Cost to Form LLC in California: Everything You Need to Know
You’ll need to know the cost to form an LLC in California before you take the steps to forming your LLC. 3 min read
2. LLC: An Overview
3. How to Form an LLC
4. Fees and Taxes
5. Additional Potential Costs
Cost to Form LLC in California
You’ll need to know the cost to form an LLC in California before you take the steps to forming your LLC. Furthermore, you should be aware of the additional costs for operating outside of the State of California, as you might need to acquire a certificate of good standing from the California Secretary of State’s office prior to conducting business in another jurisdiction.
LLC: An Overview
An LLC (Limited Liability Company) consists of owners, who are referred to as members. An LLC can operate as either a single or multi-member business. The member(s) can choose to manage the LLC themselves (generally in a single-member LLC), designate one member (within a multi-member LLC) to act as the manager, or hire an outside third party to oversee the daily operations of the business.
The LLC is an attractive business structure for many reasons. Most importantly, the LLC offers personal liability protection for its owners (members). This means that the members of the LLC cannot be held personally liable for the debts of the California LLC.
Another attractive feature of the LLC is the pass-through taxation, which means that the LLC does not pay taxes; instead, the profits and losses of the LLC pass through to the members who then report it on their personal tax returns.
How to Form an LLC
There are a few steps that you need to take in order to form your California LLC, and you should know what steps are necessary before considering the costs associated with some of these requirements. These steps include:
• Pick a business name for your California LLC
• Find a registered agent who will act on behalf of your LLC by receiving important mailings regarding your LLC, i.e. potential legal mailings
• Find out what other legal requirements you must abide by. The State of California provides regulatory requirements for entities operating in the professional services industry.
• Obtain an Employer Identification Number (EIN)
• File the articles of organization
• Draft the operating agreement
Fees and Taxes
In the State of California, it costs less to form an LLC than it does to incorporate. Specifically, the fee to submit the articles of organization for your LLC is $85. Additionally, you must submit a statement of information within 90 days of forming your LLC, which carries a $20 fee. Depending on the industry in which you operate, you might need to pay additional fees to obtain business licensing and permits, which can cost roughly $50-$100 per license.
Additional LLC fees include:
• Annual tax fees of approximately $800/year must be made payable to the California’s Franchise Tax Board within three and a half months of forming your LLC.
• After the year in which you form your LLC, additional tax is due by April 15 each year. This tax must be submitted with FTB Form 3522 (LLLC Tax Voucher) and can be sent to the Franchise Tax Board. These taxes will depend on the LLC’s revenue and income earned from all sources.
• If your LLC’s net yearly income is greater than $250,000, then you might need to pay an additional fee (in excess of your annual taxes).
The State of California taxes LLCs as sole proprietorships, unless the LLC elects otherwise. As such, the personal income tax bracket within the state ranges from 1.25% to 9.55% for up to $1 million in personal income.
Additional Potential Costs
There could be additional potential costs to form your LLC, depending on the complexity of your business. For example, if you choose a business name but you’re not quite ready to continue forming your LLC, then you can reserve that business name for a period of time. The fee varies depending on the county in which you are forming your business.
Another potential fee is the fee for obtaining a registered agent. If you choose to hire a non-member to act as the agent, then those agents generally charge a nominal fee.
If you want to dissolve your LLC at any time, you will have to file documentation prior to dissolving your company. This means that your LLC will still incur taxes and other fees until the business is successfully dissolved.
If you need help forming your California LLC, 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.