CA LLC Annual Fee: Everything You Need to Know
An LLC is a company that uses certain state statutes to protect owner liability from exceeding the capital invested in the concern while simultaneously moving all profits through to the owners so it can be taxed as individual income.3 min read
2. LLC Fees
Despite the CA LLC annual fee — forming an LLC in California is a popular way to organize a business concern. An LLC, or limited liability company, is a method of protecting a business against certain legal concerns common to sole proprietorships or partnerships while maintaining an advantageous tax position. While an LLC's limit on liability and “pass through” tax status are very attractive to a wide range of business concerns, there are important cost considerations to take into account before filing your own business as an LLC.
What Is an LLC?
An LLC is a company that uses certain state statutes to protect owner liability from exceeding the capital invested in the concern while simultaneously moving all profits through to the owners so it can be taxed as individual income. LLCs thus reduce financial risk as well as local tax bills and act as a shelter against double taxation. LLCs are entirely a creation of local governments and are meaningless on a federal level, though a similar federal status called an S corporation does many of the same things nationally. Since LLCs are filed and governed state by state, the relevant laws also vary based on exact location.
There are two broad categories of fees associated with LLCs. They are:
- Set-up fees
- Annual fees
Set-up fees are an initial expense to create the company. In California, the initial filing fee is a nominal $70, due within 90 days of formation. But there will usually be an additional charge to put the paperwork together. Unless you are a lawyer yourself, you will need to hire an attorney to draft the necessary forms, and costs will vary based on the kind of business you are registering and how complex it is to prepare the resulting paperwork.
An annual fee is a recurring cost that an LLC is obligated to pay at a regular interval, typically every year or two. It's a flat amount, regardless of the kind of business or how successful it has been. Usually, LLCs that fail to send in their annual fees are dissolved by the state they are filed in. The exact term for these fees varies by state; it may be called an annual report, an annual list of members, a business privilege tax return, an annual list of members, a decennial report, an annual registration fee, a period report, or a franchise tax report.
In California, LLCs must pay an annual fee of $800 plus a $20 filing fee every year. This is referred to as a minimum franchise tax. They also need to file Form 3522 with the Franchise Tax Board, and if their gross receipts top $250,000 on their Form 568, they have to pay additional fees. The $800 does give a credit against receipts on the 568. If any company members are not California residents, the company needs to file a Form 3832. Note that these fees apply to most LLCs from other states that do significant business in California as well.
For companies in their first year, the $800 due is not prorated for firms that start partway through the year, so if you are looking for a good time to file your LLC, it's useful to remember that filing late in the year will cost as much as filing early. The only exceptions are for LLCs solely owned by deployed members of the armed forces or for S corporations, and require the business to not have any business activity taking place during the specified period.
Fees accrue yearly, until the company is finally dissolved, so any LLC looking to go out of business is cautioned to do so swiftly and efficiently. That year is usually the standard calendar year, though there are ways to set a separate fiscal year with the cooperation of the government. Payment is due the 15th day of the fourth month after the end of the fiscal year, which is April 15 for companies using the calendar. Past that date, the money will be considered late, and penalties will begin to stack up until the business makes good on their obligations.
If you need help with your California LLC's annual fees and taxes, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.