Examples:

• • When a tenant sued after being injured on John’s rental property, his LLC protected his personal home and savings from being taken in a judgment.
  • By having her property owned by an LLC, Sarah’s rental income and expenses flowed through to her personal tax return without being taxed twice.
  • Michael chose to set his LLC up as manager-managed so he could appoint his daughter to run the day-to-day operations.
  • When seeking funding from a local bank, operating as ABC Properties LLC made Denise appear more professional and legitimate as a borrower.
  • Theresa appreciated the simplicity of not having to hold annual meetings and keep basic financial records for her LLC.

How to Proceed:

• • Assess the risks and liability exposure of your real estate business to determine if an LLC is right for you.
  • Consult a CPA to understand the tax implications of an LLC and if it’s the optimal entity for your tax situation.
  • Decide if you want your LLC to be member-managed or if you prefer to appoint managers to run the company.
  • Consider how forming an LLC will impact your image and credibility with lenders, investors, tenants and contractors.
  • Review the ongoing compliance requirements for California LLCs to ensure you’re prepared to follow them.

FAQs:

• • What liability protection do LLCs provide in California? LLCs limit your personal liability for business debts and legal claims to your investment in the company. Your personal assets are shielded if the LLC is sued or goes bankrupt.
  • How are California LLCs taxed by default? Single-member LLCs are taxed as disregarded entities. Multi-member LLCs are taxed as partnerships. In both cases, business income and expenses flow through to the members’ personal returns.
  • Can I still be held personally liable if my LLC is sued? In limited circumstances, plaintiffs can “pierce the corporate veil” and come after an LLC member’s personal assets, usually only if they’ve committed fraud, negligence, or failed to separate business and personal affairs.
  • Does an LLC protect my personal residence? If you form an LLC and title your primary residence in the name of the LLC, the equity in your home will generally be shielded from the LLC’s liabilities. But you may lose significant tax benefits.
  • What ongoing requirements do LLCs have? California LLCs must file Statements of Information, comply with the Corporate Transparency Act, and maintain separate finances from members.

Examples:

• • John originally wanted to name his company “Premier Property Management” but added “LLC” at the end to be compliant.
  • After discovering that “ABC Rentals, LLC” was already taken, Sarah modified her name to “ABC Rental Properties, LLC” instead.
  • Michael was informed he’d need a special license to call his business “California Real Estate Investment Trust, LLC.”
  • For less formal branding, Denise filed a DBA allowing her LLC to also operate as “Denise Buys Houses” without “LLC”in the name.
  • Theresa paid $10 to reserve “Thompson Real Estate Ventures, LLC” while she gathered the other information needed to file her Articles of Organization.

How to Proceed:

• • Brainstorm several possible names for your real estate LLC, keeping California’s naming rules in mind.
  • Search the California Secretary of State’s business entity database to see if your desired name is available.
  • If your preferred name includes any restricted words, find out what additional steps are required to use them.
  • If you plan to use a name besides your full legal LLC name, file for a fictitious business name/DBA as well.
  • Submit a name reservation request form and $10 payment to the Secretary of State to hold your chosen name for 60 days if needed.

FAQs:

• • Does my LLC name have to include my personal name? No, you can choose a creative name or one that describes your business. Just be sure it complies with California’s naming rules.
  • Where can I check if my desired LLC name is available? Do a business search on the California Secretary of State’s online portal. Also take trademark law into consideration.
  • What happens if I pick a name that’s already in use? If your name is too similar to one already registered, your LLC filing will be rejected. You’ll have to amend it and refile.
  • What words are restricted in California LLC names? Words that falsely imply a business is a bank, insurer, law firm, or government agency, or those requiring special licensure.
  • Should I reserve my LLC name before filing? If you’re not ready to file right away but want to claim your name, reserving it can be a good idea. But it’s not required.

Examples:

• • John designated his business partner as registered agent since she is always at their office during the day to accept mail.
  • Sarah hired a commercial registered agent company that has offices in all 50 states to handle service of process for her LLC.
  • Michael couldn’t use his P.O. box as his registered agent address since it’s not a physical location where someone can be served.
  • When a process server came to Denise’s LLC’s registered address, her agent accepted the documents and scanned them to her immediately.
  • After Theresa’s registered agent moved away and she failed to replace them and was unable to receive important legal documents.

How to Proceed:

• • Decide if you want to appoint an individual (like yourself or a partner) or hire a professional service to be your registered agent.
  • If choosing an individual, confirm they have a physical street address in California and are generally available there during normal business hours.
  • If hiring a company, compare several registered agent services’ pricing and features. Pick one with a good reputation and track record.
  • Provide your appointed registered agent’s name and address on your LLC formation documents and make sure they are aware of their responsibilities.
  • If your agent changes, promptly file a Statement of Information amendment with the CA Secretary of State updating this information.

FAQs:

• • Can I be my own LLC’s registered agent in California? Yes, as long as you are a state resident with a physical address in CA. But you might not want the hassle or to publicly list your personal address.
  • Is a registered agent the same as an LLC owner? No, a registered agent is the LLC’s point of contact for legal notices. They can be an owner but don’t have to be. Their only role is to pass on documents to the members.
  • What happens if I don’t maintain a registered agent? The state can revoke your LLC’s authority to do business in California until you cure the deficiency by naming a new agent.
  • Can my accountant or attorney be my registered agent? Yes, as long as they agree to it and have a physical office address in California. Some may offer this as an incidental service to clients.

Examples:

• • John filed his LLC-1 electronically to save time.
  • Sarah listed her business location address as her LLC’s principal address so her home address wouldn’t be public.
  • Michael had to redo his filing when he accidentally wrote his registered agent’s P.O. box instead of their required street address.
  • Denise checked the manager-managed box on her form since she plans to appoint her son to run the LLC’s day-to-day operations.

How to Proceed:

• • Order a California LLC formation package from a reputable company if you want guidance preparing and submitting your Articles.
  • Alternatively, download Form LLC-1 from the Secretary of State’s website and complete it yourself following the instructions.
  • Provide your LLC name exactly as you want it to appear, including designators like “LLC” or “Limited Liability Company.”
  • List a California street address for your designated registered agent for service of process.
  • Choose your management structure.

FAQs:

• • How much does it cost to file California LLC Articles of Organization? Filing Form LLC-1 costs $70 by mail. Electronic filings have an extra $5 service fee.
  • What’s the turnaround time for California LLC approval? Mail filings can take 10-15 business days. Online submissions are often processed in 5-10 business days. It’s important to note that processing times vary depending on the time of year and filing backlogs.
  • Can I put my home address on my LLC Articles? Yes, but it will become public record.
  • Do I have to disclose who owns my LLC on the form? No, California Articles of Organization don’t require listing the members or managers, just the registered agent.
  • What happens after my LLC Articles are approved? The state will send you a stamped copy confirming filing. This serves as your official proof of formation.

Examples:

• • John’s operating agreement listed him as 75% owner and his partner as 25%, with voting rights proportionate to ownership.
  • In Sarah’s agreement, she clarified that even as sole owner, the LLC’s assets and debts were separate from her own.
  • Michael included a clause requiring mediation before litigation if there was a dispute between the LLC’s members.
  • Denise’s operating agreement specified that any property acquisitions over $100,000 needed unanimous member approval.
  • When Theresa wanted to bring on a new 10% partner, she amended her operating agreement to reflect the ownership change.

How to Proceed:

• • Draft a custom operating agreement for your real estate LLC addressing your specific ownership structure, management procedures and operational needs.
  • Spell out each member’s percentage stake in the company, profit distribution method, voting power, and dispute resolution process.
  • Clarify the LLC’s purpose and explicitly state that its business is separate from the members’ personal affairs and assets.
  • Consider unique provisions for things like property transfer consents, new member admissions, existing member exits, etc.
  • Have all members sign the finalized agreement, keep a copy at your principal place of business, and give one to each member.

FAQs:

• • Is an operating agreement required for California LLCs? Not legally, but it’s highly advisable to create one as an internal governance document and to help preserve liability protection.
  • What should a basic LLC operating agreement include? At minimum, identify the members, their percentage interests, leadership/management roles, voting structure and provisions for dissolution.
  • Can I write my own operating agreement? Yes, you can find templates online or in business document books. But for complex LLCs or unique circumstances, consult an attorney.
  • Does a single-member LLC need an operating agreement? Yes, to help show you’re respecting the LLC’s separate business existence and not comingling funds/assets with your own.
  • Where should I keep my LLC operating agreement? Store the signed original at your principal place of business and give each member a copy. Don’t file it with the state.

Examples:

• • John used his LLC’s EIN to open a business checking account to accept rent payments and pay property expenses.
  • Sarah’s EIN allowed her LLC to take out a small business loan in its own name to acquire a rental property.
  • When Michael hired a property manager, he used his LLC’s EIN and state tax ID to put them on payroll and withhold taxes.
  • Denise registered her LLC with the city of Los Angeles using her EIN so she could obtain a business license for a short-term rental.
  • Theresa reported her newly hired leasing agent to the CA New Employee Registry within 20 days using her LLC’s state employer account.

How to Proceed:

• • Apply online for a federal EIN for your LLC on the IRS website – there’s no filing fee and you’ll get your number instantly.
  • If you’ll have employees or pay yourself a W-2 salary, also register for a California employer payroll tax account with the EDD.
  • Use your LLC’s name and EIN to open a separate business bank account to handle company income and expenses.
  • Provide your EIN to lenders, vendors, service providers or government agencies when transacting business or applying for licenses/permits.
  • If you hire employees, report them to the CA New Employee Registry within 20 days using your state employer payroll tax account.

FAQs:

• • Do I need an EIN for a single-member LLC? The IRS doesn’t require it if you have no employees. But it’s still best to get one to open business accounts and more easily keep your LLC finances separate from personal.
  • Can I use my SSN instead of an EIN for my LLC? Legally you can, but it puts your personal information at risk. An EIN better protects your identity and shows the LLC is a distinct entity.
  • How much does it cost to get an EIN? It’s free. The IRS issues EINs at no charge.
  • How quickly will I get an EIN? If you apply online, you’ll receive your EIN immediately. For mail applications, it takes 4-5 weeks.
  • Do I need a new EIN if I change my LLC’s name or ownership? In most cases, no. But if you convert from a sole proprietorship to an LLC or partnership to LLC, you’ll need a new EIN.

Examples:

• • John obtained a city business license for his LLC before buying his first rental property to avoid fines.
  • Sarah nearly missed a lucrative real estate deal because her LLC was suspended for forgetting to file its Statement of Information.
  • Michael begrudgingly paid his LLC’s $800 franchise tax even though the business lost money that year.
  • As a partnership, Denise had her CPA file both her personal return and the LLC’s Form 1065 to properly report her rental income.
  • With $400,000 in annual revenue, Theresa’s LLC owed an extra $900 CA LLC fee (Gross Receipts Tax) on top of her $800 franchise tax.

How to Proceed:

• • Contact your city/county business office to find out what local business licenses and permits you need for your real estate LLC.
  • Mark your calendar to submit an updated Statement of Information to the Secretary of State every other year so your LLC remains in good standing.
  • Budget for your LLC’s $800 annual franchise tax and pay it to the FTB by the 15th day of the 4th month after your tax year starts.
  • Work with an accountant familiar with real estate LLCs to file the proper federal and state tax forms to report your income.
  • If your LLC has income over $250,000, be prepared for an additional tiered fee of $900-$11,790 due with your California return.

FAQs:

• • Are all LLCs required to have a business license in California? State law doesn’t mandate a general license but most cities/counties do. Certain real estate activities (like brokering) may also require professional licenses.
  • What happens if I forget to file my Statement of Information? The state will assess a $250 penalty. Your LLC can be suspended or have its powers restricted until you file and pay.
  • Why do I have to pay $800 a year if my LLC isn’t profitable? California charges the annual franchise tax to LLCs for the privilege of doing business in the state, regardless of income.
  • Am I better off having my real estate LLC taxed as a partnership or S corporation? It depends on your business plans, revenue, and deductions. Consult a CPA for what’s best in your situation.
  • Do I also have to pay the state LLC fee with annual revenue under $250,000? No. The graduated LLC fee only applies if your total revenue exceeds $250,000 for the year.

Questions: Forming a California Real Estate LLC

• 1. What designator must be included in a California LLC’s name?
     • A) Inc.
     • B) Co.
     • C) Corp.
     • D) LLC
  2. Who can serve as a California LLC’s registered agent?
     • A) Any California resident with a physical address
     • B) The LLC’s attorney
     • C) A professional registered agent service
     • D) All of the above
  3. What document must be filed to officially form a California LLC?
     • A) Articles of Incorporation
     • B) Articles of Organization
     • C) Fictitious Business Name Statement
     • D) Statement of Information
  4. Which management structure is NOT an option for California LLCs?
     • A) Member-managed
     • B) Manager-managed
     • C) Board-managed
     • D) Sole proprietorship
  5. What is an EIN used for?
     • A) Opening business bank accounts
     • B) Filing tax returns
     • C) Hiring employees
     • D) All of the above

Answers: Forming a California Real Estate LLC

• 1. D) A California LLC’s name must include “LLC” or “L.L.C.” as a designator, usually at the end of the name.
  2. D) A California resident with a street address, the LLC’s attorney, or a commercial registered agent company can all serve as an LLC’s agent for service of process.
  3. B) To officially form an LLC in California, Articles of Organization must be filed with the Secretary of State.
  4. C) California LLCs can be member-managed, manager-managed, or even a sole proprietorship if single-member, but not board-managed like a corporation.
  5. D) An EIN is a federal employer identification number used for business bank accounts, tax filings, and payroll purposes.

Questions: Operating a California Real Estate LLC

1. How often must a California LLC file a Statement of Information?
   • A) Every year
   • B) Every 2 years
   • C) Every 5 years
   • D) Never
2. What is the minimum California LLC annual franchise tax?
   • A) $0
   • B) $100
   • C) $800
   • D) $1,000
3. At what annual revenue threshold do LLCs owe an additional California LLC fee?
   • A) $100,000
   • B) $250,000
   • C) $500,000
   • D) $1 million
4. Which of the following business licenses are NOT typically required for a California real estate LLC?
   • A) City/county general business license
   • B) Real estate broker license
   • C) Short-term rental permit
   • D) Liquor license
5. By default, how are single-member LLCs taxed by the IRS?
   • A) Sole proprietorship
   • B) Partnership
   • C) S corporation
   • D) C corporation

Answers: Operating a California Real Estate LLC

1. B) California LLCs must file an updated Statement of Information every 2 years to remain in good standing with the state.
2. C) All California LLCs must pay a minimum annual franchise tax of $800, even if they have no income for the year.
3. B) LLCs with annual revenue over $250,000 must pay an additional graduated fee ranging from $900 to $11,790.
4. D) While some real estate activities may require a broker license or special permits, real estate LLCs do not typically need a liquor license.
5. A) Single-member LLCs are taxed as sole proprietorships by default, with income and expenses reported on the owner’s personal tax return.

Disclaimer

The legal information provided in this article discussing forming a real estate LLC in California is for general informational purposes only. It is not intended as formal legal advice and does not establish an attorney-client relationship. Laws and regulations may have changed since the article’s publication, and application of the information to specific situations will vary based on individual circumstances.

For personalized guidance on structuring your real estate investments through a California LLC, please consult a qualified business attorney or tax professional licensed in your jurisdiction. Most reputable business law firms offer free consultations to review your needs and advise you on the appropriate entity formation and tax strategies.