By Jake Lawson | LLC Formation Strategist & Tax Advisor
Let’s address the elephant in the room: California is the most expensive state to run an LLC. Period. $70 to form (not bad), but then $800 every year just for existing, plus extra fees if you make real money. After helping 600+ entrepreneurs navigate California’s labyrinth of requirements, I’ll tell you this – if you’re doing business here, trying to form elsewhere is usually a fool’s game.
The state knows you’re here. They want their cut. And they’ve gotten very good at finding businesses trying to dodge their rules. So let’s talk about doing this right, minimizing the pain, and avoiding the expensive mistakes I’ve seen too many founders make.
The California LLC Price Tag: What You’re Really Paying
Before we dive into formation, let’s talk real numbers. Because if you’re going to commit to a California LLC, you need to know the full cost.
Year One Total Damage:
- Articles of Organization: $70
- Statement of Information: $20 (due within 90 days)
- Annual Franchise Tax: $800 (timing matters – more on this)
- Registered Agent: $125-200
- Business licenses: $50-500 (varies by city)
- Reality: $1,065-1,590 minimum
Every Year After:
- Annual Franchise Tax: $800
- Statement of Information: $20 (every 2 years)
- Registered Agent: $125-200
- Annual burn rate: $925-1,000+
Plus, if you gross over $250,000, California adds an LLC fee on top:
- $250,000-499,999: Additional $900
- $500,000-999,999: Additional $2,500
- $1,000,000-4,999,999: Additional $6,000
- $5,000,000+: Additional $11,790
Still want that California LLC? Let’s make sure you do it right.
Step 1: Name Your LLC (And Don’t Get Rejected)
California’s naming rules aren’t complex, but the state rejects plenty of applications for preventable mistakes.
The Rules That Actually Matter
Your LLC name must:
- End with “Limited Liability Company,” “L.L.C.,” or “LLC”
- Be distinguishable from other registered entities
- Not falsely imply government affiliation
- Avoid restricted professional terms without licensing
That last one catches people constantly. Want “Silicon Valley Medical LLC”? Better be a licensed medical professional. “Bay Area Legal Services LLC”? Show me your bar card.
My California Name Search Protocol
Step 1: The State Database Use California’s Business Search. Don’t just search exact matches – search keywords and variations.
Step 2: The Variation Sweep Planning “Golden State Digital Marketing LLC”? Also search:
- Golden State Digital
- Golden State Marketing
- GS Digital
- GSDM
- Any obvious variations
California clerks can be subjective about what’s “distinguishable.” Don’t give them a reason to reject.
Step 3: The California-Specific Check California has more businesses than most states combined. That “unique” name you thought of? Three companies in LA are probably using variations already.
Step 4: Domain and Trademark Reality Check the .com availability. Also run a basic trademark search. California’s tech scene means more trademark conflicts than anywhere else.
Name Reservation: Almost Never Worth It
California lets you reserve a name for 60 days for $10. In 15 years, I’ve recommended this maybe ten times. Either form your LLC or keep brainstorming. Reservations just delay the inevitable.
Step 2: Select Your Registered Agent (Your Most Undervalued Decision)
Every California LLC needs a registered agent with a physical California address. This decision matters more than most founders realize.
The True Cost of Being Your Own Agent
Sure, you save $125-200/year being your own agent. Here’s what that “savings” actually costs:
Privacy Gone: Your address becomes public record. In California’s litigious environment, that’s asking for trouble.
The Availability Trap: Must be available during business hours. That Tahoe ski trip? Better hope no legal documents arrive.
The California Move Tax: Change addresses in California? That’s not just an amendment – it’s updating multiple state agencies.
Real story: San Francisco startup founder, used his apartment as registered agent address. Missed a franchise tax notice during a two-week Asia trip. Result? LLC suspended, $2,000+ in penalties and interest, three months to resolve. That $150/year professional service would’ve prevented everything.
Why Professional Registered Agents Make Sense in California
Quality service ($125-200/year) provides:
- Commercial address on all documents
- Guaranteed availability
- Digital document delivery
- Privacy protection (crucial in California)
- Compliance reminders for that $800 payment
In a state where missing one document can trigger suspension, professional service isn’t optional – it’s insurance.
Step 3: File Articles of Organization (Online Only Now)
As of 2025, California only accepts online filing. No more mail option. This is actually good news – faster, cleaner, less chance for errors.
The Online Filing Process
Cost: $70 Processing: 8 business days What you need:
- LLC name (exactly as searched)
- Agent for service of process (registered agent)
- Management structure (member-managed or manager-managed)
- Organizer signature (digital)
- Purpose statement (keep it broad)
The Management Structure Decision
This matters more than people think:
Member-Managed: All owners participate in management. Simple, democratic, but can be chaotic with multiple owners.
Manager-Managed: Designated managers run the show. Better for passive investors or complex structures.
Choose wrong and you’ll need to amend later. Think about your long-term structure now.
Privacy Considerations
Every name on your Articles becomes public. California doesn’t require member names, but the organizer and agent are listed. If privacy matters:
- Use a formation service as organizer
- Use a professional registered agent
- Keep member names off initial filing
- Add details only when required
Step 4: Create Your Operating Agreement (California Requires This)
Unlike many states, California actually requires written operating agreements for multi-member LLCs. Single-member LLCs don’t technically need one, but try opening a bank account without one. Good luck.
Single-Member Operating Agreements: Your Credibility Document
Even flying solo, you need this because:
- Banks demand them
- IRS wants proof of legitimate business
- Courts use them to validate LLC protection
- Future partners/investors need structure
- Selling requires documentation
Had a client in San Diego, single-member LLC, no operating agreement. Got into a contract dispute. Opposing counsel argued the LLC was a sham. No operating agreement to prove otherwise. Suddenly personal assets were in play. Don’t be that person.
Multi-Member Operating Agreements: Your California Survival Guide
California’s business environment makes solid operating agreements critical:
Ownership and Capital:
- Exact ownership percentages
- Capital contribution details
- Additional funding requirements
- Dilution provisions
- California community property considerations
Management Structure:
- Voting rights and thresholds
- Major decision requirements
- Deadlock resolution (California courts hate refereeing business disputes)
- Day-to-day authority
Money Distributions:
- When and how profits distribute
- Tax distribution provisions (crucial with California’s tax rates)
- Compensation for working members
- Expense reimbursements
Exit Planning:
- Buy-sell provisions
- Valuation methods
- Transfer restrictions
- Death/disability terms
- California-specific dissolution requirements
Personal example: Two LA entrepreneurs, 50/50 split, basic operating agreement. One wanted to pivot the business, other didn’t. No tiebreaker mechanism. California court battle lasted 18 months, cost $120,000 each in legal fees. A comprehensive operating agreement would’ve cost $2,000.
Step 5: Get Your EIN (Free and Fast)
Your Employer Identification Number is required for everything after formation. Don’t overthink this step.
For US Citizens/Residents
- Go to IRS.gov
- Apply online
- Select “Limited Liability Company”
- Get EIN instantly
- Save that letter forever
Time: 15 minutes. Cost: $0. Difficulty: Minimal.
For International Founders
No SSN/ITIN? Welcome to the slow lane:
- Fax: 4-5 business days
- Mail: 4-6 weeks
- Phone: Theoretically possible
California attracts international entrepreneurs. If that’s you, start the EIN process immediately after filing Articles.
Step 6: File Statement of Information (The 90-Day Clock Starts)
Here’s where California gets you: Within 90 days of formation, you must file a Statement of Information. Miss this deadline? Penalties start accruing.
Cost: $20 Due: Within 90 days of formation, then every 2 years File: Online through California Secretary of State
This document updates:
- Current addresses
- Management structure
- Agent information
- CEO/Secretary/CFO designations
Pro tip: Set a reminder for 75 days after formation. Don’t be the founder scrambling on day 89.
Step 7: Navigate the $800 Franchise Tax (Timing Is Everything)
California’s $800 annual franchise tax is unavoidable. But when you form your LLC dramatically affects when you pay.
The Timing Strategy That Saves $800
Form your LLC between January 1 and December 15: You get the current year “free” (no $800 for year one).
Form your LLC on December 16-31: You immediately owe $800 for the current year, then another $800 in April. That’s $1,600 in four months.
Real numbers:
- Form January 2, 2025: First $800 due April 15, 2026
- Form December 20, 2025: First $800 due April 15, 2026 (same as January!)
This isn’t tax advice – it’s calendar math. Time your formation wisely.
How to Pay the Franchise Tax
First payment: Due 15th day of 4th month after formation Subsequent payments: April 15 annually Pay to: California Franchise Tax Board Form: 3522 (payment voucher)
Miss this payment? California suspends LLCs faster than any state I know.
Step 8: File Form 568 (Your Annual Tax Return)
Every California LLC must file Form 568, regardless of income or activity. This isn’t optional.
When due:
- Single-Member LLC: April 15
- Multi-Member LLC: March 15
- Extensions available but payment still due
What it reports:
- Income and expenses
- Member information
- Tax calculations
- Various elections
Even with zero activity, you file Form 568. California wants to know you exist and aren’t hiding income.
The Banking and Licensing Marathon
Your LLC is formed. Now for the practical stuff that actually lets you operate.
Opening a California Business Bank Account
California banks typically want:
- Articles of Organization (stamped copy)
- Statement of Information (filed copy)
- EIN Letter
- Operating Agreement
- Initial deposit ($100-1,000)
Major Banks: Wells Fargo, Bank of America, Chase know the drill but less flexible
Regional Banks: First Republic, Pacific Western, Comerica more relationship-focused
Online Banks: Mercury, Bluevine, Novo cater to startups
My recommendation? Start where you have a relationship, switch when you need specific features.
California Business Licenses: The Local Layer
California has no state general business license. But cities and counties? Different story.
Major Cities:
- Los Angeles: Business tax registration required
- San Francisco: Business registration certificate required
- San Diego: Business tax certificate required
- San Jose: Business license required
- Sacramento: Business operations tax
Some cities charge flat fees, others base it on gross receipts. Research your specific location.
California LLC Taxes: The Full Picture
Let’s talk about what actually hits your bank account at tax time.
Federal Taxes
Your LLC doesn’t pay federal tax. You do:
- Single-Member: Schedule C on your 1040
- Multi-Member: Form 1065, then K-1s
Plus self-employment tax: 15.3% on profits. This surprises every new business owner.
California State Taxes
Beyond the $800 franchise tax:
- State income tax on profits (up to 12.3% for high earners)
- Additional 1% for income over $1 million
- LLC fee for gross receipts over $250,000
- Sales tax if selling products (7.25% base + local)
The S-Corp Election Question
“Should I elect S-Corp taxation?”
In California, once you’re netting $80,000+, maybe. S-Corp can save on self-employment tax but adds:
- Payroll requirements
- Reasonable salary rules
- Additional returns
- More complexity
California also taxes S-Corps differently than regular LLCs. Talk to a California CPA before making this election.
Special California Situations
Professional Restrictions
Most licensed professionals can’t use LLCs in California:
- Lawyers
- Doctors
- Accountants
- Architects
- Real estate brokers
You’ll need a professional corporation instead. Check with your licensing board first.
Real Estate Holdings
Holding California property in an LLC? Consider:
- Proposition 13 reassessment issues
- Transfer taxes
- Due-on-sale clause triggers
- Insurance complications
Many investors use separate LLCs per property. More expensive but better protection.
Tech Startups
Planning to raise venture capital? Most VCs prefer Delaware C-Corps, not California LLCs. If you’re building the next unicorn, consider your entity choice carefully.
The Out-of-State Formation Myth
“I’ll form in Nevada/Wyoming/Delaware to avoid California fees!”
Stop. If you live in California or do business here, you’ll need to register as a foreign LLC anyway. That means:
- Original state fees
- California foreign registration ($70)
- California $800 franchise tax (still applies!)
- Two registered agents
- Double compliance
You save nothing and complicate everything.
Common California LLC Mistakes
Mistake #1: December Formation Disaster Forming December 16-31 and paying $1,600 in four months.
Mistake #2: Missing the 90-Day Statement Forgetting Statement of Information, accruing penalties.
Mistake #3: Ignoring the Franchise Tax California suspends non-payers quickly and publicly.
Mistake #4: Professional Service Through LLC Using an LLC for restricted professions.
Mistake #5: Thinking Nevada Will Save You Forming out-of-state while living in California.
Your California LLC Timeline
Week 1: Planning
- Choose and verify name
- Select registered agent
- Draft operating agreement outline
- Review timing for tax purposes
Week 2: Formation
- File Articles online ($70)
- Apply for EIN
- Finalize operating agreement
Week 3: Compliance
- Receive formation confirmation (8 days)
- Mark 90-day Statement deadline
- Research local licenses
- Schedule bank appointment
Week 4: Operations
- Open business bank account
- File Statement of Information
- Apply for local licenses
- Set franchise tax reminders
The Bottom Line on California LLCs
California is expensive. California is complex. California is demanding. But if you’re doing business here, California is unavoidable.
After 15 years and 600+ California formations, here’s my truth: The entrepreneurs who succeed in California don’t try to game the system. They accept the costs, follow the rules, and focus on building businesses that can afford the overhead.
If $800/year breaks your business model, California might not be your market. But if you’re building something real in the world’s fifth-largest economy, do it right. Form properly, maintain compliance, and get back to what matters – growing your company.
California doesn’t apologize for its costs. Neither should you. Build something worth the fees.
Jake Lawson has facilitated over 1,200 business formations nationwide, including 600+ in California. He’s seen every attempt to avoid California fees fail, watched the state catch every dodge, and learned that compliance beats creativity when it comes to California business law. This guide reflects California law as of 2025.
Ready to form your California LLC? Now you know the real costs and requirements. No surprises, no hidden fees, no false promises about avoiding California’s reach. Time to decide: Are you in or out?