If you’ve decided to form a corporation or limited liability company (LLC) for your California company, you’ve already made one of the most important business decisions you can make. Another crucial decision is whether you’ll form your new business entity yourself, hire an attorney to handle it for you, or opt for a business formation company.
Completing the formation process on your own will always be the most affordable option, but is it the best one? On the other end of the spectrum, hiring a lawyer will provide you with expert assistance, but the cost can be prohibitive for many startups. Somewhere in between these options are online business formation services. These companies can provide professional help while also saving you hundreds or even thousands of dollars compared to paying a business attorney.
If you’d like to learn more about your options for LLC or incorporation services for your California business, you’ve come to the right place. In this article, we’ll walk you through a few of the best options for business formation services. Which one is the right choice for you?
Let ZenBusiness Handle the Paperwork
Let us at ZenBusiness handle your incorporation paperwork for as little as $0 + state fee so you can focus on building your business. Select your package to begin or learn more about our services.
The Best California LLC and Incorporation Services
There are dozens of companies providing online business formation services, and many of them offer nearly identical packages. How do you choose the right one?
We welcome you to check out our comprehensive guide to the best LLC and incorporation services available, but we’ll also discuss a few of the most popular options for California businesses right here.
We think ZenBusiness is the most well-rounded business formation service available today. It’s tough to beat the ZenBusiness pricing model, as we will form your business for free, as long as you pay your own state fee. In addition, ZenBusiness has outstanding customer feedback, with more than 10,000 reviews available online and nearly all of them being positive in nature.
At ZenBusiness, we believe in giving back to the communities we serve. ZenBusiness partners with Kiva.org to provide loans to low-income individuals, and also donates money to help build businesses owned by women and minorities. Doing good while providing helpful business services is the ZenBusiness way!
Northwest Registered Agent
Northwest has a higher pricing model that costs $225 to form your LLC or corporation. What does Northwest Registered Agent do that makes them stand out? In short, Northwest has personalized customer service that goes beyond the support you’ll typically receive in this industry.
While most of its competitors have rather mediocre customer service departments, staffed by outsourced call centers, Northwest has highly trained professionals answering its phones at all times. These experts can help answer many tough questions that some competing companies’ support teams won’t have a clue how to answer.
In addition, Northwest also offers its customers a year of registered agent service. Unlike many competitors, Northwest locally scans every document it receives as your agent, while most other companies only scan the government forms they’re legally required to scan.
Along with ZenBusiness, Incfile is one of a very small handful of companies in this industry that will form an LLC or corporation with no service fees. All you need to do is pay your state’s fee and Incfile will take care of everything else. That’s not the only piece of good news we have regarding Incfile’s business formation services though.
Like ZenBusiness, Incfile also receives strong feedback from its customers, with around 34,000 positive reviews available online and just a few negative reviews.
However, Incfile has a couple of disadvantages as well. Most importantly, Incfile’s customer support team doesn’t always provide timely responses. In addition, Incfile has lots of upsells.
Should You Form a California LLC or Corporation?
There are some common aspects of the LLC and the corporation, starting with the personal asset protection they both provide. Also known as limited liability, this personal asset protection ensures that if your business is sued, only the business assets are at risk. Meanwhile, your personal assets — like your house, car, personal bank accounts, investments, etc. — are protected by your LLC or corporation’s business structure.
In addition, LLCs and corporations both provide their owners with business name exclusivity. If you own and operate a sole proprietorship or general partnership, you will not have exclusive rights to your business name. Instead, if another company decides to use your name as its own, you won’t be able to stop them. In fact, they could even register your business name and gain exclusive rights to it, forcing you to come up with a new one.
Advantages of the LLC
In general, an LLC is quicker and easier to form than a corporation. LLCs usually need to provide less information for their formation documents than corporations do, and there are fewer steps in the process as well. For instance, LLCs don’t need to draft corporate bylaws, name officers or board members, hold initial board meetings, or issue stock. On the other hand, corporations need to do all of these things and more.
The LLC is also a less rigid business structure that allows its owners greater flexibility. The business structure of a corporation is inflexible, with many regulations dictating how the business should look and function. Meanwhile, LLCs have options for business management structure and ownership responsibilities that corporations simply don’t have.
Another even more valuable option LLCs have is that they can choose how they want to be taxed. Most LLCs are taxed as pass-through entities, which means the business itself does not pay taxes but the profits are passed through the LLC itself to its owners, who pay taxes on this money on their personal returns. However, LLCs can also opt to be taxed like corporations (either as a C corporation or an S corporation), giving them more options for taxation than a corporation has.
Advantages of the Corporation
Corporations have some advantages too, like the ability to sell stock. It’s quite difficult for an LLC to attract outside investments because it cannot issue stock. The vast majority of investors prefer stock as their investment medium, and it’s also very rare to see venture capitalists investing in LLCs. For these reasons, the corporation is a much better option for businesses looking to attract investments.
In addition, the corporation has been around for hundreds of years, while the LLC is a newer addition to the American business landscape. This means that the corporation has more established legalities, and also that it’s easier to expand into other states because the corporation’s structure is essentially the same no matter where you form it.
Hiring an Attorney to Form Your California LLC or Corporation
If your business is especially complicated, or you simply prefer the peace of mind you get from having a qualified business attorney forming your entity, you could hire a lawyer instead of using a formation service. Hiring an attorney will definitely be far more expensive than using an online service, but you will receive the level of expertise and experience you can only get from a lawyer.
We took a look at a wide range of business attorneys serving California to help find the best person to serve your business. We can’t provide a comprehensive list, of course, but if you’d like to take a look for yourself, you can check out Avvo’s list of the top-rated business lawyers in California. Here are our top five choices in this state:
The Total Cost of Forming and Maintaining a Business in California
In addition to the costs of a business formation service or hiring an attorney (which are optional, as we’ve discussed), there are quite a few other required and optional expenses when forming and maintaining a California business. You cannot form an LLC in California without filing the Articles of Organization, or the document that officially registers your business within the state. The filing fee for this is free, unless you want additional certified copies (you get one free copy) for $5 per copy. If you choose to form a corporation, then you will file the Articles of Incorporation instead, which also has no filing fee.
Within the first 90 days of forming your business, you will need to submit an Initial Report for $20. This acts as a precursor to the Statement of Information, which you’ll file every other year — also for $20. These reports keep the state up-to-date about some basic but vital information about your business.
Those expenses are pretty minimal, but don’t think that you won’t have to pay any substantial expenses because the state charges a hefty Annual Franchise Tax. For an LLC, this tax is levied regardless of how much income you make, and it costs a hefty $800 each year. For corporations, $800 is actually the minimum amount you’ll owe.
Then there are income taxes to consider. And to top it off, you’ll have to pay federal taxes, along with several others. For instance, if you have employees, you’ll pay unemployment insurance tax. If you sell goods or services, you’ll pay sales and use tax. Depending on the nature of your business, there could be other taxes required, so check with the California Department of Tax and Fee Administration to make sure.
Other than that, the other potential expenses only apply to certain businesses. These include things like professional or industry-specific business licenses and business insurance.
Frequently Asked Questions About California Business Formations
Before we wrap things up, here are the answers to some of the most commonly asked questions about forming LLCs and corporations in the state of California.
What are the business tax rates in California?
Like we mentioned earlier, California charges a hefty Annual Franchise Tax of at least $800 each year. After that, every business is subject to income taxes. The rates depend on the taxation structure of your business. Corporations and LLCs taxed as corporations will pay a flat rate of 8.84%; pass-through entities pay rates ranging between 1% and 12.3%. Last but not least, C corporations will still be taxed at the federal rate of 21% (and so will your LLC, if you choose to be taxed as a C corp), while LLC profits are still subject to federal personal income tax brackets.
How long does it take to form an LLC or corporation in California?
Business formation turnaround times vary considerably from state to state. In California, you can find real-time processing speed updates on this page. At the time of this writing, it was taking roughly four business days to process online submissions and six business days for paper forms.
How many small businesses are there in California today?
There are more than 4.2 million small businesses currently operating in California, comprising all but 0.2% of businesses in the state. Roughly 48% of the California workforce is employed by one of these businesses.
What are the top official state resources for entrepreneurs?
The Secretary of State provides a helpful index of small business resources directly on their website here. The Small Business Development Center is another great network of business support centers that offer coaching and networking opportunities.
What sets California apart when it comes to forming businesses?
In this guide, we’ve made California look like a challenging place to start a business based on the annual expenses and hefty business taxes. And that’s true; the state is one of the more expensive places to operate a business, even though it is now free to form most entities in this state. That said, California also has a massive, still-growing population, which provides entrepreneurs with networking opportunities, capital availability, potential employees and business partners, and much more. Add to that the fair climate, and California can be a great state for some entrepreneurs.
What else can online business formation companies do?
Companies like ZenBusiness and Incfile don’t stop after forming your LLC or corporation. These providers also offer many other services that can help your business save time and hassle. For instance, these companies can provide registered agent service, annual report service, EIN acquisitions, and much more.
No matter which company you choose to form your new business — or if you opt to form your own, or hire an attorney, etc. — we hope this guide helped you iron out some of the wrinkles regarding LLC and incorporation services in California.