How to Start a Single Member LLC California in 10 Easy Steps

What Is a Single-Member LLC?

A single-member LLC is an LLC that only has one owner. In California, a single-member LLC can have one owner or member but employees and other people who participate in the company may not count as members.

These LLCs shield the owner from liability and can prevent you from getting sued or losing money. Ultimately, it’s a unique type of LLC that California allows single owners to open. While it’s available for most types of businesses, you can’t form a single-member LLC if you want to open a professional LLC due to California’s laws against the practice.

Can You Have a Single-Member LLC in California?

You can have a single-member LLC in California. Wondering if a single-member LLC is right for you? Ultimately, it comes down to your needs and how you plan on operating.

In most cases, a single-member LLC is a great choice for people who want to reduce their liability. Tradesmen, craftsmen, store owners, and online sellers can benefit from a single-member LLC because it can provide legitimacy to the company.

Single-member LLCs are also great for people who want to maximize their tax benefits. Additionally, married couples may benefit from a single-member LLC because it can make the filing process easier and award more tax credits in California.

Is a Single-Member LLC a Sole Proprietorship?

There are many types of LLCs in California, but a sole proprietorship is not one of them. An LLC is a legal structure that separates a business owner’s personal assets from their business assets. This means that the company is responsible for debts but not always the owner. On the other hand, sole proprietors may use the same accounts and tax filing numbers for their business. This means they’re responsible for the liability of the company.

Some other notable differences between a sole proprietorship and a single-member LLC include:

• Single-member LLCs are more expensive to form
• Single-member LLCs require more paperwork
• Single-member LLCs in California have to pay the state franchise tax
• LLCs are a better option for securing funding from banks and investors

These are only a handful of differences between a single-member LLC and a sole proprietorship.

How Much Does it Cost to Form a Single-Member LLC in California?

The cost to form a single-member LLC in California varies based on the type of business due to licensing and taxes. While every single member LLC will have to pay the $800 franchise tax, some businesses will also have to pay for special licenses. For example, you may need to pay for training and courses if you want a commercial driver’s license – these can cost several hundred dollars.

Filing Articles of Organization and other documents can also cost you money. For example, the Articles of Organization can cost $70 to file. This fee needs to be paid when you submit the paperwork to remain compliant.

How to Start a Single Member LLC in California: California Single Member LLC Filing Requirements

Starting a single-member LLC in California is a similar process to starting an LLC that has more than one person. Ultimately, the key difference is that a single-member LLC only has one person at the helm and usually zero employees. This means that all of the responsibilities of the business fall on a single person.

Follow the steps below to start a single-member LLC in California.

Step 1: Create a Business Plan for Your Single-Member LLC

Even if it’s just you running your LLC, you still need to have a plan in place to be successful. Your business plan is where you should outline what your business does, the people you will serve, and how you will market your goods or services. Ultimately, it’s the place where you will write out your vision for the company and it’s a good idea to make it count.

Your business plan should include the following information:

• Your name
• The name of the company
• How you plan to market the company
• Executive summary
• Projected income
• Target markets
• Products or services you’ll provide
• How many people will work for the company
• When you plan on expanding and how do you plan on getting it done

Business plans are a big part of the creation process and not something you should just throw together. In fact, a good business plan will help you secure funding from investors or banks and that can make or break the launch of your single-member LLC.

Step 2: Name Your Single-Member LLC

The second step is to name your single-member LLC.

You have some freedom when it comes to choosing the name, but California does have some rules surrounding these companies that you need to consider. For example, you have to add a limited liability company or an abbreviation of a limited liability company, like LLC, at the end of the company name.

You also need to make sure the name you choose is available, which you can do through the Secretary of State’s business database. We also recommend securing any online domains and social media accounts associated with the business name to prevent any problems if you plan to move forward with online properties in the future.

It’s also important to note that California has some rules about what you can and can’t include in the name of an LLC. For example, you can’t include the words:

• Trust
• Bank
• Insurance company
• Incorporated
• Inc
• Corp
• Corporation
• Insurer

As long as you follow these guidelines you shouldn’t have any issues choosing the name.

Step 3: File Articles of Organization for Your Single-Member LLC in California

The next step is to file your articles of organization. You need to submit them to California’s Secretary of State. This can be done in person, through the mail, or online.

While it’s not hard to file articles of organization, you need to provide the right information or you can end up in trouble when it comes time to report your information. The information you need to provide to file articles of organization includes:

• A statement that your single-member LLC purpose is to provide lawful services
• The name of your company
• The address where the single-member LLC is based, or the principal office
• The name and address of the registered agent of the single-member LLC
• An indication of how the LLC will be managed, whether that be by a member of the LLC or a manager
• If there will be more than one manager

Depending on your business niche, you may need to include additional information when you file your articles of organization.

Step 4: Prepare an Operating Agreement for Your Single-Member LLC in California

Operating agreements provide the state with information about your relationship with the business, which is important for taxes, liability, and much more.

So, does California require an operating agreement for single-member LLCs? The short answer is no, the state doesn’t force you to have one. While you don’t need one, that doesn’t mean you shouldn’t have one, especially if you plan on growing the business later. For this reason, we recommend creating one for your LLC. Plus, it can help you stay organized.

Aside from organization, having an operating agreement for your LLC can also help you with liability protection. If your role with the company is properly outlined you don’t need to worry about liability for something that doesn’t pertain to you.

Additionally, an operating agreement can help you secure the necessary funding you need to expand your business. Investors like to see how the company is managed and what your role might look like.

When creating an operating agreement, make sure you include the following information:

• Ownership structure
• Management team
• Financial decisions
• Stock options
• Investments
• Information about the owners of the company

This information is important to provide, and you can find most of it within the business plan that you create.

Step 5: Get an EIN for Your Single-Member LLC

When you create a single member LLC you don’t need an EIN. This means that you can use your Social Security number for the business.

While you don’t need an EIN for a single-member LLC in California, that doesn’t mean you shouldn’t have one. For example, if you combine your funds, even accidentally, you can deal with increased liability.

What’s more, some banks and investors won’t provide you with funding or accounts if you don’t have a separate EIN. For these reasons, you’re better off keeping everything separate and using an EIN.

EINs are also good for general bookkeeping and tax purposes. It’s easier to stay organized when all of your funds are kept separate. Plus, using an EIN can help you save money on taxes and costs. Still, if you go the Social Security Number route you can always open separate accounts to keep your finances separate.

Step 6: Register Your Single Member LLC to Pay Taxes

One of the most important parts of the LLC formation process is getting ready to pay taxes; if there’s one thing in life that’s just about guaranteed, it’s taxes. Failing to pay taxes can result in fines, penalties, and even criminal charges that can stain your record and land you in jail.

So, you need to register your business to pay taxes properly and choose a way to pay your taxes.

One of the most important things you need is a seller’s permit. You can obtain one by registering with the California Department of Tax and Fee Administration. This permit allows the government to collect taxes on the sales that you make. If you plan on hiring employees you also have to register with the California Employment Development Department.

While there was a break in 2021, 2022, and 2023, you’ll also have to pay the $800 annual minimum franchise tax. This is a tax you have to pay every single year to remain compliant.

We also recommend working with an accountant to provide you with assistance during this step. Also, make sure you prepare for any other single-member LLC taxes and fees in California. Depending on the nature of your business, you may have to pay more or less in taxes.

Step 7: Apply for a Business License for Your Single-Member LLC in California

When you want to operate your single-member LLC in California there’s a good chance that you’ll need a business license. Most business licenses are affordable and you can get a general license for most business practices.

That said, you have to consider where you plan on doing business in California. This is because you’ll need a license that corresponds to the county you plan on operating in. For example, you’ll need a San Francisco business license to do business in San Francisco, but a different license to work in a different city.

Aside from a general business license, you may also need a specialized business license. If you sell food you’ll need special permits, an inspection of your kitchen, and staff members who are certified to prepare food by the health department.

Needing multiple licenses can complicate the process, so remember to take your time and ensure that you have all of the licenses you need.

Step 8: File Your Statement of Information for Your Single-Member LLC in California

The next step is to file your Statement of Information. This statement needs to include the required information about your business to avoid penalties and to remain compliant. When you start a new single-member LLC in California you have about 90 days to file your State of Information.

You also have to renew your Statement of Information every two years on the same day that you submitted the first State of Information. However, there is a grace period that extends to the end of the month from when you first filed.

The information that you need to include in the Statement of Information is mostly the same as what you have to include in the articles of organization. You’ll have to include:

• The name of your single member LLC
• Where your single-member LLC is located
• The filing number for your LLC
• The name of the owner or manager
• Name and address of the director
• Name and address of the agent for service of process
• A statement of the business purpose; this is a great time to pull information from your business plan
• Signature and printed name of the person filing the State of Information

If you were able to file your articles of organization you shouldn’t have any issues supplying this information.

Step 9: Apply for Business Insurance for Your Single-Member LLC in California

You don’t need insurance for your single-member LLC in California but that doesn’t mean you should avoid it. Having insurance coverage for your business can help you protect your assets in the event of a lawsuit.

Some industries may also require you to have insurance or some people won’t work with you without it. For instance, if you plan on doing commercial construction most projects will require worker’s compensation insurance.

You might also need additional insurance policies to cover your assets and protect them against damage or theft. If you have properties and vehicles you should have insurance on them to save you money in the event of an incident.

Step 10: Secure Funding and Open Business Accounts for Your Single-Member LLC in California

The last step to get your single-member LLC off the ground is to open business accounts and secure funding. You can open accounts with the most reputable banks, so it’s a good idea to explore your options before coming to a decision. Some accounts may offer unique benefits that can help your business.

Additionally, you should seek out a business line of credit to start building up the company’s credit score. If you don’t have funding, you can also take out a loan with a bank or reach out to investors to seek out money to help with the startup costs.

When you get a loan from a bank you’ll have to pay it back with interest, but most investors will want ownership in the company, so it comes down to how you want to handle the money.

Single-Member LLC FAQ

Have more questions about a single-member LLC in California? We have answers to some of the most commonly asked questions below.

How Do I Avoid $800 Tax in California LLC?

To avoid the $800 franchise tax you need to choose a different business entity. All LLCs in California have to pay this fee because it’s a mandatory franchise tax. While the state did give breaks in 2020, 2021, 2022, and 2023, that period is now over.

For this reason, the best way to avoid the tax is to form a sole proprietorship instead. You don’t have to worry about the franchise tax if you don’t form an LLC. If you still want to be the sole owner of the company, this is the best way to avoid the tax.

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

No, you don’t have to pay the $800 franchise tax the first year. To avoid the $800 tax you have to start the business with 15 days or less remaining in the year. You’ll still have to pay the $800 the next year, so it’s not always avoidable. However, if you don’t do any business in the first year you can avoid the $800 tax as well.

Does a Single-Member LLC Need to Pay California Franchise Tax and File Form 568?

Yes, according to the Franchise Tax Board, a single member LLC has to file a form 568, which is called the Limited Liability Company Return of Income form in California. You also have to pay the California franchise tax if you’re considered an LLC, even if you’re a single-member LLC.

Even if a single-member LLC is considered a disregarded entity they must fill out this form because they’re responsible for the annual tax, LLC fee, and credit limitations.

Can Anyone Form a Single-Member LLC?

Most people who want to start a business in California can choose a single-member LLC as their legal structure. However, this option isn’t available for everyone. This is because some professors can’t form an LLC in California due to their profession.

People who have professional licenses, including dentists, doctors, lawyers, accountants, and other professionals have to register with the state. They also have to form a business entity like a professional company or a limited liability partnership.

Start a Single-Member LLC in California Today

Single-member LLCs are a great way to start a business in California. If you plan on starting a business yourself, they offer more protection than your average sole proprietorship, and that can prevent you from losing personal assets in a lawsuit.

Single-member LLCs also offer more flexibility for expansion, hiring employees, and much more. Typically, it’s a great way to start a business if you plan on hiring employees or working with contractors.

On the other hand, starting a single-member LLC can be a more expensive endeavor. You’ll have to file the single-member LLC California form 568 and pay the $800 franchise tax, and you may have to pay more money for business licenses. Therefore, it’s important to determine if a single-member LLC is right for you.