1. LLC Formation: An Overview
2. California LLC Fees & Taxes

LLC in California costs are often on business owners’ minds when wanting to form a California LLC. Forming an LLC in the State of California is both affordable and easy. In California, you can simply form an LLC by filing the Articles of Organization with the Secretary of State’s office and paying the applicable filing fee. Furthermore, Form LLC-1 must be filed, which is a document that identifies a few key items, including the business name, principal place of business, registered agent info, and other generic business information.

LLC Formation: An Overview

California also requires LLCs to draft an operating agreement; however, it doesn’t have to be filed with the Secretary of State. This agreement will specifically identify the roles and responsibilities of all LLC owners, along with other business arrangements including but not limited to voting rights, membership interest, buy-sell provision, and what happens if a member dies, becomes disabled, or goes bankrupt. Keep in mind that if you fail to create the operating agreement, then the LLC laws of the state will govern, which might not be the best outcome in the event that a legal suit arises.

After you’ve submitted the Articles of Organization and drafted your Operating Agreement, your business is almost official. You will still need to obtain business licenses and permits that might be required of you before you can begin operating. This could include obtaining an Employer Identification Number (EIN), seller’s permit, zoning permit, tax registration, employer tax withholding, unemployment insurance, or general liability insurance.

California LLCs must have an office in the state, though it doesn’t have to conduct business in that office. If you don’t conduct business in the State of California, then you are likely going to register in the state in which you are actually conducting business. For example, let’s say you want to form an LLC in New York. However, you want to obtain authorization to also conduct some business in California. In order to do so, you will need to register as a foreign LLC in California before actually doing any business in the state. Therefore, once you are given permission to do so, and obtain all of the proper validated paperwork, you will have full authority to operate as a foreign LLC in California. With that said, you need the principal office address in California, even if you are primarily conducting business in New York.

California LLC Fees & Taxes

The State of California charges the following fees to LLCs:

  • Articles of Organization filing fee of $85
  • Statement of Information that is due within 90 days after forming your LLC, with a fee of $20
  • Business licensing and permits fees, which vary depending on the type of license or permit required, i.e. small business license could cost between $50-$100
  • California LLC annual fee of $800, which is due within 3 and a half months after forming your LLC and then again on April 15 thereafter. Note, that this tax applies regardless of how much activity is being conducted in the state
  • California does not impose a federal tax since LLC profits and losses are reported on the members’ individual tax returns
  • California imposes state tax in accordance with the California LLC tax schedule. The fee is charged annually and must be paid to the California Franchise Tax Board
  • If your business’s net annual income is greater than $250,000, then you might have to pay another fee along with your annual tax return (Form 568 – Informational Tax Statement)

Keep in mind that a single-member LLC is treated as a sole proprietorship while a multi-member LLC is treated as a partnership for tax purposes. Any LLC members who are active in the business will also be required to pay self-employment taxes on their share of LLC profits, similar to the way partners do in a partnership. However, the LLC member can deduct half of his or her self-employment taxes paid as a business expense.

Members in a manager-managed LLC might not have to pay self-employment taxes if they aren’t active in the overall operations of the business. However, before choosing not to pay such taxes, you should first speak to a tax professional to see if you need to pay.

If you need help forming an LLC in California, or learning more about the costs of forming a 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.