Editorial 5 MIN READ APR 18, 2026

Form an LLC in California (2026)

The $70 Articles of Organization, the $800 annual franchise tax, the gross-receipts fee tiers, and the AB 85 exemption that already expired.

The Editors

Staff, Incorporator.org

5 min read Published Apr 18, 2026

Contents 7 sections

When this state is a fit
When it isn't
Filing fee + annual cost
The 7-step walkthrough
Taxes
Pitfalls
Further reading

alifornia is not a cheap state. The sticker price looks reasonable, $70 to file the Articles of Organization online through bizfile Online, but the real cost is the $800 annual franchise tax every LLC owes the Franchise Tax Board regardless of whether you earned a dollar or opened a bank account. Stack on the biennial $20 Statement of Information and the graduated gross-receipts fee that kicks in at $250,000 of California-source revenue, and the total cost of carrying a California LLC for the first two years is closer to $1,700 than the $70 formation line suggests.

The logic for forming here is nearly always the same: you live in California, you work in California, or your customers and payroll are here. California treats economic activity in the state as nexus; running a Wyoming LLC from an Oakland kitchen table still triggers the $800 minimum and a foreign-qualification requirement. The franchise tax is owed by any LLC "doing business" in California, and "doing business" is defined broadly under Revenue and Taxation Code § 23101.

California will collect the $800 either way. The only question is whether you pay it as a domestic LLC with one filing, or as a foreign LLC with two sets of compliance.

When this state is a fit

California is the right home state for a founder who lives in California, has employees in California, or operates from a California office, warehouse, or clinic. Forming here is also correct when California customers are a material share of revenue and you will be collecting California sales tax through the California Department of Tax and Fee Administration (CDTFA).

Tech founders scaling toward venture capital often form a Delaware C-corp instead of a California LLC; the standard VC term sheet expects Delaware General Corporation Law. For bootstrapped operators, consultancies, and services firms that stay pass-through, a California LLC is the default. Real-estate LLCs that hold California property form here because foreign-qualification adds cost without avoiding any California tax.

When it isn't

California is a poor choice for an out-of-state founder with no California nexus. The $800 minimum and the SALT friction are the reasons. If you live in Texas and sell to a national audience, forming in Texas (or Wyoming, or your home state) avoids California income tax exposure.

It is also a poor choice for an extremely early-stage entity that expects to stay dormant while you figure out whether the business is real. Dormant California LLCs still owe the $800. Oregon, Nevada, or New Mexico dormant entities do not. If you form in April 2026 and realize in August that the idea is not working, you have still lit $800 on fire.

The old AB 85 first-year exemption that waived the $800 for LLCs formed in 2021, 2022, and 2023 has expired. LLCs organized on or after January 1, 2024 pay the $800 in year one.

Filing fee + annual cost

Item	Amount	Cadence
Articles of Organization (Form LLC-1, online)	`$70`	Once
Initial Statement of Information (Form LLC-12)	`$20`	Within 90 days of formation
Biennial Statement of Information	`$20`	Every 2 years
Annual franchise tax (minimum)	`$800`	Due 15th day of 4th month of each tax year
Gross receipts fee, `$250k–$499,999`	`$900`	Annual, if California receipts exceed threshold
Gross receipts fee, `$500k–$999,999`	`$2,500`	Annual
Gross receipts fee, `$1M–$4,999,999`	`$6,000`	Annual
Gross receipts fee, `$5M+`	`$11,790`	Annual
Late Statement of Information penalty	`$250`	Per missed filing

The $800 minimum is set by Revenue and Taxation Code § 17941. The gross-receipts fee is set by § 17942 and is layered on top of the $800; both are paid through the Franchise Tax Board, not the Secretary of State.

The 7-step walkthrough

Check the name. Search at bizfileOnline. California uses a distinguishable-on-the-record standard. Certain restricted words (bank, insurance, trust) require additional approval.
Appoint an agent for service of process. California calls the registered agent an "agent for service of process." The agent must have a California street address; P.O. boxes are not accepted. You can use an individual resident or a registered 1505 corporate agent.
File the Articles of Organization (Form LLC-1). Online through bizfile Online; paper filing for domestic LLCs was discontinued in 2022. Fee is $70. Processing time is typically 2 to 3 business days.
File the initial Statement of Information (Form LLC-12). Due within 90 days of Articles approval. Fee is $20. This is the filing new LLCs most commonly miss; the penalty is $250.
Get an EIN. Apply with the IRS. Free, immediate during business hours.
Register with the CDTFA and EDD (as applicable). Sellers of tangible goods need a CDTFA seller's permit. Employers need a California Employer Account Number from the Employment Development Department. Neither is bundled with the SOS filing.
Pay the $800 franchise tax. First payment is due by the 15th day of the 4th month after formation, on FTB Form 3522. Subsequent years: April 15 for calendar-year filers. Late payment triggers interest plus penalty.

Taxes

California LLCs taxed as pass-throughs owe the $800 annual tax, the gross-receipts fee (if over $250,000 in California-source receipts), and California personal income tax at member level. The individual rate is graduated up to 13.3 percent, the highest state rate in the country; the mental-health surcharge adds 1 percent on income above $1,000,000, pushing the top marginal to 14.4 percent.

LLCs that elect C-corp treatment owe the $800 minimum plus the corporate franchise tax at 8.84 percent of net income. The election is almost never helpful at small scale because the minimum tax stacks and the 8.84 percent flat rate is above the bottom pass-through bracket.

California allows a pass-through entity tax (PTET) election under AB 150, which many multi-member LLCs use as a federal SALT-cap workaround. The election is made annually; the entity pays 9.3 percent on qualified net income and members take a corresponding state credit. Run the numbers with a CPA before electing.

Pitfalls

Missing the 90-day initial Statement of Information. This is the most common first-year California penalty. Calendar the date the moment Form LLC-1 is approved and file the LLC-12 the same week.
Assuming AB 85 still waives the first-year $800. It does not. The exemption sunset after the 2023 tax year. Any LLC formed on or after January 1, 2024 owes the $800 in year one.
Running a "foreign" LLC out of California to dodge the $800. California will find you. The "doing business" test under RTC § 23101 captures most remote owner-operators. You owe the tax either way, and forming elsewhere typically just adds foreign-qualification cost without reducing California exposure.