A clear checklist of the filings and costs for starting a small business in California, including the $800 tax that surprises many owners.
Quick answer: To start a small business in California, choose a structure, register with the Secretary of State or your county, and get an EIN, plus any local license. An LLC costs $70 to form, needs a $20 Statement of Information, and owes at least $800 a year in tax, even with no sales. If you sell physical goods, you will also need a free seller’s permit.
California has a huge market, but its costs and paperwork are higher than in many states. The biggest surprise for many new owners is the annual $800 LLC tax, which is due whether or not the business makes a profit.
That cost means the first decision really matters: whether you need an LLC at all right now. This guide explains your options, walks you through registration, and sets out the permits and employer rules you may face. Check current fees with the state agencies before you file.
In this article
- How much does it cost to start in California?
- Should you start as a sole proprietor or an LLC?
- What are the steps to start a small business in California?
- What taxes and fees should you plan for?
- What changes when you hire staff?
- What are the benefits and limits of starting in California?
- Frequently asked questions
- Final thoughts
How much does it cost to start in California?
| Item | Cost | Notes |
|---|---|---|
| LLC Articles of Organization | $70 | Filed with the Secretary of State |
| Statement of Information | $20 | Due within 90 days of forming an LLC, and every two years after that |
| Annual LLC tax | $800 minimum | Due every year until the LLC is canceled |
| LLC fee on higher income | $900 to $11,790 | Applies only when California income is $250,000 or more |
| Fictitious business name | Typically $10 to $100 | Filed with your county, and the cost varies |
| Seller’s permit | Free | A security deposit may be required |
| EIN | Free | From the IRS |
A new LLC should therefore budget at least $890 for the first year, before any local license, insurance or professional help.
Should you start as a sole proprietor or an LLC?
This decision has a real cost in California.
- Sole proprietorship: There is no $800 tax and little paperwork. However, you are personally responsible for business debts and claims.
- LLC: It can protect your personal assets in most situations, but you pay the $800 tax each year, even with no income.
- Corporation: It also has a minimum franchise tax, plus more formalities. It is more common for firms raising investment.
Ana starts a part-time graphic design service from her San Diego apartment and earns $6,000 in her first year. An LLC would use up a big share of that income, so she starts as a sole proprietor with professional liability insurance. She plans to review the LLC option when she has larger clients.
This is not a one-size-fits-all choice. If your work carries a real risk of injury or large claims, the protection of an LLC can easily justify the cost. Ask an attorney or an accountant if you are unsure.
What are the steps to start a small business in California?
1. Check your idea and your name
Search California’s bizfile Online for business names already in use, and do a federal trademark search too. Having your LLC name accepted by the state does not by itself give you trademark rights.
2. Register your business
LLCs file Articles of Organization with the Secretary of State. You will also name an agent for service of process, who receives legal papers on behalf of the business. Sole proprietors do not need to file with the state to form the business.
3. File a fictitious business name if needed
If you trade under a name other than your own legal name, you generally file a fictitious business name statement with your county, usually within 40 days of starting to use the name. Most counties also require you to publish a notice in a local newspaper. Check with your county clerk for the exact process and fee.
4. Get your EIN
LLCs with more than one member, corporations and businesses with employees need one. Many banks ask for one too. It is free through the IRS. Read our guide on how to get an EIN.
5. Get a seller’s permit if you sell goods
If you are engaged in business in California and plan to sell or lease physical goods, you need a seller’s permit from the California Department of Tax and Fee Administration (CDTFA). The permit itself has no fee, but the department may ask for a security deposit. Temporary permits exist for short sales periods, usually up to 90 days at one location.
6. Get local licenses and permits
Most cities require a business license or business tax certificate. Depending on your trade, you may also need a state license or a health or zoning permit. The state’s CalGold website can help you find the permits for your type of business and location.
7. File your Statement of Information and pay your LLC tax
LLCs must file the Statement of Information within 90 days of forming, then every two years. The first $800 tax payment is due by the 15th day of the fourth month of your first tax year. The Franchise Tax Board gives this example: an LLC registered on June 18, 2020 had to pay by September 15, 2020.
Put the $800 payment date in your calendar on the day you form your LLC. The first deadline arrives quickly, often sooner than new owners expect, and unpaid tax leads to penalties and can result in suspension of the LLC.
What taxes and fees should you plan for?
- $800 annual LLC tax: Every LLC doing business in California or organized there must pay it, until the LLC is canceled. The first-year exemption only applied to tax years starting from 2021 through 2023.
- LLC fee: This is on top of the $800, and it applies only if your total California income is $250,000 or more. It ranges from $900 up to $11,790 for income of $5 million or more.
- Sales tax: Collect it on taxable sales and file your returns with the CDTFA.
- Income tax: Owners of most small businesses report profits on personal federal and state returns.
- Self-employment tax: You generally pay this federal tax on your net earnings as a sole proprietor or LLC owner.
Dev opens an online store in Sacramento as an LLC and earns $80,000 in total California income. He owes the $800 annual tax, but no extra LLC fee, because his income is below $250,000. He also needs a seller’s permit, since he sells physical goods.
Use our California paycheck guide to get a feel for the payroll deductions your staff will see.
What changes when you hire staff?
- Register with the EDD: Register with California’s Employment Development Department once you pay more than $100 in wages in a quarter.
- Workers’ compensation: California requires this insurance even if you have just one employee.
- Wage rules: The state and some cities set minimum wages and sick leave rules that are stricter than federal rules, so check before you set pay.
- Worker classification: California has strict tests for deciding who counts as a contractor, and getting this wrong can be expensive.
What are the benefits and limits of starting in California?
You get access to one of the largest consumer markets in the US, plus strong networks of customers, suppliers and investors. The trade-offs are higher running costs, stricter employment rules and more local requirements. Budget for these from the start, rather than treating them as surprises.
This guide is general information, not legal or tax advice. A local accountant or attorney can review your specific plans.
Compare your expected first-year profit against the $890 minimum first-year cost of an LLC. Then contact your city hall, or check CalGold, to find out which local licenses apply to your business.
Frequently asked questions
How much does it cost to start a small business in California?
A sole proprietorship can start for little more than a local license. An LLC costs at least $890 in the first year, which includes the $70 filing fee, the $20 statement and the $800 tax.
Do I have to pay the $800 fee if my LLC makes no money?
Yes. The $800 tax is owed even if the LLC has no income or does not do business, until it is canceled.
Is the first year of an LLC free from the $800 tax in California?
Not any longer. The exemption only covered LLCs with tax years starting from 2021 through 2023.
Do I need a business license in California?
Most cities require one, and some professions also need a state license. Check with your city and use CalGold to find the permits that apply.
How much is a seller’s permit in California?
The permit is free, but the CDTFA may ask for a security deposit, depending on your business.
Can I start a small business from home in California?
Yes, in many cases. Check your city’s home occupation rules and any lease or homeowners association restrictions.
Final Thoughts
- Decide carefully on an LLC, as the $800 annual tax applies even with no income.
- Budget at least $890 for an LLC’s first year.
- Get a free seller’s permit if you sell physical goods.
- Check city and county rules, since local licenses and name filings are easy to miss.
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