California Business FAQs
Starting a business in California is a big step. Actually, it’s a lot of little steps, and it can get pretty confusing. We’re here to help.
Here are some of the most common questions we get about how to start a home business, an online business, or a small business in California.
Can I reserve a California company name?
How do I start a small California business?
How do I get a California business license?
Can I avoid the California Franchise Tax?
What if I miss the California Franchise Tax?
Do I need to have an operating agreement for my California LLC? What should it say?
Does a California single-member LLC need to have an operating agreement on file?
Do I need California corporate bylaws?
What happens if I don’t file a Statement of Information before my filing deadline?
What should I do if my California LLC has been suspended by the Secretary of State?
It depends on what type of business structure you choose. But whether you choose to form a California corporation or a California LLC, you’ll have to file the correct paperwork with the California Secretary of State.
- California LLCs file Articles of Organization.
- California corporations file Articles of Incorporation.
But registering your business with California is just one step of many that you’ll need to take to form your business. You’ll also need to appoint a California registered agent, choose a business name, get an EIN, open a business bank account, and perhaps get a business license. Check out our free, step-by-step guides on Starting an LLC in California and how to Incorporate in California.
This is a tough question that we probably can’t answer for you. But we can help draw out a few similarities and differences between the two structures.
- Limited Liability. California LLCs and corporations both create a legal separation between you and your business (unlike in a sole proprietorship or general partnership), which will afford you limited liability. This means that you won’t be held personally liable for the debts of your business.
- California Taxes. For the California Franchise Tax, corporations are taxed at 8.84% of income with a minimum of $800. California LLCs pay a flat $800 every year for the California Franchise Tax. You’d think that this would mean high-earning LLCs have an advantage over corporations, but California thought about that. California LLCs bringing in more than $250K will need to pay an Annual LLC Fee (a minimum of $900). Essentially, California has leveled the playing field, ensuring both LLCs and corporations shell out for state taxes.
- Registered Agent Requirement. Both LLCs and corporations in California are required to appoint and maintain a California registered agent.
- Compliance Requirements. Both LLCs and corporations in California have to file a Statement of Information. Corporations file annually and LLCs file biennially.
- Ownership. LLCs are owned by members. Members own a “membership interest”– a certain percentage of the business. Corporations are owned by shareholders who own shares of stock. Stocks are transferred easily while membership interest is more difficult to transfer.
- Management. California LLC management is more flexible than corporate management. A California LLC is managed by members or by managers appointed by members. Corporations adhere to a more rigid management structure. Shareholders elect a board of directors. The board of directors elects corporate officers who run the business. Corporations are also subject to more formalities when it comes to record keeping.
- Filing Costs. California filing fees for California LLCs are slightly cheaper than filing fees for corporations. To form an LLC, you’ll pay $70, while a corporation will cost you $100. California LLCs only have to pay $20 ever other year to file the required Statement of Information, while corporations pay $25 and must file every year.
Deciding between a California LLC or corporation is an important decision that will determine how your business is taxed, owned, and managed, so don’t take it lightly. However, we’re here to help. We can form your California corporation or LLC on your behalf.
Yes. If you have a unique California business name in mind but you’re not quite ready to officially form your corporation or LLC, you can reserve your California business name for 60 days. You’ll have to fill out the California Name Reservation Request Form and submit it to the California Secretary of State by mail or in person.
Reserving a business name for 60 days will cost you $10 in California. You’ll have to pay another $10 if you want to drop off your form in person in Sacramento.
The process for starting a small business (or an online business or home-based business) is pretty much the same as the process for starting a larger business. You’ll need to choose a business entity type, appoint a registered agent, choose a California business name, and file formation documents with the Secretary of State.
Is your business really small? Many sole proprietors take the leap from sole proprietorship to California Single-Member LLC for the liability protection. A sole proprietorship is less expensive but provides you with zero liability protection, so if you get sued, you may be held personally accountable for the debts of your business. Because of the liability protection it offers, forming a single-member LLC in California may be worth the fees, taxes, and maintenance.
California business licenses are not issued by the California Secretary of State. That’s because requirements vary from city to city and county to county. Depending on where you are, you may have to apply for several permits or just one. Checking California’s CalGold system is a great place to start. You’ll submit your county or city and business type, and the system will generate a list of permits and licenses you’ll need to procure.
We know – the California Franchise Tax hurts. At a minimum of $800 a year, it’s one of the steepest franchise taxes in the nation. However, we’re here to tell you that there’s no real way around it.
If you form an LLC or corporation in California, you have to pay the California Franchise Tax. However, depending on when you form your business, you can avoid back-to-back Franchise Tax payments.
California does not prorate the California Franchise Tax, so if you start your LLC or corporation in, say, November, you’ll owe $800 for that year and another $800 when the new year rolls around.
So if you’re forming your business towards the end of the year, you might want to hold off until the last 15 days of December (or wait until January to keep it simple).
You can either wait until January to form your business, or you can file the paperwork sooner but include a “future file date” in January. Your business won’t be formed until that future file date, and you’ll save yourself $800 in California Franchise Tax payment.
If you don’t pay the California Franchise Tax, your business may be suspended by the Franchise Tax Board (FTB suspended). This means that you cannot legally do business in California. You may also be subject to a $2,000 annual penalty for each year that you fail to file your missing returns. Yikes. Just pay the tax!
Yes. While you don’t have to file your LLC’s operating agreement with the California Secretary of State, you should have an operating agreement on file.
An operating agreement should include some of the same information provided by your Articles of Organization, like your LLC’s name, effective date, and California registered agent information. However, it should also include specific information about who owns your LLC, how much capital each member will initially contribute, how profits will be distributed, and how your LLC will be taxed. It should also spell out clearly how your California LLC will vote to make major decisions.
When you hire us to form your California LLC, we’ll create a custom operating agreement template that you can use to create your California operating agreement.
Yes. Even though it’s just you, you’ll need a single-member LLC operating agreement to open a bank account. Plus, an operating agreement could be valuable if–heaven forbid–your business ever faces a lawsuit. An operating agreement for a single-member LLC can reinforce the separation between you and your business.
When you hire us to form your LLC, we’ll provide a custom template for your California single-member LLC operating agreement.
Yes. Although you won’t need to file your corporate bylaws with the California Secretary of State, it’s crucial to adopt corporate bylaws.
Corporate bylaws define how your corporation functions internally – how shareholders vote, how stocks are issued and transferred, and how directors are removed, just to name a few.
When you hire us for incorporation services, we provide a custom template for your California corporate bylaws.
At first, nothing. You have 60 days from your Statement of Information due date to file your Statement of Information without any penalties. Once the 60-day grace period is up, you’ll be charged a $250 late fee. If you continue to be delinquent, eventually, your business may be suspended by the Secretary of State.
If the California Secretary of State suspended your LLC for failure to file your Statement of Information, you’ll need to file your most recent Statement of Information and pay the $20 filing fee and the $250 penalty.
1. We save you money.
We provide the most economical registered agent service in California, and we don’t take shortcuts, raise prices, or make money by selling your personal information to marketers. We provide reliable registered agent service for $39/year from our commercial office in Redding, CA.
2. We save you time.
We’ll process the order the day we receive it. Need us to form an LLC or corporation? We’ll file your formation documents the day you order.
3. We care about your privacy.
We promise never to sell your information to anyone, including aggressive marketers.
We also help you keep your person information off the public record by providing a California business address for your formation documents.
4. We know what we’re doing.
Starting a business in California can be confusing, especially without support. We know all the ins and outs of California business formation, like how to fill out your Articles of Incorporation or Organization without making mistakes that will get your filing rejected and how to avoid back-to-back Franchise Tax payments. Our team of California business experts will answer the phone and talk you through it, no problem.