If you’ve decided to form a limited liability company (LLC) in the state of California, this is an exciting time for your business.
You’re probably ready to build up your LLC and operate the business you’ve always dreamed of!
However, before you get started, it’s important to understand all of the various fees and other expenses that come with forming a California LLC.
Most entrepreneurs understand that they’ll have to pay the state a fee in order to get their LLCs formed. However, we find that some people are often unaware of all the potential additional expenses, like LLC formation service fees, registered agent service fees, Annual Report fees, taxes, and more. Let’s take an in-depth look at all the possible expenses you’ll encounter when forming a California LLC.
The Required Upfront Costs of Forming a California LLC
Let’s start by discussing the absolute essentials. You cannot form an LLC in California without filing the Articles of Organization; the Articles serve as the document that officially forms your business within the state of California. This filing costs $70 plus a $5 fee for any certified copies (not a requirement, but many entrepreneurs choose to keep them for official filing purposes; you get one copy for free).
The Articles of Organization requires some important info about your LLC, including contact information, the name of your business, management procedures for your LLC, and information for the registered agent.
But what if you’re not forming a brand-new business in California, and instead you’re transplanting a pre-existing business from another state? If that’s the case, then you’ll file a slightly different form, the Application to Register a Foreign Limited Liability Company. This filing costs just $70. And like the Articles, it requests a lot of important information about your business; the Application adds on information about where your LLC was originally formed.
You will also need to file an Initial Statement within 90 days of forming your business. This informational report acts a lot like the Biennial Report. Thankfully, filing it costs only $20.
For many LLCs, these are the only upfront expenses that are required. That said, your California LLC will certainly have other costs down the line, and there are some optional expenses as well. Understanding how many of these fees will apply to your business is the key to figuring out exactly how much it will cost to form your California LLC.
The Optional Upfront Costs of Forming a California LLC
The first optional expense for a California LLC is name reservation. The only time you need to reserve a business name for a California LLC is if you’re not yet ready to form the business but you want the name to be available when you are ready. It costs $10 to reserve a business name in this state, which gives you exclusive rights to the name for 60 days.
However, considering that you can simply form your business instead, the $10 name reservation fee is usually unnecessary.
Another expense that may or may not apply to your business is an LLC formation service fee. While some entrepreneurs choose to fill out and file their own Articles of Organization, and others opt for the much more expensive route of hiring an attorney to handle it, our preferred option is hiring a business formation service.
These companies can provide the professionalism and peace of mind you receive from having a true expert forming your LLC while charging significantly lower prices than any lawyer you’ll ever find. We’ll discuss LLC formation services again in a bit to help you figure out which of the many companies you should hire.
Many LLCs also hire registered agent services, and these companies also charge their own fees. Every LLC needs a registered agent, as this is the LLC’s point of contact for the state. If the state needs to send you any important documents (like service of process), they will deliver them to your registered agent, who will inform you and forward the documents to you.
We like to bundle registered agent and LLC formation services, as there are some formation services that will throw in a full year of registered agent service at no extra charge. For the most part, these companies charge an average of roughly $150 per year for this service, although rates can vary widely based on which company you choose.
You may also want to secure your business domain name and website, which will add another expense to your list. We always advise our readers to claim their domain names as soon as possible after filing the Articles of Organization because it’s important to get the URL you want for your website. Especially considering how much the business world operates online these days, getting the domain name you want is almost as important as securing your desired LLC name. The cost of a domain name can vary a bit, but for the most part, this should cost you $20 per year or less.
The Required Ongoing Maintenance Costs of a California LLC
No matter if you’re forming a new California LLC or transferring an LLC from another state, you cannot avoid filing a Statement of Information, or a Biennial Report. This filing keeps the state informed of vital business information like your registered agent’s information and your business’s management. The filing fee every other year is just $20.
But lest you think your annual costs will be small, keep in mind that California is notorious for hefty taxes each year. Foremost among them is the Annual Franchise Tax, which has a minimum cost of $800 and rises as your business income grows.
Depending on your LLC’s business pursuits, you will almost certainly need to pay some other form of ongoing business taxes as well. For instance, if your business sells any products or services, you’ll probably need to register for sales and use taxes in order to properly start a business.
If your LLC has employees, it will also need to pay unemployment insurance tax. Based on the nature of your business, there could be additional taxes on top of these, so make sure you check with the California Department of Tax and Fee Administration to make sure you’re paying all of the taxes you should be.
The Optional Ongoing Maintenance Costs of a California LLC
Much like you can hire an LLC formation service and a registered agent service, many of these same companies offer annual report services. If you’d like a reputable company to draft and file these reports on your behalf, you’ll need to pay their yearly service fees, on top of California’s state fees.
Business insurance is another ongoing expense that many, but not all, LLCs will require. It’s very difficult for us to get into much detail on this topic because there’s so much variance from business to business regarding insurance coverage needs.
Still, for example, any business that serves customers from a physical retail location should have business liability insurance to protect against common risks like slip-and-fall accidents. Depending on the nature of your business, this may be just the tip of the iceberg when it comes to your insurance responsibilities.
Next, while there is no general state business license in California, you might need a local one. And depending on the nature of your business, you may still need to obtain professional or industry-specific licenses. There are many different licenses and permits that might apply to your California LLC, and some of them might cost you money when you apply for or renew them, so this is another potential expense you’ll need to keep an eye out for.
The Potential Penalties for Avoiding These Costs
At this point, the costs are really adding up for some California LLCs. You might be wondering what the consequences would be for avoiding some or all of these expenses. In short, it’s certainly not in your LLC’s best interests to skip out on any necessary fees.
If you don’t pay your Articles of Organization filing fee, your LLC will never exist to begin with. If you fail to pay your Biennial report fee, the state can administratively dissolve your business if you delay too long. Meanwhile, failing to pay your taxes in full can lead to some severe penalties for you and your business.
While it might seem that these expenses add up quickly, paying these fees is still a far better option than the alternative. If there is simply no way to cover these LLC formation costs, a secondary option is to operate as a sole proprietor.
The Best California LLC Formation Services
Does the LLC formation process sound like a hassle? Would you rather pay someone else to form your LLC while you focus on actually growing your business? Fortunately, there are plenty of reputable LLC formation services out there that can provide professional assistance for a mere fraction of a lawyer’s fees.
There are dozens of different companies that offer LLC formation services these days, and it can be difficult to discern which of them is your best option. That’s why we put together our comprehensive guide to the top-rated business formation services available online. We encourage all of our readers to check out that guide and choose the right company for your specific situation. In addition, we’ll briefly run down a couple of our favorite options here.
We always appreciate what ZenBusiness has to offer, and they’re our top pick for LLC formation services for a reason. First off, ZenBusiness has some of the lowest price points in the industry. In addition, this company includes some valuable features like a full year of registered agent service at no additional cost.
ZenBusiness receives spectacular feedback from its clients, with 6,200+ reviews available online and nearly all of them being positive. Finally, the company also displays tremendous corporate responsibility, as it loans money to women- and minority-owned businesses and partners with Kiva.org to help lift people out of poverty.
Northwest Registered Agent: #2
You don’t need us to tell you that Northwest’s $39 entry-level price point is a good deal. What does Northwest Registered Agent do that makes them stand out? In short, Northwest has the best customer support we’ve ever experienced 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 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, just like Incfile and ZenBusiness. However, only Northwest locally scans every document it receives as your agent, while Incfile and ZenBusiness only scan the government forms they’re legally required to scan.
Another of our favorite options is Incfile. It’s impossible to top what Incfile has to offer for pricing, as they will form your business free of charge, as long as you pay your own state fee. Like ZenBusiness, Incfile also includes a year of registered agent service with your LLC formation service for no extra charge.
Additionally, Incfile has nearly 27,000 reviews online, with positive feedback far outweighing negative feedback. We don’t think they’re quite as well-rounded as ZenBusiness, but it sure is hard to argue with Incfile’s pricing model!
Frequently Asked Questions
What is the absolute minimum cost to form a California LLC?
The cheapest possible price tag for LLC formation is $90. That covers the cost of filing your Articles of Organization and the cost of your Initial Report. All other upfront expenses for a California LLC formation are optional.
How much does it cost to form a corporation in California?
In many states, it’s more expensive to incorporate a business into a corporation than it is to form an LLC. In California, that proves true. But the difference between the two price tags isn’t too big. LLC formations cost $70, and corporations must pay $100 to file the Articles of Incorporation.
How long does it take to form my California LLC?
The California Secretary of State can take as long as 15 business days to process your business filings, especially if you file by mail. If that’s too long to wait, California does offer a bunch of expediting options, costing as much as $750 for same-day processing.
How much does ongoing LLC maintenance cost per year in California?
At a minimum, you will have an annual cost of $800 for your Annual Franchise Tax and a biennial cost of $20 for the Biennial Report. That said, you may need to pay more if your income exceeds the minimum $800 fee for franchise taxes. And if you need business licenses, you’ll have the annual expense of renewing those licenses.
Where can I find more information about expenses for California LLCs?
There isn’t a comprehensive list of expenses for licenses, but the Secretary of State does provide a list of forms (and their accompanying fees) for LLCs, from formation to amendments and conversions and more on this page.
How many small businesses are there in California today?
There are over 4 million small businesses currently operating in California, comprising all but 0.2% of state businesses. Roughly half of California’s workforce is employed by one of those small 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.
We’ve discussed many California LLC costs in this article, some of which will apply to all LLCs in the state. As you can see, there are also plenty of expenses that will only affect certain LLCs. The most important takeaway is that you shouldn’t try to find loopholes to get out of paying these fees, as the consequences are potentially severe and easily avoidable.
That said, there are still some ways you can make financially smart decisions on your LLC formation and maintenance costs, like choosing an affordable business formation company to oversee your Articles of Organization filing and provide registered agent service.