After you’ve filed your articles of organization with the California Secretary of State, your LLC will begin its legal life. But there are still other actions that you need to take in order to make your LLC fully operational. Just when you thought the work was over, you realize that it isn’t.
Below is an outline of some of the steps that you need to take. Some of them are legally required. Others aren’t mandatory, but they’re highly recommended anyway.
Please just keep in mind that, while we’ve made every effort to ensure that this information is up-to-date and accurate, it doesn’t constitute legal advice, and it shouldn’t be considered a substitute for legal advice. Always consult with your attorney to get answers to your questions regarding your LLC.
Step 1: Draft and Sign an LLC Operating Agreement
First up, you’ll need to draft and sign an LLC operating agreement.
What’s an operating agreement? It’s basically a legal document that establishes how your LLC will be run.
It includes how decisions will be made, how money will be distributed, and how disputes will be resolved. Lots of detail here, so take your time as you draft it, and really think about what you’re putting into your operating agreement.
All of the members of your LLC will need to sign the agreement and agree to follow the rules that it contains. Obviously, if you’re the only member of your LLC, you’ll be the only one who needs to sign it and follow it.
An operating agreement isn’t mandatory.
But it’s a great idea to have one in place, even if your LLC only has one member and you’ll be in charge of making all of the decisions.
But why do I need to do extra work if it isn’t mandatory?
Well, having this written operating agreement lends credibility to your LLC. It also helps show that your LLC is a legitimate business entity that’s separate from you, not just some sham that’s been created to avoid liability. This is super important for single-member LLCs (SMLLCs) because, without the formality of an agreement, an SMLLC can appear like a sole proprietorship, which doesn’t provide limited liability.
Plus, lenders might ask to see an operating agreement before they’ll agree to issue you a loan in your LLC’s name. If you’re planning on taking out loans to build your business, this simple document will definitely be helpful.
Your operating agreement doesn’t need to be complex or long, especially if you’re an SMLLC.
And, while you don’t need to file the agreement with the Secretary of State—or anywhere else, for that matter—you should keep this document with all of your other important LLC files.
To learn more about operating agreements, read our article, LLC Operating Agreements – Why You Should Definitely Have One.
Step 2: Get an EIN
Next up is the Employer Identification Number, also known as the EIN.
You should obtain an EIN from the IRS.
This nine-digit number will be used by the IRS to identify your LLC, so you’ll need to include it in all of your tax forms and communications with the IRS and the California Franchise Tax Board.
If your SMLLC doesn’t have any employees, a separate EIN is, generally, not required by the IRS. Instead, you can use your personal Social Security number. But it’s still recommended that you get an EIN.
Why is an EIN an important part of doing business?
First off, it helps prove that your LLC is a legal entity that’s separate from you personally, just like the operating agreement.
Plus, using your EIN rather than your Social Security number can be a smart step in avoiding identity theft, which is frighteningly common today.
And, on top of all of that, many banks will actually require an EIN when you’re ready to open up a business bank account in your LLC’s name.
It’s easy and free to get an EIN.
While you can complete an online application at the IRS website, you can also use a service like Hyke, which does all of the work for you.
For additional information, see our article, Freelancer’s Guide to Federal Tax ID (EIN).
Step 3: Get a Business License
Whether or not you’ll need to get a business license for your LLC will depend upon where your business is located. If you do need a business license to operate, you can get one from your city or county government.
- As is the case with an operating agreement and EIN, obtaining your business license helps prove that your LLC is legitimate.
- It helps preserve your limited liability.
- More importantly, if your local government were to find out that you failed to get a required license to run your company, it could impose penalties and fines that cost a lot more than it would’ve cost you to just get the license in the first place.
Obtaining a local business license is usually simple and straightforward.
The specific details for your particular license will be available from your local government, so some research is required.
Once you know what you need, you’ll have to fill out an application and pay a fee.
You might also need state and federal licenses.
Keep in mind that, in addition to a local business license, you might also need to get a license or permit from the State of California, or even from the federal government.
This will depend on the work that you do. For example, real estate brokers and salespeople must be licensed by the state.
Pro tip: When you sign up with a Hyke account, we take care of helping you obtain the appropriate business licenses, so it’s one less thing that you need to worry about.
Want more information on business licenses? Check out our article, All You Need to Know About Business Licenses in California.
Step 4: File the Statement of Information
Within 90 days after filing your articles of organization, you’re required to file a Statement of Information, or SOI. This is form LLC-12, and it needs to be filed with the California Secretary of State.
Expect to pay a fee of $20 to file it.
What’s the purpose of the SOI?
It’s used to keep your LLC’s contact information up-to-date in the Secretary of State’s records. Simple enough, right?
What does the SOI need to include?
Basically, all you have to provide is your LLC’s address, your registered agent’s name and address, and your members’ names and addresses.
Pro tip: It can be hard to remember to file your SOI, but if you have a Hyke account, we’ll make sure you don’t miss any important documents of deadlines for forming and maintaining your LLC.
Step 5: Open a Business Bank Account
It’s highly recommended that you open a bank account in your LLC’s name, rather than use your personal bank account for business purposes.
Once again, it boils down to ensuring that your LLC is recognized as a separate, legal entity that’s a legitimate business. Combining your personal funds with your LLC’s funds in a single account is a bad idea because it doesn’t show a separation between you and your entity.
If you use your personal bank account for business purposes, you might even end up losing the limited liability that you obtained by creating your LLC. You definitely don’t want that!
Pro tip: You can also sign up with Hyke, as we’ll help you set up a business bank account that you can use for profits and expenses.
Setting up a business bank account might seem daunting at first, but you can read through our article, A Comprehensive Guide to Banking for New Business Owners, to learn more.
Step 6: File a Fictitious Name Statement
Did you know that you aren’t required to operate your LLC under the legal name that’s listed in your articles of organization?
It’s true; you can use a different name. This name is referred to as an assumed name, fictitious name, or dba, which stands for “doing business as.”
In order to operate under a different name than your LLC’s legal name, you have to file a fictitious business name application in the California county where your business’s main office is located.
Check your county’s fictitious name records to be absolutely sure that the name you wish to use isn’t already taken by another business. Then, file the appropriate form and pay the required fee.
For additional information, check your county’s website for details.
You can also learn more about naming your LLC by reading our article, The Ultimate Guide to Naming an LLC in California.
Maintaining Your LLC Doesn’t Have to Be Complicated
Wow, those are a lot of rules! But try to relax, and just take things one step at a time so that you don’t become overwhelmed. Also, know that Hyke is here for you to help you through all of the important steps above. With the right strategy and the right support, you can rest assured that your LLC will have everything it needs to operate legally and be recognized as the legitimate business that it is.
Stephen has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for small businesses, entrepreneurs, independent contractors, and freelancers. He is the author of over 20 books and hundreds of articles and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Among his books are Deduct It! Lower Your Small Business Taxes, Working with Independent Contractors, and Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants.