Forming an LLC in California

A limited liability company (LLC) is one of the most popular ways to organize a small business in California, because it combines the liability protection of a corporation with the simpler, pass-through taxation of a partnership. Forming one in California involves filing with the Secretary of State, naming a registered agent, putting an operating agreement in place, and budgeting for ongoing state taxes and fees — including the $800 annual minimum franchise tax that catches many new owners by surprise. This guide explains each step and each cost, using current 2026 California figures.

This guide provides general information about California law and is not legal or tax advice. LLC, tax, and fee rules change, and your situation may involve facts that affect the right approach. For advice you can rely on, consult an attorney licensed by the State Bar of California or a qualified California tax professional.

What a California LLC is and who governs it

An LLC is a business entity, separate from its owners (called "members"), that generally shields those members' personal assets from the company's debts and lawsuits. California LLCs are governed by the California Revised Uniform Limited Liability Company Act, found at Corporations Code § 17701.01 and following. The Secretary of State handles formation and ongoing entity filings, while the Franchise Tax Board (FTB) administers the taxes and fees an LLC owes the state.

An LLC can be member-managed (the owners run it directly) or manager-managed (the owners appoint one or more managers). It can have a single member or many. Licensed professionals such as doctors, lawyers, and accountants generally cannot render their professional services through an ordinary LLC in California and must use other structures, so professionals should get specific advice before forming.

The management choice has real consequences. In a member-managed LLC, every member has authority to act for the company and bind it in ordinary business — a structure that suits small ventures where all the owners are actively involved. In a manager-managed LLC, only the designated manager or managers run day-to-day operations and can bind the company, while the other members are passive investors. Owners often choose manager management when some members are providing capital but not labor, when there are many members, or when they want to centralize authority in one or two people. California asks the LLC to indicate its management structure in its formation and information filings, and the operating agreement should spell out the managers' powers, how they are appointed and removed, and which decisions still require a member vote.

Single-member versus multi-member. A single-member LLC has one owner and, by default, is treated by the IRS as a "disregarded entity," meaning its income flows onto the owner's personal return as if the LLC did not exist for tax purposes — though it remains a separate entity for liability. A multi-member LLC is taxed by default as a partnership, files an informational partnership return, and issues each member a share of profits and losses. Both still owe California's $800 minimum franchise tax and any gross-receipts fee. Single-member owners should be especially careful to respect entity formalities — a separate bank account, contracts signed in the LLC's name, and clean records — because the absence of co-owners can make it easier for a creditor to argue the company is merely the owner's alter ego and ask a court to disregard the liability shield.

The LLC's main appeal is the combination of three features. First, limited liability: members are generally not personally responsible for the company's debts and lawsuits, so a creditor of the business cannot ordinarily reach a member's home or personal savings. Second, pass-through taxation: by default the IRS does not tax an LLC as a separate entity — a single-member LLC is treated as a disregarded entity and a multi-member LLC as a partnership — so profits are reported on the members' own returns and the income is not taxed twice as it can be with a C-corporation. Third, flexibility: California LLCs face fewer mandatory formalities than corporations, and the members can tailor management and economic rights through the operating agreement. These advantages come with California's distinctive cost structure, especially the $800 minimum tax and the gross-receipts fee, which is why the numbers matter as much as the legal form.

The key California statutes, forms, and fees

Several specific California authorities and forms govern LLC formation and maintenance:

• Corp. Code § 17701.01 et seq. — the act that governs California LLCs.
• Articles of Organization, Form LLC-1 — the formation document filed with the Secretary of State; the filing fee is $70.
• Statement of Information, Form LLC-12 — filed within 90 days of formation and then every two years (biennially); the fee is $20.
• $800 annual minimum franchise tax — owed to the FTB by nearly every California LLC each year (paid using Form FTB 3522).
• LLC gross-receipts fee — an additional tiered fee for LLCs with higher California-source income (estimated on Form FTB 3536 and reconciled on Form 568).

The $800 annual minimum franchise tax (and the expired first-year waiver)

Every LLC that is organized in California, registered to do business here, or actually doing business here generally owes the $800 minimum franchise tax to the FTB for each taxable year — regardless of whether the business earns a profit. It is paid with Form FTB 3522.

From 2021 through 2023, a temporary law (AB 85) waived the $800 tax for an LLC's first taxable year. That first-year waiver has expired. LLCs that organize or register on or after January 1, 2024 — including LLCs formed in 2026 — generally owe the $800 minimum franchise tax for their first taxable year. New owners should plan for this cost from day one, because it is due even before the business is profitable.

The LLC gross-receipts fee

In addition to the flat $800, a California LLC with significant California-source income owes a separate annual LLC fee based on total California gross receipts (not profit). The current tiers are:

This fee is in addition to the $800 minimum. LLCs estimate and pay it on Form FTB 3536, generally by the 15th day of the sixth month of the tax year, and reconcile it on the annual Form 568 return.

What it costs to form and maintain a California LLC

It helps to see the predictable costs in one place. The figures below are the state filing and tax amounts; they do not include optional expenses such as a commercial registered agent, attorney drafting of an operating agreement, or local business-license fees, which vary by provider and locality.

The takeaway is that even a brand-new LLC with no revenue should budget at least the $70 filing fee plus the $800 minimum tax in its first year. Owners who expect significant California revenue should also plan for the gross-receipts fee, which is tied to receipts rather than profit and can be owed in a year the business loses money.

How to form an LLC in California: step by step

1. Choose and check a name. The name must include "LLC," "L.L.C.," or "Limited Liability Company," and must be distinguishable from existing entities on the Secretary of State's records. You can check availability and, if needed, reserve a name through the Secretary of State.
2. Designate a registered agent. California calls this the "agent for service of process." It can be an individual California resident with a physical street address in the state, or a registered corporate agent. A P.O. box is not allowed.
3. File Articles of Organization (Form LLC-1). Submit online through the Secretary of State's bizfile portal and pay the $70 fee. This is the filing that legally creates the LLC.
4. Prepare an operating agreement. California law requires LLCs to have an operating agreement (it can be written or oral, but a written one is strongly recommended). It governs ownership percentages, management, distributions, and what happens if a member leaves.
5. File the initial Statement of Information (Form LLC-12). This is due within 90 days of formation, with a $20 fee, and then every two years.
6. Get an EIN and handle tax registration. Obtain a federal Employer Identification Number from the IRS, and register with the relevant California agencies — for example, the CDTFA for a seller's permit if you sell taxable goods, and the EDD if you have employees.
7. Pay the $800 franchise tax and any LLC fee. Pay the $800 minimum to the FTB (Form FTB 3522) and estimate the gross-receipts fee if applicable (Form FTB 3536).
8. Get local licenses. Many cities and counties require a local business license or tax certificate to operate.

The operating agreement: why it matters

The operating agreement is the internal rulebook of the LLC. Even single-member LLCs benefit from one, because it documents the separation between owner and company and reinforces the liability shield. A solid operating agreement typically addresses ownership percentages and capital contributions, how profits and losses are allocated, who manages the company, how decisions are made, how to admit or remove members, and how the LLC can be dissolved. Without one, the default rules of the California act fill the gaps — which may not match what the owners actually want.

For multi-member LLCs, the operating agreement is especially important because it governs what happens when members disagree or when one wants out. A well-drafted agreement addresses voting thresholds for major decisions, how a member can sell or transfer an interest, buy-sell provisions that set a price and process if a member dies, divorces, or wants to leave, and how deadlocks are broken. Disputes among co-owners are among the most damaging problems a small business faces, and they are far easier to resolve when the rules were agreed on in advance. For more on what happens when those relationships break down, see our guide to business disputes and litigation in California.

Keeping the LLC in good standing

Forming the LLC is only the beginning. To stay in good standing, an LLC must file its biennial Statement of Information on time, pay the $800 minimum franchise tax and any gross-receipts fee each year, file its annual Form 568 with the FTB, and keep its registered agent information current. Falling behind can lead to penalties — including a $250 penalty for a late Statement of Information — and ultimately suspension by the Secretary of State and the FTB. A suspended LLC loses the right to enforce contracts and conduct business until it is revived.

Changing or dissolving a California LLC

An LLC is not permanent. As a business grows or its plans change, the owners may want to convert it to another form — for example, a startup that decides to raise venture capital may convert its LLC into a corporation so it can issue stock to investors. California permits these conversions through a statutory process under the LLC act, generally requiring member approval and a filing with the Secretary of State, and the conversion carries tax consequences that should be reviewed with a professional before it is done.

When the owners are finished with an LLC, the right move is to dissolve and cancel it rather than simply abandon it. A voluntary wind-down generally involves the members approving dissolution, settling the LLC's debts, distributing any remaining assets to the members, filing the appropriate dissolution or cancellation paperwork with the Secretary of State, and closing out the entity's accounts with the FTB. This last step matters because the $800 minimum franchise tax keeps accruing each year until the LLC is properly dissolved or canceled. An owner who walks away from an unused LLC without completing this process can find, years later, that the company is suspended and owes thousands of dollars in back taxes and penalties. Doing the paperwork at the end is far cheaper than dealing with a suspended entity later.

LLC vs. corporation vs. sole proprietorship

Many owners weigh an LLC against the alternatives. A sole proprietorship costs nothing to start and avoids the $800 entity tax, but it provides no liability protection — the owner is personally responsible for all business debts. A corporation offers strong liability protection and is generally preferred by businesses that plan to raise venture capital or grant stock options, but it carries more formalities (a board, bylaws, annual meetings, and minutes) and, as a C-corporation, faces potential double taxation of profits. An LLC sits in between: liability protection comparable to a corporation, pass-through taxation by default, and lighter formalities. The trade-off in California is cost — the $800 minimum tax applies to both LLCs and corporations, and the LLC gross-receipts fee can add a meaningful amount for higher-revenue companies. For a fuller comparison of structures, see the business law hero guide.

Frequently asked questions

Do I really owe the $800 in my first year if I form in 2026?

Generally yes. The temporary first-year waiver under AB 85 applied only to LLCs formed between 2021 and 2023 and has expired. An LLC formed in 2026 generally owes the $800 minimum franchise tax for its first taxable year. Because the rules and any future legislative changes can affect timing, confirm with the FTB or a California tax professional before relying on a particular due date.

How often do I file the Statement of Information?

An LLC files Form LLC-12 within 90 days of formation, and then biennially (every two years) after that. The fee is $20. Note that corporations, by contrast, file annually — but for an LLC the cycle is every two years.

Can I be my own registered agent?

Yes, if you are an individual who resides in California and has a physical street address in the state where you can receive legal documents during business hours. Many owners instead hire a commercial registered agent for privacy and reliability. A P.O. box cannot serve as the agent's address.

Is the LLC gross-receipts fee based on profit?

No. The additional LLC fee is tied to total California gross receipts, not net profit, so an LLC can owe the fee even in a year it loses money. The $800 minimum applies on top of any gross-receipts fee.

Do I need an operating agreement if I am the only member?

It is strongly recommended even for a single-member LLC. California's LLC act contemplates an operating agreement, and a written one documents the separation between you and the company, which helps preserve the liability shield. It also makes clear how the business is managed, how money moves in and out, and what happens to the company if you die or become unable to run it. Without one, the act's default rules apply, and you lose the documentation that distinguishes the LLC from a sole proprietorship.

Should my LLC be member-managed or manager-managed?

It depends on who actually runs the business. If all the owners are actively involved, member management is usually simplest. If some members are passive investors, or there are many owners, or you want to centralize authority, manager management can be a better fit because only the designated managers can bind the company. You indicate the choice in your filings, and your operating agreement should spell out the managers' powers and how they are selected and removed.

Find a California business attorney

Forming an LLC the right way — with a sound operating agreement and a clear understanding of California's tax and filing obligations — can prevent expensive problems later. For more on the broader landscape, see the business law hero guide, and to make sure your company's agreements hold up, read about California business contracts. When you are ready for tailored advice, our directory lists attorneys licensed by the State Bar of California across all 58 counties. Searching is free and carries no obligation.