the biggest benefit is the protection of your personal assets against lawsuits and other liabilities, some additional benefits are worth noting.

Some examples include:

• Flexibility in how the LLC is formed, for example, choosing any of the various LLC types that suit your needs
• Flexibility to have one or more people manage a company without having to always update the operating agreement
• People tend to trust LLCs more than your average sole proprietorship
• When you have an LLC, you have exclusive rights to your business name

These are only a handful of the benefits that you can leverage when you use an LLC for your company’s legal structure.

What Are the Disadvantages of a California LLC?

An LLC comes with numerous benefits but that doesn’t mean they’re perfect. In fact, some situations will leave you in worse shape if you plan on going the LLC route. The good news is that learning about the disadvantages of starting an LLC can help you determine if it’s the right move for you.

The disadvantages of an LLC include:

• LLCs cost more money to start and maintain
• Some types of LLCs are exclusive to some states, which can make the process confusing – like in this case where you can’t start a series LLC in CA
• More expensive costs associated with filing tax returns; for example, in CA there’s an $800 franchise tax
• Fees for permits and business licenses
• More taxes
• Challenging to transfer ownership

Always be aware of the disadvantages that can cause problems for your business. The good news is that most of these disadvantages can be worked on with a tax professional.

What Is a Series LLC?

A series LLC is a unique type of LLC. It gets the name series LLC because it’s usually more than one LLC. In the case of a series LLC, the primary LLC will own several sub-LLCs that operate underneath it. Ultimately, it’s a bunch of LLCs that are owned and operated by a parent company.

The series LLC is a new business structure that hasn’t been around for as long as some other options, but it does have some usefulness if you have different holdings or businesses. For example, real estate developers might want to have a master LLC that builds that property and series LLCs that manage and sell the properties.

Series LLCs are not always available due to state laws, and they might not be appropriate for everyone due to tax laws and how they’re handled.

What Are the Benefits of a Series LLC in California?

A series LLC comes with some unique benefits that you won’t find with other LLC types.

The biggest benefit is that each LLC in the series has its liability shield. This means that if one company under the master LLC goes bankrupt it doesn’t impact the other companies, including other branch companies. For companies that are opening risky ventures, this is a great way to minimize risk without putting the other companies in harm’s way.

While liability is one of the most notable benefits of a series LLC, it’s not the only one. Some other benefits to be aware of include:

• Tax benefits that other LLCs have
• A series LLC only needs one filing fee instead of a fee for each LLC in the series; this reduces the startup costs
• Some series LLCs will have less sales tax
• You only have to register with the state one time instead of multiple times
• Simplified administration if you plan on starting

There may also be some unique benefits that pertain to your company, so work with an accountant to determine if it’s the right business model for you.

What Are the Disadvantages of a Series LLC in California?

Series LLCs also come with disadvantages. The most notable disadvantage is that some less organized companies will have trouble with bookkeeping and accounting. This can become an even bigger problem if you’re dealing with dozens of companies and a primary LLC. Some other notable disadvantages include:

• Having to keep separate bank accounts, investment funds, and lines of credit for each company
• Multiple registered agents for each LLC in the series
• More complicated tax filing
• Some states may ignore the laws of other states that allow you to form a series LLC

Before you start any process, it’s important to consider the positives and negatives of a series LLC vs LLC. It can help you determine if it’s right for you.

Does California Allow Series LLCs?

No, California does not allow series LLCs. It’s not one of the eight states that allows you to start a series LLC but that can change in the future. The only LLC option that you have is a traditional LLC or a limited liability partnership (LLP).

Both options can be viable depending on your business, and you can always start multiple LLCs without having a master LLC that owns all of them. This can even be easier to manage for people who don’t have the best accounting or bookkeeping.

What States Allow a Series LLC?

A series LLC is a relatively new concept, and they haven’t been around for long. For this reason, not many states recognize or allow series LLCs. Only eight states currently allow you to form a series LLC and each of these states has unique rules about how they’re handled. The eight states that allow a series LLC include:

• Delaware
• Illinois
• Iowa
• Nevada
• Texas
• Utah
• Tennessee
• Oklahoma

While these states currently allow series LLCs in California, that can change, so keep an eye on state laws surrounding these legal entities.

Can a Foreign Series LLC Operate in California?

Yes, a foreign series LLC can operate in California. If you fill out the necessary forms and start a series LLC in a different state before doing business in California you can use this type of legal structure. However, you’ll have to meet the necessary requirements and fill out any forms that the state requires you to.

You also need to register with the California Secretary of State (SOS) and obtain an SOS number for your master LLC.

Once you have the SOS number for the master LLC, California will assign a number for the rest of the LLCs in the series. You’ll have these numbers assigned once you fill out the payment voucher.

How to Operate a Series LLC in California

You can’t start a series LLC in California, so you have to form a series LLC in a different state and then operate in California. You have plenty of options to choose from, so take some time to consider the state that works best for you.

Then, learn about how the laws for a series LLC are handled in that state. Once you’re ready to get started and begin opening your doors in California, you can follow the steps below.

Step 1: Create a Business Plan

Regardless of the state in which you plan on forming the series LLC, creating a business plan is the first thing that you have to do. It outlines how your company will operate, how you will market your products, and where your company is planning on going.

You’ll want to cover how you plan to market the company, create an executive summary, and outline the structure of the business as well.

A business plan is also crucial for series LLCs because you’ll have a master LLC and one or more branch companies. Having a concrete plan for how each branch will operate under the master LLC can help you get started and better manage your finances.

Furthermore, a business plan can help attract attention from investors and make it easier for banks to offer you credit, loans, or startup money.

Step 2: Choose a State to Start Your Series LLC

The most important part of the process is starting a series LLC in a state that allows you to do so. Only eight states allow you to do this, so pick the one that works best for your business model.

While Delaware was the first state to begin this practice, states Iowa and Nevada may offer better benefits for your needs. Your other options include Illinois, Utah, Texas, Tennessee, and Oklahoma.

Once you choose the name you’ll have to file your articles of organization and other documents that are required to create an LLC in that state. We recommend working with a professional service to help you get started, especially when you’re creating a business that will have a primary LLC and several other companies under its umbrella.

Step 3: Meet the Requirements for a Series LLC: California Series LLC Forms

California has requirements for series LLCs that want to operate in the state. While you’ll have to apply for local business licenses, the California Secretary of State has some statewide laws you need to consider to remain compliant. Additionally, you’ll have to pay any fees associated with California LLCs, which can include the franchise tax.

One of the most important series LLC requirements is the series LLC forms. These are forms unique to series LLCs that you need to fill out. The most common forms that you’ll have to fill out include:

• Form 568: Issued by the California Secretary of State and used to report your LLC fee and annual taxes. You need to file this form by the original tax return date.
• Form FTB 3522: This is the form you use to pay the LLC/franchise tax; it’s an $800 tax that you have to pay each year.
• Form FTB 3536: A form used to remit any estimated fee payments.
• Secretary of State Form LLC 4/8: If you have to close your LLC within a year of its formation you can get some money back from the state when you file this form.

These are some of the most notable forms that you have to fill out if you want to have a series LLC in California.

Step 4: Apply for a Business License

Most counties in California require you to have a business license to do business. Plus, if you sell food or other regulated products you might need a unique license or permit. Take some time to consider the information that you’ll need for each California county that you plan on operating in.

You’ll also need a license for each county you plan on operating in so that the municipality can approve your company for zoning and collect taxes. Failing to have a business license can lead to costly penalties ,and you need to apply for one of these licenses each year.

Step 5: Open the Necessary Accounts and Secure Funding

The last step is to get your series LLC in California off the ground. Typically, you’ll need some funds to hire staff, purchase property, or enter a rental agreement with your landlord.

Regardless of why you need the money, you can seek out funds from banks or investors. Banks will offer you loans with an interest rate you have to pay back, while investors will want shares in the company.

You also need to open the necessary accounts to operate smoothly in California and keep yourself organized. Since you’ll have to pay California taxes, along with taxes in the state where your LLC was founded, it’s a good idea to open accounts for each LLC in California to prevent any problems.

Series LLC California FAQ

Have questions about how a series LLC can operate in California? Or perhaps you want to learn more about traditional LLCs? We have answers to common questions below.

Is California LLC Worth It?

Yes and no. A California LLC can be worth it if you have the right business to leverage an LLC. It’s also beneficial to have one to avoid liabilities and to help your business funds and personal funds remain separate.

However, if you’re a small business that doesn’t have many employees and you don’t work in an industry with a lot of liability, it might not be worth it for you to start one. This is because you’ll have to file the necessary fees, find a registered agent, and register a business name.

How Much Is a CA LLC Fee per Year?

The LLC fee in California varies based on the level of income that your business produces. That said, most LLCs that make any type of profit will have to pay the franchise tax. This is a tax that costs $800 per year and you have to pay this fee each year that you register the business.

When starting a series LLC in California, you’ll have to pay this fee for each LLC operating in the state, so keep this in mind.

Do You Have to Pay the $800 California LLC Fee the First Year 2023?

For the most part, yes – if you started your business in 2023, you’ll have to pay the $800 franchise tax.

You can avoid this fee for the first year if you register the business within 15 days of the end of the year. So, if you registered your LLC within the last 15 days of 2023, you may not have to pay the $800 fee. Additionally, if your LLC didn’t make any money in the year, you may not have to pay the franchise tax.

Why Is California LLC So Expensive?

The cost of an LLC is expensive due to several factors. First and foremost, you have to deal with the franchise tax, which is a minimum of $800.

While that’s a big start, you also have to worry about paying state taxes, the self-employment tax, and a tax on your company’s gross receipts. Applying for business licenses and other permits can also cost between $10 and $500, so the price varies based on the industry.

Ultimately, the cost to start an LLC in California is similar to other states but with a few key changes and different terminology. In fact, it’s even possible to start a free LLC in California if you don’t have any profits in the first year.

Start a Series LLC in California Today!

There are tons of LLC options that you can choose from, and the series LLC is one of the more intriguing options thanks to its minimal risk and the ability to branch out into other industries. A series LLC can help you expand into new business ventures, generate more revenue, and take your business to the next level.

Unfortunately, California doesn’t allow you to start a series LLC in the state, which means you have to go a different route. Thankfully, if you follow the tips we provided in this article you shouldn’t have any issues forming a series LLC in a different state and opening up shop in California.

For the best results, work with a professional and make sure you understand state laws where you plan on starting the series LLC. It’s also important to note that you don’t have to open up a dozen companies right away. A series LLC gives you the flexibility to open more branch companies as you go, so it’s not a race.