How much does it cost to form a California LLC or Corporation?
California has a $2.6 trillion economy, making it the largest in the nation. It is one of the favored states among entrepreneurs and startups due to the robust business infrastructure and a host of business incentive programs available. The cost to form a California LLC or a business corporation initially is also one of the factors attracting new business formation. The annual California corporation maintenance cost or LLC maintenance cost is different as compared to other states like Florida or Arizona and hence we have created this article to provide you with information and guidance. The article will provide you with an insight into certain aspects of California LLC or Corporation like choosing the right entity, new business formation costs, and annual maintenance costs.
California LLC or Corporation
There are different types of business structures you can choose in California including Limited Liability Partnership and Sole Proprietorship although the most popular is a limited liability company or a business corporation. The formation of an LLC is governed by the California Revised Uniform Limited Liability Company Act while that of a corporation is governed by the General Corporation Law. The cost to form California LLC is different from that of stock or professional corporations in the state. The annual California corporation maintenance cost is also different from that of limited liability companies.
Which business entity should I choose for California business?
Once you have an idea and are ready to bring it to life through a startup in California, the next most important decision would be to choose the type of business entity you should form. It is important to note that each type of business entity has its own advantages and disadvantages and these include the overall cost to form a California Corporation or LLC. There are certain aspects or factors that you should consider when planning to incorporate in California. Let us look at some of the important aspects.
- Business ownership: One of the first factors that will help you to determine the type of business entity you should form or incorporate in California is the business ownership. If you are the only owner and have no partners then sole proprietorship or a single member LLC would be the right choice. A sole proprietorship is easy to form and easy to exit from. It is the simplest and one of the most common small business legal structures. A single-member limited liability company (SMLLC) on the other hand is considered as an alternative to a sole proprietorship business. It is considered to be a “disregarded entity” and the IRS will tax this entity as a sole proprietorship. One of the other advantages is that the cost to form a single-member LLC or a sole proprietorship will be less than the cost to form a California Corporation.
- Liability and personal assets: Each form of business has its own set of risk factors although business risk usually constitutes four categories. These categories are compliance risk, strategic risk, reputational risk, and operational risk. You can also form a California LLC or corporation to minimize certain risks. There is also the liability and personal risk, which is high in some forms of businesses like sole proprietorship and low in some forms of business like an LLC. Asset protection is another area that is used for protecting personal and business assets from creditor claims and this is possible through business structures like partnerships, corporations, limited liability companies (LLCs), and trusts.
- Registration and maintenance costs: One of the important areas to consider is the overall formation costs of starting a new business in California. The cost to form a California LLC may be different from that of a business corporation or any other legal structure. In order to understand the cost of formation, let’s look at the cost to form California LLC vs. incorporation.
- If you plan to start a general stock corporation or a professional corporation then the registration cost or cost to form a California corporation is $100 and there is an additional $15 if you drop off the incorporation documents at the Sacramento office. If you form a California LLC then the registration cost is $70.00 and an additional $15 for drop off. There are annual maintenance costs as well like the Statement of Information, which is due within 90 days of initial registration. The fee for submitting the Statement of Information for domestic and foreign Stock Corporation is $25 as compared to the fee for Statement of Information for a domestic and foreign LLC, which is $20.
- Continuity of existence: When an entrepreneur starts a business they want the business to continue for as long as possible. In the case of certain business structures like a general partnership; the business dissolves when a partner dies. If you form a California LLC that is multi-member then death or withdrawal of a member can lead to dissolution unless the operating agreement of the LLC permits continuation of business. A business corporation on the other hand is a separate legal entity that can continue to exist even after death, incapacity, or withdrawal of its shareholders, directors, or officers.
Start your California Business Today!
California LLC Cost
One of the most popular forms of business entity is the limited liability company because of the several advantages it has to offer. One of the top benefits to form a California LLC is that personal assets are protected especially when the business is sued for any form of negligence. When it comes to taxes, an LLC can leverage its “pass-through taxation” status where-in the business is not taxed and instead, the income and expenses of the LLC are passed through to the personal tax returns of the owner. A limited liability company unlike S Corporations is a pass-through entity without any restrictions on the number of members or owners it may have. The cost to form a California LLC is also less as compared to other states like Connecticut, Florida, or Massachusetts.
Cost for forming an LLC in California
If you are planning to form a California LLC then there may be certain costs attached to the initial registration of your limited liability company. Registration costs are there in every state for LLC’s and are mostly considered as a one-time cost. The cost to form a California LLC includes:
- You have to file Articles of Organization along with a filing fee of $70.00
- If you are planning to drop off the registration documents at the Sacramento office then there is a non-refundable fee of $15.00
- You have to reserve a business name prior to filing registration documents to form a California LLC. The name reservation fee is $10. In addition to this, there is a special handling fee of $10.
The above are fixed costs and there are one-time variable costs as well like costs related to creating an operating agreement, which can vary from $300 to $1,000. The cost to form a California LLC also includes completing and filing of all required paperwork. This process of creation and filing can vary in expenses from $500-$900 although IncParadise can assist with the filing, which will help save time and money.
Annual maintenance cost for California LLC
If you are planning to form a California LLC then you have to be compliant with the annual maintenance requirements as specified by the office of the California Secretary of State. It is important to remember that there is a cost to form a California LLC and there is a cost to maintain it and keep it active. The annual maintenance expenses include:
- In order to make your business operational in California, you will be required to apply for and obtain a business license. The overall cost to form a California LLC will vary according to the type of business license or permit. The fee of a small business license can vary from $50 – $100 although the cost of a license may be higher for regulated industries like the Alcoholic Beverage Control industry where a Distilled Spirits Importer’s General fee is $677.
- California LLC maintenance cost also includes the cost to renew your business license, which will again vary by the location and the type of business activity.
- You will be required to file a Statement of Information within a period of 90 days after filing the Articles of Organization. It has to be filed along with a fee of $20. The statement will be required to be filed once every two years thereafter along with a filing fee of $20.
- As a part of the annual California LLC maintenance cost, you may be required to pay a minimum tax of $800 to the California Franchise Tax Board pursuant to CA Rev & Tax Code § 17942 (through 2012 Leg Sess). This is payable each year.
- When you form a California LLC, you will be required to maintain a registered agent in the state. We are one of the top and reputable registered agents in the state and we can help to register California LLC.
Do you want to start a new business as California LLC?
California Corporation Cost
A business or professional corporation is another type of business entity that is favored by entrepreneurs and small business owners. A corporation can be classified as a C corporation or an S Corporation. The former is one of the most common forms of California incorporation. A C Corporation has several advantages. For example, it has a perpetual lifetime, which means the business will continue to exist even if the owners die. If you incorporate in California then one of the major benefits is that the assets of owners (personal assets) are protected from any debt and liability belonging to the corporation. It is also easier to attract capital and investors through the sale of corporation stocks and bonds and it is also easy to transfer ownership. The cost to form a California Corporation is also less as compared to other states like Georgia, Illinois, or New York.
Cost for forming California Corporation
If you are planning to incorporate in California then there may be certain costs attached for the initial registration of your new business. The incorporation costs are normally considered as a one-time cost. The cost to form a California Corporation includes:
- You can form a General Stock Corporation or a Professional Corporation. The cost to form a California Corporation by filing Articles of Incorporation is $100.
- If you are planning to drop off the registration documents at the Sacramento office then there is a non-refundable fee of $15.00
- You have to reserve a business name prior to filing formation documents to incorporate in California. The name reservation fee is $10. In addition to this, there is a special handling fee of $10.
The above are fixed costs and there are one-time variable costs as well. The cost to form a California Corporation also includes completing and filing all required paperwork. This process of creation and filing can vary in expenses from $500-$900 although IncParadise can assist with the filing, which will help save time and money.
Annual maintenance cost for California Corporation
Entrepreneurs incorporate in California to enjoy the several advantages but it is important to note that once you have incorporated your business, you will need to keep it operational and active. In order to ensure your business enjoys good credibility, you will be required to fulfill all annual maintenance requirements and they are an integral part of the cost to form a California Corporation. The annual maintenance expenses include:
- Once you have filed incorporation documents, you have to make the business operational by applying for and obtaining a business license. The cost of a business license is an integral part of the California Corporation maintenance cost and is the same for all forms of businesses as it varies according to the business activity. A business license cost can vary from $50 – $100 although the cost of a license may be higher for regulated industries like the insurance business or any type of financial institution. The cost to form a California Corporation may vary or remain fixed each year as a business license or permit has to be renewed each year. The renewal fee will depend on the business activity including additional activity and the location.
- You will be required to file a Statement of Information within a period of 90 days after filing the Articles of Incorporation. The statement will be required to be filed every two years thereafter. The California Corporation maintenance cost for Statement of Information is $25. If there has been no change then a Statement of No Change has to be filed the next year along with a fee of $25. There is a 6 month filing window for California corporations.
- As a part of the annual California Corporation maintenance cost, you may be required to pay a minimum tax of $800 to the California Franchise Tax Board pursuant to CA Rev & Tax Code § 23151 (2019). This is payable each year.
- When you form a California LLC, you will be required to maintain a registered agent in the state. We are one of the top and reputable registered agents in the state and we can help to Incorporate in California.
Are you thinking of forming a California Corporation?
Need any Assistance in Forming Your California LLC or Corporation?
If you are planning to form a California LLC or a stock corporation then there will be several aspects you will need to consider. For example, you can file Articles of Organization or Articles of Incorporation along with a Submission Cover Sheet. The process and need for information can be overwhelming and even the smallest mistake or incorrect information can delay the formation process further but you need not worry as expert help is here! IncParadise is one of the leading business incorporation and registered agent service providers in California and we have helped thousands of companies to start their California business. We can provide meaningful assistance to you so that the overall cost to form California LLC or Stock Corporation and the processing time is minimal.
As one of the top registered agents in California, we understand that each business has a different set of requirements. Hence, we provide a variety of additional services to California businesses like getting a tax id (EIN), foreign qualification, S corporation status, and California Certificate of Good Standing among others.