Doing Business in California as an LLC

There are typically two reasons business owners need to know what it means to do business in California:

The criteria and authority to determine who’s considered to be doing business in California is held by the state’s Franchise Tax Board. The FTB publishes the following general criteria with several examples. If your business meets any of the criteria, it’s deemed to be doing business in California. 

Of course, this general guidance doesn’t exactly answer every question or address every situation. Notably, every scenario the FTB cites is an example of doing business in California. They have no incentive to help businesses determine they can avoid the state’s franchise tax and income-based franchise fee.

With these types of situations, we strongly recommend talking to a lawyer before proceeding. Why review the information at all then, if you need to talk to a lawyer, anyway? Knowing the basics and which questions you need answered can be the difference between a basic consultation and a larger flat-fee service.

Once you’ve formed your LLC, here are the things to be mindful of to stay in good standing with the state and compliant with all applicable local, state, and federal statutes. Not every single topic may be applicable to your company, making it difficult to create a single checklist that works for everyone.

However, by checking out our complete guides in those areas that are relevant to your business, you can quickly create this type of checklist for your own California LLC.

Companies that are formed out-of-state but doing business in California will need to apply for a foreign qualification. But for domestic companies, it’s not just a question of whether you’re doing business in California, but what other states your LLC may be doing business in. Many states use similar criteria to make this determination. 

It’s important to stay compliant in each state by filing a foreign qualification and any annual reporting forms that state requires. You’ll also need to maintain a registered agent service in each state where you do business. Need to do a deep-dive on these rules? Check out our full guide on California foreign qualifications.

Your company may choose to do business under a different name than the official name used in the Articles of Organization. Some owners choose an official business name to form their LLC quickly, while planning to choose a Doing Business As (DBA) name for their California LLC at a later date. Other owners decide to take their business in a new direction some time after the LLC is formed. 

Rather than start a new company, the easiest way to do this is to file a DBA form. These fictitious business names must be unique at a local and state level, but are not the same thing as a trademark registration that protects your business name and its likeness nationwide.

Most LLCs will need a general business license issued by the city or county where the business is located, but it’s always a good idea to contact the local county authorities. LLCs in San Diego, for example, don’t need a local business license but instead need to apply for a Business Tax Certificate.

From healthcare providers to realtors, professional services may have their own licensure requirements that are administered on the state level. Moreover, certain goods and services are governed by speciality licenses and permits. That’s why we put together this overview of California business licenses and permits as well as a Business License and Permit research kit.

If you didn’t do this when first forming your LLC, you’ll want to do so as quickly as possible. California is one of a handful of states to require an operating agreement, even though it doesn’t need to be filed with the state. In fact, it doesn’t need to be a written document at all but can be recorded in an audio file. This leads many business owners to create a bare-bones operating agreement to comply with this requirement. 

As your LLC grows and especially if it adds members or changes managers, you’ll want to be sure to add some details and clarity to your Operating Agreement.

While LLCs may not technically need a business bank account, it’s essentially always a good idea to get one. That’s because if you don’t keep your personal and business finances separate, you face a very real risk of forfeiting the limited liability protection that LLCs are known for. 

Likewise, while not every bank requires an EIN to open a business bank account, some do. When it comes to financing rates, transactional fees, and basic security, you don’t want to be limited in your options. Especially since EINs are easy and free to get and since you’ll likely need to create one down the road, anyway.

While California doesn’t publish the name of LLC members or managers, you may also want to avoid the address of your home or work office to become part of the public record. This is one of the primary reasons people get a virtual address when first forming their LLC. 

While the registered agent must have a physical location where they can receive mail during normal business hours, that’s not true of the business address itself. With a California virtual mailbox solution from Bizee, you can quickly and securely review digital copies for all your business mail for one flat fee. 

To report quarterly income and expenses, you need to know what these amounts are and be able to prove it with the necessary documentation and receipts. Whether you do your own bookkeeping or hire a professional, you don’t want bookkeeping to consume an inordinate amount of your time or the company’s financial resources. 

Our free bookkeeping consultation will reveal various time-efficient and cost-effective strategies to keep your books in order and your LLC fully compliant.

Technically, yes, you can simply start an LLC and then run it as a nonprofit by strictly following the applicable federal rules. However, it’s much easier to follow nonprofit compliance rules when forming a nonprofit as a 501(c)(3) organization. Moreover, we’re unaware of any potential benefit for using an LLC business structure to run a nonprofit organization.

If you own an LLC in California and personal property (primary residence or vacation home), you can rent that home to your LLC for up to 14 days and create additional tax savings. The Augusta Rule (formally known as Section 280A of the IRS tax code) is named for Augusta, GA, where rental prices during Master’s week are considerably higher than the rest of the year. It’s a commonly asked question in California due to the number of commercial events and high vacation rental prices.

This can be done in many states, but it’s especially common in California due to the number of high-profile celebrities as well as the state’s strong track record in keeping LLC ownership information private. It’s not quite as simple as our six-step process for starting an LLC, but many individuals find it’s well worth the cost to hide—or at least try to hide—the address of their primary residence.