Think about your LLC a year from now: raking in profits and taking California by storm. You 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.
While you’re making plans and dreaming big, 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.
Quick Note: If you’d like to keep your costs of starting an LLC as simple and low as possible, consider hiring ZenBusiness – a reliable business formation service. To get a better idea of the value they offer and how it works, we compared them to the two most well known services:
Bare Minimum Cost to Start an LLC in California
- Optional: LLC Name Reservation Fee
- $10 (plus a $10 handling fee for hand-delivered filings)
- 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.
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.
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 level. However, business licensure varies from city to city, so check out the CalGold website to see which licenses and/or permits you’ll need.
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 service. 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 ZenBusiness and Northwest) 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.
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 and on-time, 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 options, check out our Best Registered Agent Services guide.
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 $500-2000.
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.
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.
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.