The state of California is the 4th largest economy in the world. Boasting a population of close to 40 million, this state is one of the most exciting places for international and domestic entrepreneurs. Because of that, it’s no wonder that around half a million new LLCs are formed in California each year.
In this article, we’ll focus on nonresidents and will share with you how to open a California LLC as a foreigner. We’ll talk about the costs and the time it takes to register an LLC. We’ll tell you about the entire process from start to finish and will share with you the 9 main steps to open a California LLC for nonresidents.
Let’s start.
Why Open an LLC in California as a Nonresident?
Many international entrepreneurs, especially those with digital businesses, choose to open their LLCs in the US. The reason for this is that the US has a tax loophole that allows businesses without US-source income to legally pay 0% in taxes. However, California is not the best state for this.
There are better states to form an LLC as a foreigner and get the most out of the tax and legal benefits that the US offers. For example, opening an LLC in Wyoming or establishing a company in Delaware is much better, easier, and cheaper.
With that being said, California is still a great place to set up an LLC if you’re looking to open a brick-and-mortar business or invest in US real estate. According to the latest statistics, California is one of the top destinations for international property investors, who collectively spend billions of dollars each year buying prime real estate. It’s a great place for those with deep pockets looking to make a return or safeguard money from inflation.
Open California LLC as a Foreigner: 9 Main Steps
Here are the main steps you should follow to establish a nonresident LLC in California:
Step 1: Choose a Name for Your Business
The first step to forming an LLC in California is to pick a business name and then check if it’s available for use. To do that, you should visit the California Secretary of State’s online business search tool. Once on the web page, just input your desired name to check its availability.
An important thing to keep in mind when choosing a name for your business is that you must follow California’s business entity naming rules. You have to ensure that your business name:
- Only contains letters from the English alphabet
- Only contains Arabic numerals (Roman numerals are not allowed)
- Contains a designator like “LLC”, “L.L.C.”, or “Limited Liability Company”
- It’s distinct from other business entities registered in California
- Doesn’t contain words that require a special license to use (e.g., Bank, Trust, Trustee)
Additionally, if you have a name in mind but are unsure about opening an LLC, you can reserve that name for a period of 60 days. To do this, you need to file the Name Reservation Request with the Secretary of State. You can file the request online or send it via regular mail. The fee for the California LLC name reservation service is $10.
Step 2: Get a Registered Agent
All business entities in California must have a registered agent. This can be a person or a legal entity (like an agency) whose job it is to handle all legal correspondence for your California nonresident LLC. Registered agents in California must:
- Be available for contact during regular business hours in California
- Have a physical address in California (no P.O. boxes allowed)
- Forward all documentation sent to your LLC in a timely manner
Important to note here is that an LLC can not be its own registered agent. The addresses for an LLC and a registered agent have to be different.
There are many agencies and individuals that have licenses to serve as registered agents, so hiring one shouldn’t be difficult. The usual price for these registered agent services in California is between $50 and $300 per year. This is a recurring cost that you will have to cover each year in order to keep your LLC operational and compliant.
Step 3: File the Articles of Organization
The next step to open an LLC in California as a foreigner is to file the articles of organization. You can do this online through the California State Website, in-person, or via regular mail by sending the documentation to the following address:
California Secretary of State, Business Entities Filings, P.O. Box 944228, Sacramento, CA 94244-2280
The fee for filing articles of organization is $70. The information you’ll need to file this document includes:
- The name of your LLC
- LLC address (different from the address of the registered agent)
- General information and address of the registered agent
- Information about LLC’s management structure
Filing the paperwork online is the best and fastest option for nonresidents. You don’t have to travel to California, and once you complete the application and pay the fee, your LLC will be registered within 1-3 business days.
Step 4: Get an EIN
After you register your California nonresident LLC, you need to get an Employer Identification Number or EIN. This is a 9-digit number, unique to each business entity and issued by the IRS. You need an EIN to ensure tax compliance with the US government, among other things. You’ll also need it to open a US business bank account.
If you have a US Social Security Number (SSN), you can get an EIN pretty much instantly (or within a single business day) by visiting the official US government site and following the on-screen instructions. However, if you don’t have an SSN, getting an EIN for your business gets a lot more complicated.
First off, you’ll need to file the SS-4 form. Information you should prepare before filling out this form includes:
- Type of your business
- Reasons for applying for an EIN (e.g., opening a US bank account or filing US taxes)
- LLC formation date (the date you officially registered your California LLC)
- The main industry of your business
The usual wait time for EIN is between 4 and 6 weeks, but this will depend on the exact time of year you’re applying and whether you send in your application via regular mail or fax. During the US tax season, the wait times are usually longer. Also, note that if you make a single mistake on your EIN application, you’ll have to start the whole process all over again. This means waiting an additional 4-6 weeks.
If you want to avoid this and save yourself a lot of time, get in touch with professionals who will ensure your SS-4 is filled out correctly on the first try.
Need help getting an EIN for your LLC? Get in touch with NRI today and waste our time to save yours.
Step 5. Create an Operating Agreement
An operating agreement is an internal company document, meaning you don’t need to file it or show it to anyone outside the company. It should include all of the details about the management structure of your LLC, and it should list the names of owners and their obligations within the business entity.
It’s not required by law, and you don’t technically need it to open an LLC in California as a foreigner. However, you should still create one, as it can help you in many different situations, from opening a bank account, getting a loan for your business, dealing with lawsuits, or even selling your LLC. We recommend creating one even if you want to open a single-member LLC, as the benefits far outweigh the time it would take to write it up.
Step 6. Open a US Bank Account
To open a California LLC as a nonresident and get it ready for use, you need to get a US bank account. Without one, you can’t actually do business. When applying for a US bank account, you’ll need to prepare the following:
- Your company’s EIN
- Your LLC’s articles of organization
- An operating agreement
- Your company’s official website
- Proof of identity (e.g., a passport)
Once you prepare those, it’s time to choose a bank to apply for an account. Here, you’ve got a couple of options:
- A regular, “big” US bank (e.g., Chase, JP Morgan)
- A medium-sized bank or a credit union
- An online bank
Big banks are the safest option, but you will have to travel to California and attend an in-person meeting with bank representatives. Medium-sized banks or credit unions will, in some cases, allow you to open an account online, but you will have to pay a large deposit (usually between $25,000 and $50,000). Lastly, we have online banks, like Wise or Mercury, which are the most popular options for foreigners.
Step 7: File Statement of Information
A statement of information is a form you have to file within 90 days of registering a nonresident LLC in California. The fee for filing this form is $20, and you can do it online or by sending the form through regular mail. This is a biannual form, which means you have to file it again every two years or when you meet certain filing requirements (e.g., the ownership structure of your business changes).
Before filing, you should prepare the following information:
- The name of your LLC
- Your LLC’s SOS file number (you’ll get it after you first registered your business)
- Your business address
- Name and address of your registered agent
- Name and addresses of LLC’s members/owners or managers
- Description of business activities
Step 8: File the BOI Report
In the first 30 days of registering a nonresident LLC in California, you must file the Beneficial Ownership Information Report (BOI) with the Financial Crimes Enforcement Network (FinCEN). You only need to file this report when you first open your LLC or when there are ownership changes. Filing this form is free.
Step 9: Pay California Franchise Tax
And lastly, to make sure that when you open a California LLC as a foreigner, that LLC stays actually operational, you have to pay the annual franchise tax. You have to pay it, even if your LLC doesn’t have any income or sales. The franchise tax is $800 per year, and you have to make the first payment by the 15th day of the 4th month after LLC setup. The date you pay this fee on will become your franchise tax due date for every year your LLC is in operation.