Any seasoned business owner can tell you that your first year of business is one of the most trying. Part of that struggle is the process of forming your LLC and waiting for your paperwork to get approved. You can make some choices and take some steps to reduce the time it takes to form your LLC, but some of it also depends on state government processing times. Here's everything you need to know about how long it takes to get an LLC in California.
Discovering California
California is HUGE! No, seriously. It's got a population of around 40 million people. That's an entire 1/8 of the entire population of the United States, and it's more than Canada's total population! It's the 3rd largest state, only behind Alaska and Texas. And it has some of the biggest cities in the U.S. like Los Angeles and San Diego.
It's ethnically quite diverse, with the majority of its residents being minorities, which is important to remember in terms of business demographics. The chief export of the state is Almonds, and the state grows more almonds than any place in the world. And, the fact that it survived the Great Depression and didn't have any banks that went bankrupt probably speaks to it's economy's overall strength.
Here's what you need to know about California's economy.
Economic Overview of California
California's GSP (Gross State Product) had a growth rate of 2.9% between 2017-2022. In 2022, the GSP reached a value of $2.9 trillion. And while that's all great, the unemployment rate in the state is 4.3%, which is well over the national average of 3.5%, and the unemployment growth rate for the past five years is only 0.7% annually.
Some of the top performing industries in the state are E-Commerce and Online Auctions, Drug, Cosmetic and Toiletry Wholesaling, Hospitals, Electronic Part and Equipment Wholesaling, and Internet Publishing and Broadcasting. And some of the companies that employ the most people in the state are Amazon.com, Inc., the United States Postal Service, The Home Depot, Inc., University of California, and the San Diego Naval Base. So, it's obvious that tech companies, online broadcasting and publishing, and E-commerce companies are doing well in California.
Business Environment in California
You can gather all the information you need to learn about state's business environment in California from U.S. News' Best States Business Environment study. They ranked California 33 overall, and its economy 29. They rated it #2 in terms of the best business environment. They're ranked #34 on infrastructure, but scored 6th place in terms of internet access in the category. And as far as pollution goes, they came in 7th place.
In terms of taxes, California doesn't rank so well. It has a graduated personal income tax rate that ranges from 1-13%, and a corporate income tax rate of 8.84%, which is pretty steep. There are also a lot of complicated business regulations in the state. It does lead the nation in new regulations and initiatives, but that can be a difficult mine field for a business owner to navigate. And California's cost of living is quite high due to the fact that it's in general a wealthy state.
State-Specific Regulations and Incentives for Forming an LLC in California
Here are some of the most popular incentives for businesses in California.
- California Competes Tax Credit: This is a tax credit for businesses seeking to stay in California, relocate, or expand.
- Advanced Transportation and Manufacturing Sales and Use Tax Exemption: This is a full sales and use tax exclusion offered to manufacturers from the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) in an attempt to promote advanced transportation options and alternative energy sources.
- Research and Development Tax Credit: If your business incurred research expenses in the process of research activities and it’s qualified under this program, you may qualify for an income tax credit.
- ZEV Funding Opportunities: The state and local governments in California offer incentives and grants for business owners and even residents of California who switch to Zero-Emission Vehicles (ZEVs), as well as creating infrastructure to support ZEVs.
- Employment Training Panel: This is a program that supplies companies with funding to train employees.
- Economic Development Rate Program: This is a program to provide unique discounts on utilities for businesses which need a lot of energy to run.
Pros and Cons of Establishing an LLC in California
Some of the benefits of forming a Limited Liability Company in California include the generally healthy overall economy, the vast consumer pool to draw from, a diverse demographic, regulations that set the standard for the nation, and the potential to make more money because of California's wealth.
The disadvantages include the high taxes, which can be as high as 13% for personal income taxes and a corporate income tax of 8.84%. Another drawback is the complicated and ever-changing regulations. And the high cost of living in the state can mean that it costs more to run a business in the state.
Procedure of Establishing an LLC in California
Before we discuss all the intricacies of how long it takes to get an LLC in California, we'll first go over how to form an LLC. Here are the steps to LLC formation in California:
- Obtain LLC Articles of Organization: The first step on the road to forming a Limited Liability Company is getting your hands on the Articles of Organization form. That's pretty easily done through the Secretary of State. It will require you to fill out information about your business, like it's name, address, and management structure.
- Choose Your Business Name: State laws in California stipulate that your business name can't be the same as another business's, and it can't be too similar, either. To find out whether your business name is acceptable for use, you can run a business name search.
- Pick a Registered Agent: Every LLC in California must have a registered agent, which is the point of contact for your business. This person will accept service of process for your LLC, and receive official mail on its behalf. You can choose to take on this role yourself, assign it to someone else, or hire a registered agent service.
- Select Your LLC Address: Your business address is important for a number of reasons. It's the address listed on the public record for your LLC, so using your home address isn't an ideal option. It's also where service of process and official mail will be sent for your LLC. And it's not allowed to be a PO box, so it's important that your business address is carefully chosen.
- Sign and Submit Your Formation Documents: Make sure that all of the information on your Articles of Organization is correct, and then it's ready to be signed and submitted. The catch is, if you sign it yourself then your personal information will be listed on the public record, so you may want to assign someone else to the task, or hire an LLC formation service.
After signing and filing your formation documents, you'll need to do some more work to ensure that your LLC is properly set up. Read How to Start A California LLC for more information on these activities.
Necessary Documentation for Filing an LLC in California
Gathering all of your documents before filing can be a real time-saver. You'll need your Articles of Organization, name reservation forms, EIN (Employer Identification Number), Statement of Information paperwork, Operating Agreement (you're not legally required to have an LLC Operating Agreement, but most traditional business advice recommends one), and your tax registrations with federal, state and local government agencies.
Legal Requirements for Starting an LLC in California
In California, LLCs are required to submit a Statement of Information within 90 days of submitting formation documents to the California Secretary of State, as well as every two years after that. You're given a six month period during which you can file your Statement of Information without incurring any penalties for late filing, and both the initial and periodic filing fee is $20.
Your LLC also needs to have a registered agent.
Time Frame for Establishing an LLC in California
If you've stuck with us this far, you should now understand the formation process. So now we can discuss formation times in California. This is how long it could take for you to get your LLC.
How Long Does the Initial Paperwork Take in California?
Approval times for LLC formation are around 3 weeks if you choose to file by mail, or 8 days for online filings.
Processing Times in the State of California
Approval time is the total time it takes for your LLC to be approved by the state government, which includes process time. Process time is the time it takes the government agency to examine your submission and then enter the data to their system.
Processing times in California are 8 days for both mail and online filings.
Common Delays in the LLC Formation Process in California
There are two very common delays in the formation process in California.
The first is choosing a slow filing option. Since it can take 3 weeks for your LLC to get approved if you file by mail, compared to 8 days if you file online, choosing the mail option will hold your formation up a bit.
The second is incorrectly entering information on your formation documents. This could delay the formation process, or get your paperwork thrown out entirely.
Another thing that could potentially delay your formation is having a complicated business structure. This means you'll have to have a more comprehensive Operating Agreement, and could either take you longer to draft the document yourself, or it could hang up your LLC formation service because they're designing a highly customized LLC Operating Agreement.
Expedited Processing for LLC Formation in California
If you want to push your LLC formation through faster, expedited processing can be a good choice. Here's what you need to know about California expedited processing options.
What Are the Expedited Options Available?
Expedited filing options aren't specific to LLCs in California. They have a 4 hour (Class A) option, a same-day (Class B) filing option, and a 24-hour (Class C) option.
Additional Costs for Expedited Services in California
The 4-hour (Class A) option is $500. The same-day (Class B) option is $750. The 24-hour (Class C) option is $350.
Comparing LLC Formation Time Frame in California with Other States
It's always a good idea to look at the performance of other states to see how they compare to your own. Who knows, you may decide to create a foreign LLC in a different state based on the results. Here's how California compares to other states.
Brief Comparison with Key States
Just to refresh your memory, California has standard approval times of 3 weeks for mail filings, and 8 days for online filings. They also have 4-hour, same-day and 24-hour expedited processing options.
There are certainly states with slower times. There are several states that don't offer expedited processing. Maryland is slower when it comes to expedited processing (7 days), online filings (2 weeks), and mail filings (5-8 weeks). The slowest filing times for mail filings is New York because it takes 8 months.
But, there are faster states, as well. There are 4 states with 1-hour expedited processing (West Virginia, Nevada, Michigan and Delaware), several states process online filings immediately, and both Kentucky and Ohio have 1-day processing times on standard mail filings.
Why is California a Favorable Place for Forming an LLC?
California's state economy is excellent. And it has a large population of potential consumers for your business. Plus, because California is a wealthy state, they're likely to have disposable income to spend at your business. You can also rest assured that if you start an LLC in California, it will be meeting some of the nation's most health and environmentally-friendly regulations in the nation.
No business advisor would lie and tell you that it's easy to start a business, no matter which state you choose. But knowing what to expect can make it easier to prepare and make the process go more smoothly. In California, it can take around 3 weeks to get an LLC if you file by mail, and around 8 days if you file online, plus they have expedited processing options.
