California in August 2016: the $800 that finds you anyway
A $70 filing fee, a $20 Statement of Information, and a franchise tax floor that does not care when you incorporated
Contents 4 sections
California LLC costs $70 to form and at least $800 a year to keep, and the $800 is due whether the LLC ever opens a bank account. That sentence is the entire maintenance story; every other line item is pressure on top of it.
This is a guide for someone forming in California in August 2016. It assumes you already know why you are considering it and is written for the person whose accountant has used the phrase "minimum franchise tax" in a slightly worried voice.
The mechanics
You file Form LLC-1, the Articles of Organization, with the Secretary of State. It is a one-page document: the LLC name, the purpose (California has a canned general-purpose clause you check), the street and mailing addresses, the name and California address of the agent for service of process, and a signature line. The filing fee is $70. You can mail it to Sacramento or drop it at the Sacramento counter in person.
Turnaround by mail in 2016 is measured in weeks, not days, and the backlog wobbles. The Secretary of State periodically posts a processing date that is noticeably behind the filing date. If you need the entity formed quickly, the practical answer is the Sacramento counter, which offers same-day or 24-hour drop-off service for a premium on top of the base fee. A courier service in Sacramento is the standard workaround for law firms filing from Los Angeles or San Francisco. Do not plan a closing around mail-in processing.
Within 90 days of formation you owe an initial Statement of Information (Form LLC-12), which carries a $20 fee. After that the Statement is due every two years during the applicable filing window. It asks for managers or members, the principal office, the agent, and the type of business. Missing it triggers a $250 penalty and, eventually, suspension of the LLC by the Franchise Tax Board. Suspension strips the entity of its right to sue, defend a suit, or enforce a contract in California courts, which is a problem you discover at the worst possible moment.
You will need an EIN from the IRS, which arrives the same day through the online SS-4 application. You will want an operating agreement; California requires you to have one but does not require you to file it. And you will need to decide on federal tax treatment — disregarded entity, partnership, S-corp, or C-corp — understanding that California layers its own treatment on top of the federal choice.
The $800 and the fee that scales
California's minimum franchise tax is $800 per year, owed to the Franchise Tax Board, and it is the number that defines the state. It is due on the 15th day of the fourth month after formation — April 15 for a calendar-year LLC formed this year — and then annually on April 15 after that. An LLC formed on December 31, 2016 owes $800 for 2016, due in April 2017, and another $800 for 2017, due the same day. There is a narrow first-year exception for corporations, not LLCs; the LLC floor starts the day you form.
On top of the $800, an LLC with California-source gross receipts above $250,000 owes an additional fee under Revenue and Taxation Code section 17942, reported on Form 568. The schedule in 2016 is $900 at $250,000 to $499,999; $2,500 at $500,000 to $999,999; $6,000 at $1 million to $4,999,999; and $11,790 at $5 million and above. It is a gross-receipts fee, not a net-income tax; a high-revenue, low-margin business can owe it while breaking even. Form 568 is the annual LLC return that carries both the franchise tax and this fee.
The enforcement tooth, which founders forming in Nevada or Wyoming to serve California customers persistently ignore, is that an out-of-state LLC "doing business" in California owes the same $800 and the same gross-receipts fee regardless of where it was formed. "Doing business" in California is defined broadly: an active member, an employee, or California sales above a threshold are each sufficient on their own. The Franchise Tax Board has a decade of practice finding these entities through income-tax filings, payroll records, and sales-tax cross-checks. A Wyoming LLC with a San Jose founder and San Jose customers is a California LLC for franchise-tax purposes; it just also pays Wyoming.
Maintenance, on a calendar
Three dates govern a California LLC. April 15 is the franchise-tax and Form 568 deadline. The biennial Statement of Information is due in the anniversary month, in the window the Secretary of State prints on the postcard it mails. Estimated fee payments for the gross-receipts fee, when it applies, are due June 15 of the tax year — California wants the fee before you know the final number, and the estimated payment is calculated off the prior year's receipts or a good-faith current-year estimate.
The Franchise Tax Board is the most aggressive revenue agency of any state to form in. It issues suspension notices, it chases out-of-state members, and it does not forget. If you form a California LLC and then abandon it, you will still be paying $800 a year until you formally dissolve by filing a Certificate of Cancellation. Walking away does not work; the meter keeps running and penalties compound.
A registered agent in California can be a commercial service or an individual resident with a California street address. Commercial agents run roughly $50 to $200 a year. The reasons to pay more are the same as anywhere: reliable service-of-process handling, deadline reminders, and someone to call when the FTB sends a suspension notice. The reason not to list yourself as the agent is that your home address becomes a public record that collection mail and process servers use.
Who this state actually makes sense for
California makes sense for people who live in California and operate in California, and for practically nobody else.
If you are a California resident running a California business — a consulting practice in Oakland, a contractor in San Diego, a restaurant in Sacramento — forming at home is the right answer. You will owe the $800 through a foreign-LLC registration no matter where you form, so paying it to your home state and avoiding the cost of a second registration is strictly cheaper. The tax is not the reason to skip California; it is the reason to stop shopping for a workaround.
If you are not a California resident and your business has no California nexus, the $800 is simply a penalty you would be volunteering to pay. Form in your home state, or in Delaware if you have a funding or holding-company reason to.
The middle case — a remote business with one California customer, or a founder who moved to Austin but has clients in Los Angeles — is where judgment belongs. The operating question is whether the California activity crosses the "doing business" threshold. If it does, you will owe $800 to California whether you form there or not, and forming at home is still usually the better structural answer, with California registered as a foreign LLC.
If you are forming this quarter and your business is in California, file LLC-1 this week, calendar the 90-day Statement deadline, and budget $800 for April. If the business is not in California, form elsewhere and revisit only if your customer base shifts west.