1. The Articles of Registration Filing Fee

UPDATE: The State of California has temporarily halted all business entity filing fees until June 30, 2023 as part of the 2022-2023 Budget Bill. There is no filing fee for these businesses in 2022.

However, it is important to note that while business entity registration fees are waived, you will still need to file the statement of information (see below).

To figure out how much it costs to start a business in California, we first have to break down the various paths you can take.

As a start, you’ll need to choose a business name and entity.

A business entity is the type of business you are going to form. There are various types of business entities — sole proprietorship, partnership, LLC, corporation, etc. — and the entity will dictate both the structure of the organization and how the company is taxed.

Depending on which type of business, or entity you choose, the cost of starting the business will change.

• Cost To Form an LLC in California: One of the most common business entities available is the LLC, or Limited Liability Company. The cost to file an LLC in California in 2022 is $70. This fee is paid to the California Secretary of State when filing the LLC’s Articles of Organization.

• Cost To Form a Partnership in California: When forming a partnership with a business name that is different to you and your partner’s last names, California requires you to file a fictitious business name statement in the office of the county clerk where you intend to do business. The filing fee for this in 2022 is $26.
• Cost To Form a Corporation in California: A corporation is legally created by filing Articles of Incorporation-General Stock (Form ARTS-GS) with the California Secretary of State. Filings can only be done by postal mail or in person and there is a $100 filing fee.
  

2. The Statement of Information Fee

In California, you will need to file an initial statement of information report with the Secretary of State within the first 90 days of registering your business.

For an LLC, the cost is $20 and can be done using Form LLC-12.

For a corporation (domestic and foreign), you must use Form SI-550 and the filing fee is $25.

3. Your Website Domain

In 2022, 99% of new businesses are going to require a website to run.

We recommend buying your website domain name when first deciding on a business name, as you may find it tricky to find a business name and website domain that isn’t already taken.

The easiest place to go to find and buy available domain names is GoDaddy.

Many domains cost as little as $12.99 per year.

4. Annual Costs

Depending only the business entity you choose, there will be various annual costs that you’ll need to pay each year.

• Annual Franchise Tax (Or Privilege Tax) – LLC
  All LLCs that do business in California must pay the annual $800 tax, in addition to any income tax you will pay. LLCs with annual revenue under $250,000 will pay an annual franchise fee of $800. The fee is higher if you make more revenue. 

• Annual Franchise Tax (Or Privilege Tax) – S Corporation
  S corporations in California must pay a franchise tax of 1.5% of net income each year.

• Annual Tax – Corporation
  The California corporate tax rate is 8.84% (flat rate). This tax rate applies to C corporations and LLCs that elect to be treated as corporations and report net taxable income (i.e. a profit).

• General Partnership
  No State Business Taxes.
• Sole Proprietorship
  No State Business Taxes.

Our Recommendation: Total Cost To Start a Business in California

Depending on the business entity you choose, there are initial filing fees and annual taxes that need to be paid in order to start and run a business in California.

It’s important to note that choosing the wrong business entity for your company can cost you thousands, if not hundreds of thousands of dollars, in taxes over the course of your business.

We strongly recommend working with an experienced accountant from the very beginning of your business to ensure you are limiting your tax liability as much as legally possible, and putting the maximum amount of dollars in your pocket.

If you have a quick question that we haven’t answered or want the advice of an experienced California-based accountant, you can book a complimentary 15-minute call with one of our accountants anytime.

On average, clients who switch to Basta & Company save up to $25,000 in missed tax deductions each year.

Simply use our calendar to book a call here.

Until next time!