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California LLC CostYou have big plans, but before your business can officially take off, you’ll need to make a bit of an investment.

And we’re not talking about renting office space or paying employees  before you sell a single product, there are startup costs associated with launching an LLC in California.

Make sure that you consider all the possible costs associated with starting an LLC. To help you out, we’ve compiled the most common California startup fees here.

Bare Minimum Cost to Start an LLC in California

Optional: LLC Name Reservation Fee

    • $10 (plus a $10 handling fee for hand-delivered filings)

Optional: LLC Formation Service

    • $39 for an LLC service like ZenBusiness and $99 for LegalZoom

Required: Articles of Organization Fee

    •  $70 for online or hard copy submissions (plus a $15 handling fee for hand-delivered filings)

Required: Initial Filing Fee

    • $20 for the first “Statement of Information” filing (within 90 days of formation)

Required (for most companies): Most companies are required to obtain a business license in California. The type and cost depend on the city in which it’s based.

Overall California LLC Formation Costs

LLC Name Reservation Fee

If you’re sitting nervously on a perfect name for your business, worried that someone might use it before you, then you might want to apply for a name reservation. California doesn’t require you to reserve a name before starting a business, so this service is optional. For a $10 fee, the name reservation gives you sole ownership of your name for 60 days. There’s an additional $10 handling fee if you drop the form off in person.

To clarify, most states don’t require name reservations, and they’re rarely necessary. If you’re concerned about someone else registering the name you want, you could opt to simply form your LLC instead of reserving the name.

 

Business Domain Name & Website

To properly brand your business, you’ll want to acquire the domain name so nobody else can use it. Search for and find the perfect one through GoDaddy for just $4.99.

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Articles of Organization Fee

This is the big one, the most important form that you’ll file to start your California LLC. Your Articles of Organization, once accepted, officially registers your LLC with the state and locks in your business name. Filing the Articles of Organization will set you back $70 for online or paper applications, plus an additional $15 if you drop it off in person. The good news is that, in most cases, you only register your business once, so after this, you won’t have to file the Articles of Organization again.

To complete this document, you’ll need to provide the state with the following information: your LLC’s official business name, your LLC’s official business address in California, the name and address of your LLC’s California agent for service of process, an indication that your LLC is managed by one manager, multiple managers, or all of the LLC’s members, your name, and your signature.

If you would rather get some help for this step, you’re in luck! There are plenty of reputable LLC formation services that will prepare and file your Articles of Organization on your behalf. You have plenty of options for this service, but we prefer ZenBusiness. They offer great low rates and well-rounded services, and with our exclusive discount code, you can get 20% off!

 

Business License Fee

Not all California businesses need a license, but many do, and these licenses come with their own fees. Depending on the type of business you will be doing, your LLC may require multiple licenses at both the federal and local levels. However, business licensure varies from city to city, so check out the CalGold website to see which licenses and/or permits you’ll need.

What are some of the most commonly required business licenses for California LLCs? If your business operates in a regulated industry, you will probably need some sort of professional license to operate in compliance with state law. On the municipal level, things like alarm permits, building permits, and zoning permits are all very common.

 

LLC Formation Service

Starting an LLC can be a complicated and time-consuming process. If you want to spend less time on paperwork and more time planning your business, you might opt for an LLC formation website. These services take care of the registration process for you, so you don’t have to spend the time on research, paperwork, and filings.

Most of these services (like LegalZoom or ZenBusiness) offer basic LLC formation service like Articles of Organization filing, tax consultations, and phone/email support for a flat rate, with options to pay more for premium packages with premium services like Employer Identification Numbers, operating agreements, and expedited filing.

There are many different companies offering LLC formation services these days, and it can be tricky to tell which one is the right choice for your needs. We think ZenBusiness and IncFile are the two best LLC formation companies, and we wouldn’t hesitate to recommend either of them to our families and friends.

 

Agent for Service of Process (Registered Agent)

Appointing an agent for service of process is an important part of your LLC formation. Your agent for service of process is responsible for handling sensitive legal and tax documents and keeping your business compliant with California business law. In short, you need an agent you can trust.

While you can serve as an agent for service of process for your own LLC, this puts pressure on you to keep up with business filings and potential legal disputes. Sometimes it’s better to hand off that responsibility to a professional. An agent for service of process (or registered agent) service ensures that your annual reports and other forms are filed efficiently, saving you from the penalties of delinquent filings and the stress of having to do it yourself.

Not all services are equal, so you’ll need to be careful in choosing one. Fortunately, we’ve done some research for you, and we recommend Northwest Registered Agent. In addition to the agent for service of process duties, Northwest also handles LLC formation — and they’ll include an agent free for one year when you form your business with them. We think they’re the most reliable choice, but if you’d like to evaluate all your picks, check out our best options guide.

 

Attorney Fees

If you have questions or concerns about the LLC formation process or if it’s the best business structure for you, sometimes it’s best not to take chances and consult an attorney. They’re not cheap, but they can provide essential business advice, professional filing assistance, and peace of mind.

Some attorneys offer free consultations (usually 30-60 minutes) but will charge by the hour after that. On average, business attorneys charge between $150-350 per hour. Some will offer a flat rate for setting up an LLC, which can range from $500-2,000.

Cost variations depend on the experience and location of the lawyer. Specialties and rates differ from attorney to attorney, so digging into some research will help you find the best fit. Take a look at a site like Avvo, which offers a database of California business attorneys that you can sort by location, rates, specialties, and more.

If you don’t want to go digging for your own attorney, we compiled the following list of highly rated business lawyers in California. All of these attorneys are primarily focused on the business world, they all receive five-star ratings from clients, and they all have excellent Avvo ratings.

 

Foreign Qualification Fee

This only applies if your LLC was formed in another state and is now expanding into California. Does this describe your LLC? Then the “Application to Register” will take the place of your Articles of Organization.

All foreign business entities are required to foreign qualify in California, or they could incur some pretty severe penalties. Avoid them by submitting an “Application to Register” by mail or in person. Both methods require a $70 payment, and like the Articles of Organization, there’s an additional $15 fee for hand-delivered forms.

 

LLC Annual Fees

Instead of annual reports, the California Secretary of State requires biennial “Statements of Information.” Your LLC must file its first Statement of Information within 90 days of formation, then subsequently every two years. If you formed your LLC in an odd-numbered year, you will need to file every odd-numbered year; if you formed it during an even-numbered year, you must file every even-numbered year. Each biennial Statement of Information costs $20.

In order to file your Statement of Information, you’ll need to include your LLC’s official business name, your LLC’s 12-digit California Secretary of State Entity (File) Number, the jurisdiction where your LLC was originally formed, your LLC’s principal office address, the names and addresses of your LLC’s members and/or managers, the name and address of your LLC’s agent for service of process, a brief description of your LLC’s type of business, the name and address of your LLC’s CEO, the date, your name, your title, and your signature.

 

Taxes

Unless deliberately set up otherwise, LLCs are “pass-through” entities, which means that the business itself doesn’t need to file federal or state tax returns. Despite this, all California LLCs must complete Form 3522 and pay an annual franchise tax. At $800 per year (plus an additional fee if your LLC’s income is greater than $250,000), this one is a lot steeper than the other costs covered here, so be sure to plan for it in your yearly budget.

If you’ve set your LLC up to be taxed as a corporation, you aren’t subject to the franchise tax, but you will have to file a separate corporation tax return and pay the appropriate corporate tax rate.

What if I Don’t Pay?

Looking at all these fees, you might be thinking: how can I pay less? While you might be tempted to look for loopholes or find a way around them, this could cause you bigger problems in the future.

It’s important to stay on top of your Statement of Information reports and franchise tax payments. If you fail to file and pay them on time, your LLC will be deemed “delinquent” and required to make outstanding payments within 60 days. The state has the right to suspend a delinquent LLC’s powers, rights, and privileges until it has filed its missing documents and made its overdue payments. Late franchise tax payments will also incur a penalty amounting to 5% of the unpaid tax per month, up to 25% of the total tax.

But it doesn’t stop there. Delinquent California LLCs cannot obtain a Certificate of Good Standing from the state, which means it can’t foreign qualify in other states, apply for loans, renew its licenses, and more. Read over the Secretary of State’s Business Entities FAQ page for more information.

Planning Your Expenses

By now, your budget spreadsheet might be looking a little crowded, but have no fear! Most of these are one-time fees that you won’t have to worry about again. Plus, with all these on the books, there won’t be any surprise costs when you register an LLC in California.

Soon, you’ll have these fees behind you and you’ll be forging ahead, growing your business, and earning profits. As you do, make sure to keep up with the few recurring fees like Statements of Information and franchise taxes so your business doesn’t fall out of good standing.

Key Steps for Starting a California LLC

  1. The first step to forming a California LLC is to come up with a good name for your business. You’ll want to make sure the name you want is still available and hasn’t already been claimed by another business, so you’ll need to search the state’s business database to verify its availability.
  2. Next, you’ll need to choose your agent for service of process. While you can legally serve as your own agent for service of process in California, this role can actually be more of a hassle than you might expect. That’s why we always recommend hiring a reputable service that can handle the responsibility of this position on your behalf.
  3. The third step involves the preparation and filing of your Articles of Organization. You’ll need to fill out the paperwork and pay a $70 fee (plus an additional $15 if you submit your documents by hand). Once the state processes this document, your LLC will be officially open for business!
  4. That’s not the end of the road for the startup process though, as you’ll also need to create an operating agreement for your LLC. Most states don’t require operating agreements, but California is one of the few states that does. However, it’s worth mentioning that California does not require a written agreement, as you don’t need to actually file it with the state. The operating agreement is an internal document that outlines how your LLC will operate, and there are several aspects of this document that can prevent messy ownership disputes down the line.
  5. You will also need to acquire a federal tax ID number (also known as an EIN, or employer identification number). This is essentially a Social Security number for your business, as it is a nine-digit code used to file taxes, hire employees, open business banking accounts, and more.
  6. Next, you’ll need to register for any relevant taxes with the California Department of Tax and Fee Administration, and also obtain all licenses and permits that apply to your business type. Keep in mind that, depending on the nature of your business, you might require licenses from the federal, state, county, and municipal governments.

Once you’ve finished all of these steps, you’re ready to operate a compliant business entity with the state of California!

Key Steps for Maintaining a California LLC

After you’ve completed all of the items in the previous section, you’ll need to focus on maintaining your LLC. The first step in this process is to open a business bank account. This will help you keep your business and personal expenses entirely separate, and it will also help immensely with your accounting and taxation responsibilities.

You should also keep detailed records of every financial transaction that takes place with your LLC. This means maintaining a file of invoices for every purchase and sale you make, along with information regarding your employees or contractors and the work they perform for your business.

As we already mentioned, biennial statements of information are a key component of LLC maintenance in this state, and there are harsh financial penalties for delinquent reports. Additionally, you might want to hold an annual meeting to discuss goals and priorities for your LLC, although this is an optional step.

The Top 3 California LLC Services

If you want to hire a reputable LLC formation service to handle the heavy lifting on your behalf, these are the three companies we trust and rely on the most.

  • ZenBusiness ($39) – ZenBusiness offers a well-rounded LLC formation package at a great low rate. Their standard LLC package includes a full year of registered agent service, an accounting assessment, and a customizable operating agreement. ZenBusiness also receives stellar customer feedback.
  • IncFile (FREE) – That’s not a typo! IncFile really does form LLCs for free. Even better, they include 12 months of registered agent service in their free package. IncFile has a ton of experience and more than 500,000 satisfied customers, so they’re always a reliable choice.
  • Northwest Registered Agent ($225) – Northwest offers a bit more of a premium service, but if you have the money, we think it’s worth it. Like ZenBusiness and IncFile, Northwest also includes a year of registered agent service with the purchase of any LLC formation package. They also offer the best customer support in this industry, with knowledgeable representatives who are familiar with the details of business formation processes in every state.

Frequently Asked Questions

Before we wrap things up, let’s take a look at some of the most common questions we hear from readers regarding the LLC formation process in California.

What are the state business tax rates in California?

Every LLC in California needs to pay an annual franchise tax of at least $800 per year. In addition, you’ll need to pay the state’s income taxes depending on how you set up your LLC. If your business is taxed like a general partnership or sole proprietorship, you’ll need to pay taxes on your LLC’s profits according to the state’s personal income tax rates, which vary from 1% all the way up to 12.3%.

If you chose to set up your LLC to be taxed as a corporation, your LLC will be subject to the state’s corporate income tax rate of 8.84%.

How quickly does California process LLC formations?

The state of California has a convenient page on the Secretary of State’s website where you can see their processing speeds in real-time. While these times are subject to vary, at the time of this writing, it was taking the state roughly nine business days to process online submissions, 22 business days to process in-person filings, and 24 business days for mailed filings.

How many small businesses are there in California today?

The state of California is home to more than 4 million small businesses. Entrepreneurs of all backgrounds and business types find that California is a great place to own and operate a small business.

What are the top small business resources and websites in California?

The California Secretary of State has an excellent Business Resources page where you can find information about federal, state, and county agencies and programs for small businesses. The California chapter of the Small Business Development Center is also a great place to start, as are the California district offices of the U.S. Small Business Administration in Sacramento and Los Angeles.

Should I form my LLC in California, or choose a state like Delaware or Wyoming?

Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.

However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.