Entrepreneurship is exciting—the thrill of developing a winning product or service, bringing that idea to life, and making life better for your clients—it’s fun. But unfortunately, it’s not free. Long story short: starting a business has a price tag. LLCs are no exception.
If you’re hoping to start an LLC in California, you’ll quickly learn that you’ll have a pretty long list of fees for forms, licenses, and applications that you’ll need to get started. Some of those are optional fees, and some are unavoidable. In this guide, we’ll walk you through all the costs you can expect when starting a California LLC. By the end, you’ll have a clear picture of how your new business will impact your wallet.
What’s the least amount I have to pay to form an LLC in California?
If you’re crunching the numbers before diving right in, good on you! Planning ahead is a surefire way to start your business off on the right foot. But let’s make one thing clear: the phrase “cost to start an LLC” is a bit deceptive. That’s because you don’t want to get stuck focusing on the “day one” expenses of business.
That’s right—when budgeting for start-up costs, you need to account for the costs you’ll pay today and the costs you’ll pay a year or two down the road.
So let’s talk start-up costs and ongoing costs for your California LLC. But to keep things simple, here we’ll cover the non-negotiable costs. Later on, we’ll talk about services that are nice to have (but you can live without if you have to).
CA LLC Start-up costs
There are two primary start-up costs in California. The most important one is the Articles of Organization. The fee for it is $70 (plus a $5 fee for each certified copy you want). And even though this cost is pretty reasonable, you can’t avoid it. The Articles of Organization is what officially forms your business in the state. Without it, you’re not a recognized business.
A lot of California LLCs will also need to obtain general business licenses and professional licenses. Unlike many states, California does not require a general business license, but some municipalities do. You’ll need to contact your local government office to learn what the requirements are in your area.
Then there are the professional licenses to consider. We could list a huge index here, but we won’t. Suffice it to say, California requires licenses for a wide variety of professions: chiropractors, landscapers, physicians, and more. Every licensing board has its own procedure for applications, renewals, and application fees.
It’s up to you to determine which local licenses and professional licenses will apply to your business. Thankfully, California offers a helpful tool to make the process easier: CalGold. This tool acts as a comprehensive resource to business licenses and permits in the state.
Ongoing costs for an LLC in CA
If your business lasts (and we’re confident it will), then you’ll have several ongoing costs. These include license renewals, annual reports, and taxes. Let’s dig into those prices and fees.
License renewals
Just like it’s hard for us to list the license application fees you’ll need to pay, it’s hard for us to list out the renewal procedures for those licenses. This guide would be tedious if we did. But it’s reasonable to expect that you’ll have to pay occasional fees to renew your licenses. When you obtain your licenses, we recommend taking note of the renewal requirements for your area and your industry so none of the fees surprise you.
Annual taxes
California is notorious for some pretty hefty taxes. Some businesses can even be subject to double-taxation. But we won’t dig into the nitty-gritty of that here. Instead, we’ll take a big-picture look. First and foremost, there are income taxes to consider. Individual rates range between 1% and 13.1%. But if you’re taxed as a corporation, you’ll pay a flat rate of 8.84%. And if you’re involved in the sale of a qualifying good or service, you’ll also need to collect and pay the state sales tax (7.25% plus local fees).
But the tax burdens don’t stop there: California also levies a franchise tax. This one can be a pretty hefty burden since there’s a minimum fee of $800 that goes up with your business income level. The tax is due during the first quarter of your business’s tax year, and there are very few exemptions from it. You can learn more at the Franchise Tax Board.
There’s also a wide variety of miscellaneous business taxes that we won’t cover in detail here. For more information about California taxes, check out the California Department of Tax and Fee Administration.
Annual report
Most states require LLCs to file some version of an “annual report,” or a document that informs the state about the current standing of your business. This document is usually required in addition to annual tax reports, since it usually includes information about your business address, members, your registered agent, and so on.
In California, the annual report process is technically a biennial report, sometimes called the statement of information. Long before your first biennial one, though, you’ll need to file an initial statement. It’s due within the first 90 days of forming your business. After that, you’ll need to file once every two years. There’s a $20 filing fee, and you can start the process here.
What are the discretionary costs to form a California LLC?
When you’re starting your business, your budget is usually pretty tight. Prioritizing costs can get tricky. The costs we listed above are unavoidable. Well, technically, you can avoid them, but you’ll be heavily penalized if you do. And there’s not much point to spending all that money on starting a business only to knowingly let it be dissolved because you didn’t pay your ongoing costs.
But if you can help it, doing the “bare minimum” is probably not the best way to start your business. There are plenty of discretionary costs you can pay for certain services that make life easier. Here, we’ll dig into those costs—and why you might consider paying them.
1. Name reservation application
Naming things can be a bit tricky; after all, sometimes inspiration is a little lacking! And since California doesn’t allow you to use a name that someone else has already claimed, you have to work even harder to pick one that’s unique, memorable, and just right for your business.
It’s a multi-step process, really: you have to brainstorm name ideas, choose just the right words, meet state name requirements, and of course, ensure that the name isn’t already in use (you can check using a Business Search).
If you’re like a lot of people, you probably want to ensure that your hard work doesn’t go to waste once you’ve created the perfect name. So you have to lay claim to your new business name. You can do so either by filing your Articles of Organization, or by filing an Name Reservation Request form. You should only file this form if you’re not yet ready to file your Articles. Otherwise, you’d be wasting your hard-earned cash. California requires a $10 fee for this application, and once complete, it protects your name for 60 days. If you need more time, you can reapply once your initial application expires.
2. Obtaining a Fictitious Name
Wait—didn’t we just cover business names? Yes. But there’s a distinction: your business name, which you’ll write in on your Articles of Organization, is the legal name of your business. A fictitious name, sometimes called a DBA, an assumed name, or a trade name, is like a nickname for your business. For example, your legal name might Joseph Smith, but your friends call you Joe for short. Joe is a perfectly valid name, but you can’t put it on legal paperwork. You’d have to legally change your name to do so.
A Fictitious Name acts kind of like a nickname for your business; some LLCs and corporations also use Fictitious Names to establish new product lines or new “businesses” under the LLC “parent company.” But regardless of why you use a Fictitious Name, if it differs from your legal name, you need to register it before you can use it.
In California, the process for registering a fictitious name is a bit unique. That’s because you don’t register names on the state level; instead, you’ll need to do it with your local county clerk. Long story short, each county clerk has its own application fees, so we can’t give you a definitive price tag. Once you’ve registered your name with your clerk, you’ll also need to declare your fictitious name as an “ad” in your local newspaper. This must be done for four consecutive weeks. After that’s done, you need to obtain a letter from the publication that states you’ve fulfilled the four-week publishing requirement. You’ll pass that on to the county clerk.
We get it; that sounds like a slightly tedious process. For more information about these procedures, check out our guide to California Fictitious Names.
3. LLC formation services
Paperwork is a massive hassle. And unless you’re starting an LLC to help other Californians with their paperwork, odds are you don’t want to deal with much paperwork yourself.
The bad news? Paperwork is an unavoidable part of starting a California LLC: the Articles of Organization, the biennial report, license applications—the list goes on and on. The good news? You can hire an LLC formation service to do the pesky paperwork for you.
Of course, there’s some cost involved. And while there are a lot of great LLC formation services, they aren’t all created equal. And they all have different price points.
Many LLC formation services offer a wide variety of packages, with basic options starting at low prices like $39 from Zen Business (one company, Incfile, even offers a starter package for $0). But if you’re willing to shell out some serious cash for comprehensive assistance, you’ll find package prices going as high as $799.
These services are completely optional; you can DIY your California LLC formation. But many entrepreneurs find the time saved is worth the money. If you do opt to hire a service, please make sure you take the time to understand what you’re buying. Some services charge one-time fees, and others tack on “free services” that will cost you next year. If you don’t read the fine print, you can get slapped with unexpected service fees. And surprise bills are never fun.
4. CA Registered agent services
California law clearly states that every LLC must designate a registered agent to act as a middleman between your business and the state. Long story short, the registered agent accepts service of process (and any other official communication from the state) on your behalf.
Technically, this is another thing you can DIY; California allows you to serve as your own registered agent. However, in our opinion, it’s worth the expense to hire a registered agent.
Why? For starters, a registered agent’s address becomes part of the public record; anyone in the state can find that address. That leads to spam mail (sometimes worse). Plus, a registered agent must be present at the registered address during all standard business hours. If you serve as your own, you’d be tied down to your location constantly. A registered agent service prevents those annoyances. A service will also help you keep track of annual filing requirements, license renewals, and more.
These services typically charge an annual fee. For example, annual fees for our top 4 California registered agent services range from $99 to $299 per year depending on the service you choose. That said, some offer the first year free if you use them as an LLC formation service.
Quick Note: If you need to later down the line, you can always change your registered agent.
5. Expedited filing fees
In California, traditional processing speeds can take as long as 15 days, especially if you file by mail. Granted, that time can vary based on order volume, time of year, and so on.
If that sounds like too long to wait, California has a lot of expediting options, but for pretty hefty fees (and they require you to drop off your forms in person). For example, if you want 24-hour service, you’ll need to pay $350. Same-day service costs $750. Understandably, those prices might give you sticker shock; if your budget is tight, you might just want to be patient. But that’s your call.
6. Business attorneys
Starting a business is a complicated process. And it’s a legal one. We do our best to make the process seem less daunting with guides like this one. But at the end of the day, we can’t write a guide that would cover every single question every business will ever face. That’s because your business is unique.
Business attorneys, however, can talk you through all the nuances of forming and running your business. In many cases, the advice of an attorney can save you thousands by helping you avoid expensive legal mistakes.
However, the upfront costs of hiring a business attorney can be pretty pricey. For example, many attorneys charge per hour, with rates ranging between $150-$350. Others offer “LLC formation packages” for flat rates that fall between $500-$2000. And of course, those fees vary based on the attorney’s experience, location, and so on.
If you’d like to hire one, we recommend checking out sites like Avvo.com. Their database is nearly comprehensive, so it’s a great way to search California business lawyers. You can also narrow results by location, cost, overall satisfaction rating, and more. It’s the best place to look to find the right legal consultation for your business.
Conclusion
Long story short: starting a California LLC can be a pretty pricey endeavor. If you look at each cost separately, it doesn’t seem too bad (unless you need to rush-order it with an expedited filing fee). But when you add them all up or tack on some additional services, the total price tag grows pretty quickly.
Thankfully, since you’ve read this guide, you know what you’re up against. And sometimes, knowing is half the battle—and now you’re armed with all the information you need to budget the start-up costs so you can start your California LLC off on the right foot. We wish you and your new business the best!