Starting and running any business comes with expenses. For that reason, knowing what it costs to start and run a business in each state is a very crucial step in gearing your business in the right direction. 

Our site will walk you through all the necessary requirements and the cost to start your LLC in every state as well as the step-by-step process in forming an LLC. But for this particular article, we will look at an LLC California cost. 

So, how much does it cost to start an LLC in California? Read on to find out.

Filing Requirements & Overall California LLC Costs 

If your aim is just to form a California LLC, you will only pay fees associated with California filing requirements, and this is paid to the secretary of state’s office. However, if you want to start and run your LLC in California, there are ongoing mandatory fees that you will have to pay to either the secretary of state’s office, California government, or federal government. Let’s find out California LLC costs under the following common requirements. 

California LLC Annual Report

Unlike other states that require an annual fee, the California secretary of state requires you to file a statement of information. This has to be filed within 90 days of formation, then every two years. The statement of information only costs $20 each, which is cheaper compared to many states’ annual report filings.

LLC Annual Fees

Unlike other states that require an annual fee, the California secretary of state requires you to file a statement of information. This has to be filed within 90 days of formation, then every two years. The statement of information only costs $20 each, which is cheaper compared to many states’ annual report filings. 

Registered Agent Fee

A California limited liability company is also required to appoint a registered agent for the service of the process. The agent will receive important documents on behalf of the company. The agent for service can be a third-party individual, a business entity, a member of your company, or yourself. The annual cost for a registered agent service in California is typically $75 to $150 depending on the service you opt for. 

Application for Withdrawal (Foreign LLC)

To cancel your California LLC, you must file Certificate of Dissolution Form LLC-3 [1]. There is no fee required for filing a Certificate of Dissolution in California. 

Business Licenses

Depending on your geographical location or the type of business, you might need business licenses and permits. The cost for licenses can be a wide range but for a small business in California, expect something between $50- $100.

Taxes

For tax purposes, a single-member LLC in California is treated as a sole proprietorship while a multi-member LLC is treated as a partnership. With that said, the California LLC tax is based on LLC income which is distributed equally to each member who reports to their individual income tax returns. In addition, members will also pay self-employment tax towards social security and medicare.

The current self-employment tax rate is 15.3%. However, you can have your LLC taxed as either C-corp or S-corp to avoid self-employment taxes. The current C-corp tax rate is 8.84% while the S-corp tax rate is 1.5%. But the worst is the state franchise tax that will set you back $800 every year. 

Other LLC Filing Costs

In addition to the mandatory charges that have been discussed above, there are other optional filings and ongoing fees associated with starting an LLC in California.

LLC Name Reservation Fee

If you have a nice name in mind, the California secretary of state allows you to propose three names in order of your preference and reserve them for a period of 60 days prior to your Limited liability Company formation. There is a $10 filing fee if you request for all name reservations and an additional $10 if you deliver the form in person. This fee and instruction are included in the Name Reservation Request Form [2].

“Doing Business As” (DBA) Name

If you are planning to run your California LLC with a different name from your official business name, you’ll need to register a DBA. To get a DBA name for your LLC in California, you will have to pay $21 for the first filing fee for one business and $5 for each additional business name

Business Domain Name & Website

A business domain name is the web address for your business website. You need to register a domain name for your California LLC so that nobody else can use the same name. To do that, you will typically pay a $10-$20 registration fee. 

Articles of Organization Fee

Filing articles of organization with the California secretary of state requires a one-time fee of $70 plus a $15 additional fee if you drop it off in person. Without filing articles of organization, you cannot start and run your business in California, and therefore, it is the main cost to form a California LLC. 

Attorney Fees

Even though attorneys always charge higher fees, hiring an attorney guarantees the most effective LLC formation. Attorney charges vary, but you should expect something between $500 – $2,000 flat fee or $150 – $350 hourly fees. 

Tax ID Number (EIN)

An EIN  is essentially a social security number for an organization. You will have to get an EIN for your California business to help you open an account, file and manage federal state taxes, and hire employees. You can get an EIN for your California LLC for free from the IRS by applying online.

Top 2 California LLC Services

ZenBusiness

If you need some help in setting up and running an LLC in California, ZenBusiness is one of the most reputable LLC formation services. In essence, ZenBusiness will prepare and file the articles of the organization on your behalf. The good news, it is one of the most affordable companies out there. Their basic formation package is a great deal to someone who would just want to form an LLC. 

Besides offering cheaper Basic packages, you will get an agent service for  1 year free. Even more, their subsequent annual charges for the registered agent services are also cheap. 

The company also offers a worry-free guarantee feature that includes preparation and filing of your annual report, and two amendments per year. 

ZenBusiness’s other biggest win is its reliable customer support service. As a result, the company boasts the best customer feedback [3]

IncFile

IncFile is a California-based limited liability company service and offers a few more benefits to California LLCs. To begin with, IncFile will act as your agent for service of process for 1 year free. 

IncFile’s biggest win is its basic package pricing. It is the cheapest LLC formation service if your goal is to start an LLC because their lowest package will prepare and file the articles of the organization for free. Besides, the company will also offer you a registered agent service for 1 year free in all its packages. 

How to Start an LLC in California 

California-llc
  1. Name Your California LLC
  2. Choose Your Registered Agent
  3. File Articles of Organization
  4. Prepare an Operating Agreement
  5. Obtain an EIN
  6. File Annual Reports

Step 1: Name Your California LLC

Choose an LLC name that is available for use in the state of California, and meets other California LLC name requirements. To achieve that, you will have to conduct an online name search on various California business databases.

Step 2: Choose Your Registered Agent

A registered agent will receive important documents on behalf of your company and therefore, help keep your company in good standing with the state. A California registered agent can be an entity, a third-party individual, a member of your company, or yourself. An individual offering the agent service must be over 18 years and based in California.

Step 3: File Articles of Organization

California LLCs must file articles of organization in order to form and run an LLC in the state. During application to register your LLC, you will have to pay the state fee as mentioned earlier. You can fill California articles of organization form online or download the form and send it via mail or in person. 

Step 4: Prepare an Operating Agreement

You will need to create an operating agreement that outlines the ownership and operating procedures of an LLC. In essence, operating agreements for LLCs are equivalent to the board of directors in corporations.

Step 5: Obtain an EIN

Employer Identification Number (EIN), is like your company’s social security and it is very important. You will need an EIN for your California LLC to help you open a business bank account, file and manage federal tax as well as hire employees in California. You can download an EIN form from the IRS website for free.  

Step 6: File Annual Reports

The California secretary of state has to keep up-to-date business records including tax records. They do this by ensuring a California LLC files a biennial statement of information with the secretary of state. Statement of information is simply a California annual report. 

Conclusion

California LLC cost is one of the most expensive due to its higher annual tax. However, if your business operates in the state of California, forming an LLC in the state is worth it. For a foreign LLC, you may consider another state. You can take advantage of their free LLC dissolution to give it a try.

Frequently Asked Questions

Do you have to pay the $800 California LLC fee the first year?

An LLC that is qualified to do business in California is exempt from paying the minimum franchise tax of $800 in its first taxable year.

Why is California LLC so expensive?

LLC cost in California is high due to multiple tax disadvantages that burden LLCs and this makes running an LLC in California very expensive. Unless the LLC is formed to hold real estate, I would recommend you form a corporation in California.

How much taxes does an LLC pay in California?

Just like many other states, California LLC members are required to pay income taxes and the state will also charge sales tax if your company sells merchandise. In addition to these, a standard California LLC is required to pay a minimum annual franchise tax of $800 to the California franchise tax board [4].

How do I file for an LLC in California?

The main requirement for filing an LL in California is filing the articles of organization with the California secretary of state. Other steps include name search, choosing agent service of process, and preparation of an operating agreement.


+ 4 sources

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  1. Limited Liability Company (LLC) Cancellation Requirements – What Form to File(2020),Secretary of State , Available at: https://bpd.cdn.sos.ca.gov/llc/forms/llc-3–4-7.pdf
  2. Name Reservation Request (Corporation, Limited Liability Company, or Limited Partnership Names). (n.d.). [online] . Available at: https://bpd.cdn.sos.ca.gov/corp/pdf/name-reservation-request-form.pdf [Accessed 27 Jul. 2021].
  3. ‌Trustpilot. (2021). ZenBusiness. [online] Available at: https://www.trustpilot.com/review/www.zenbusiness.com [Accessed 27 Jul. 2021].
  4. Ca.gov. (2021). Franchise Tax Board Homepage | FTB.ca.gov. [online] Available at: https://www.ftb.ca.gov/ [Accessed 27 Jul. 2021].