The cost to start a business in California is at least $890 in mandatory state fees during the first year for an LLC: $70 to file the formation documents, $20 for the Statement of Information, and $800 for the annual franchise tax. A corporation starts cheaper at $125 in state fees because it gets a first-year waiver on the $800 tax. Everything else you’ll pay depends on where you set up, whether you hire, and what you sell.
The State Filings You Can’t Skip
Every California business entity begins with a formation filing at the Secretary of State. An LLC submits Articles of Organization (Form LLC-1) for $70. A corporation files Articles of Incorporation (Form ARTS-GS) for $100.1California Secretary of State. Business Entities Fee Schedule Both filings require a California address and an agent for service of process, which is simply the person or company designated to receive legal papers on the business’s behalf.
Within 90 days of formation, you also owe a Statement of Information. LLCs file Form LLC-12 for $20; corporations file Form SI-200 for $25.1California Secretary of State. Business Entities Fee Schedule Miss that deadline and you risk penalties and eventually suspension of your entity, which strips your ability to sign contracts or defend the business in court.
The $800 Franchise Tax
California charges most registered entities an $800 annual franchise tax whether or not the business earns a dime. LLCs, corporations, and limited partnerships all pay it, and it still applies to a dormant entity that sits unused all year.2California Franchise Tax Board. Limited Liability Company
Corporations get one break: they are exempt from the $800 minimum during their first taxable year, an exemption in place since 1998. LLCs and limited partnerships have no first-year exemption, so the $800 bill arrives almost immediately. Payment is due by the 15th day of the fourth month after the start of your tax year, which is April 15 for a calendar-year business.
If you skip the tax, the Franchise Tax Board will suspend or forfeit your entity, and reinstatement requires paying all back taxes plus interest and penalties. A business that is truly not operating still needs to either keep paying or formally dissolve with the Secretary of State to stop the meter.
The LLC Income-Based Fee at $250,000
Once an LLC’s total California income crosses $250,000, a second fee stacks on top of the $800:2California Franchise Tax Board. Limited Liability Company
- $250,000 to $499,999 in total income: $900
- $500,000 to $999,999: $2,500
- $1,000,000 to $4,999,999: $6,000
- $5,000,000 or more: $11,790
The fee is based on total income, not profit. An LLC with $500,000 in revenue and $490,000 in expenses still owes $2,500 plus the $800 franchise tax. For high-revenue, thin-margin businesses, running the numbers against a corporate structure before you file is worth doing with a tax advisor.
Federal Registrations That Should Cost You Nothing
An Employer Identification Number (EIN) is the federal tax ID you’ll need for a business bank account, tax returns, and payroll. The IRS issues EINs at no charge through its online application, which generates the number on the spot.3Internal Revenue Service. Get an Employer Identification Number Any third-party site charging for an EIN is charging for something you can do yourself for free.
Most LLCs and corporations must also file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network, identifying the individuals who own or control the company. Filing directly with FinCEN is free.4Financial Crimes Enforcement Network. Beneficial Ownership Information Reporting FinCEN has warned about scam letters demanding payment for BOI filings; those can be ignored.
Local Business License and DBA
Nearly every California city and county requires a local business license (sometimes called a Business Tax Certificate) before you open. Fees vary widely by jurisdiction and are often tied to projected gross receipts or headcount. A small-town license might run $50; a major city might charge several hundred. Most renew annually. Operating without one exposes you to citations, daily fines, and closure by local code enforcement.
If your business operates under any name other than its legal entity name, you also need to register a Fictitious Business Name (DBA) with the county clerk. County filing fees typically run $20 to $100. California then requires you to publish notice of the filing in a local newspaper of general circulation once a week for four consecutive weeks, which usually costs $40 to $200 depending on the paper. Within 30 days of the final publication, you file proof of publication with the county clerk.5Justia. California Code Business and Professions Code Chapter 5 Fictitious Business Names The consequence of skipping the DBA process is bigger than a fine: a business operating under an unregistered fictitious name cannot enforce its contracts in court.
What Changes When You Hire
Payroll adds a distinct layer of cost the moment your first employee starts.
California EDD Payroll Taxes
The Employment Development Department administers state payroll taxes. For 2026, new employers face:6California Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging
- Unemployment Insurance: 3.4% on the first $7,000 of each employee’s wages, paid by the employer
- Employment Training Tax: 0.1% on the first $7,000 of wages, paid by the employer
- State Disability Insurance: 1.3% of employee wages, withheld from the paycheck
The 3.4% UI rate is the default for the first two to three years, after which your rate adjusts up or down based on claims history.
Federal Unemployment Tax
FUTA is 6.0% on the first $7,000 of each employee’s annual wages, but employers who pay their California UI on time get a credit of up to 5.4%, dropping the effective FUTA rate to 0.6%, or about $42 per employee per year.7Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide Fall behind on state UI and you lose the credit, and the federal bill jumps sharply.
Workers’ Compensation Insurance
Every California employer with at least one employee must carry workers’ compensation insurance, with no exception for small or part-time staff.8California Department of Industrial Relations. DWC Answers to Frequently Asked Questions About Workers’ Compensation for Employers Premiums are calculated per $100 of payroll and depend heavily on the industry. An office-based business might pay under $1 per $100 of payroll, while a construction company might pay $20 or more. The policy has to be in place before the first employee’s start date.
General liability insurance is not legally required for most businesses, but landlords, clients, and some licensing bodies commonly demand it. Small businesses with fewer than five employees typically pay around $45 per month, with annual premiums ranging from roughly $265 to over $3,000 depending on industry and risk.
Industry-Specific Permits
If you sell physical goods, you need a seller’s permit from the California Department of Tax and Fee Administration. The application is free, but CDTFA may require a security deposit based on expected sales volume to cover potential unpaid sales tax.9California Department of Tax and Fee Administration. Obtaining a Seller’s Permit
Regulated professions such as healthcare, construction, cosmetology, and accounting require licensing through boards under the Department of Consumer Affairs. Fees generally run from around $100 to over $2,000 depending on the field, and exams, background checks, and education verification add both time and cost. Renewals are usually every one to two years, often at fees that approach the initial license cost.
The state’s CalGOLD tool is the cleanest way to find every permit that applies to your specific business type in your specific city. Enter your location and business type, and it returns a list of required local, state, and federal permits with the forms and agency contacts.10California Office of the Small Business Advocate. Guide to Permits, Licensing, and Regulations
A Realistic Year-One Total
A solo-owner LLC with no employees and modest revenue will spend roughly $890 in unavoidable state fees during year one: $70 to form, $20 for the Statement of Information, and $800 for the franchise tax. Add whatever your city charges for a business license, plus a DBA and publication cost if you’re operating under a trade name. A corporation with the first-year franchise tax waiver starts at $125 in state fees.
The moment you hire, layer in workers’ compensation premiums, EDD contributions, and FUTA. If revenue climbs past $250,000, the LLC income-based fee kicks in on top of everything else, from $900 up to $11,790 depending on the tier. Mapping these costs out before you file the formation documents is the difference between a smooth launch and a franchise tax bill that arrives a few months in and catches you flat.