What does a California LLC cost? This is a common question for new business owners in California who are establishing a limited liability company. So let’s explore this question and review some general information about LLCs and how they are formed.
How Much Does It Cost to Form an LLC in California?
An LLC, short for limited liability company, is a type of business structure recognized in the United States. An LLC is a hybrid legal entity with some characteristics of a corporation but also gives business owners the flexibility of a sole proprietorship or a partnership.
The most significant advantage of an LLC is that it provides owners with limited liability protection. The owner's personal assets will be protected if the business is involved in a lawsuit.
Many business owners choose to establish an LLC because of the flexibility and amount of control the entity provides owners. For example, owners can determine how the business is structured and managed using a manager or member-managed system.
In addition, the federal government classifies LLCs as a “disregarded entity” for tax purposes. This allows the owner to choose whether they want their business taxed as a sole proprietorship (or partnership if there is more than one owner) or a corporation.
When establishing a new LLC in California, the owner or members will incur several fees. Some fees are mandatory, like filing fees for the articles of organization. At the same time, some are optional business decisions, like naming an LLC.
At a minimum, business owners starting an LLC in California will be responsible for the following fees:
- Articles of Organization. California charges LLC owners $70 to file Articles of Organization with the California Secretary of State. However, if you are considering starting an LLC in California, now is the time. California has waived LLC formation fees from July 1, 2022, to June 30, 2023.
- Initial Report Fee. In California, all LLCs must file an initial report with the Secretary of State within 90 days of formation. The initial report is Form LLC-12, Statement of Information. The filing fee is $20.
- Certificate of Status. A certificate of status is proof that the LLC is registered and exists. California doesn’t require this document, but you need it to open a business bank account and apply for business loans. It is $15 if filed in person and $5 if filed by mail.
There are several optional fees that an LLC owner may run into when forming their LLC in California. Some of these fees include:
- LLC name reservation
- Filing a DBA (doing business as) name
- Requesting certified document copies
Based on ContractsCounsel’s marketplace data, the average cost to start an LLC in California is $750.00.
California LLC Ongoing Costs
Unfortunately for Californians, California has some of the highest ongoing LLC costs in the country due to annual tax fees and LLC fees. As a result, as an LLC owner in California, you will be subject to the following ongoing LLC costs:
- California Annual Tax. All LLCs in California are required to pay an annual $800 tax.
- California LLC Fee. Any LLC in California with annual revenue under $250,000 must pay a yearly LLC franchise tax of $800. The fee will be higher if your LLC makes over $250,000 a year.
- Business license renewal fees. Some businesses may require state or county permits. However, most permits need to be renewed annually or every few years.
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California LLC Drafting Projects
Operating Agreement Drafting
In California, the California Corporations Code requires that all LLCs have an operating agreement. Operating agreements do not have to be filed with any state entity; they can be oral or implied contracts; however, many California business owners choose to draft a hard copy operating agreement.
Operating agreements are important documents and provide LLC owners in California with the following benefits:
- Proof of company ownership
- A tangible document outlining company policy and procedure
- Reinforcement of limited liability status
- An override of California’s default tax laws
- Conflict resolution among LLC members
Business owners are encouraged to consult with an attorney with experience drafting operating agreements. An attorney will know how to custom tailor an operating agreement to fit your business’s needs, protect members, and reap tax benefits.
Articles of Organization Drafting
California requires all LLCs to file Articles of Organization with the Secretary of State. This document serves as the company’s formation document and includes valuable information about your new business.
The following information must be included in your company’s Articles of Organization:
- Proposed LLC Name. The name of your California LLC must follow California name rules and requires approval by the Secretary of State.
- Business Address. The LLC needs a physical business address and mailing address. This address does not have to be in California.
- California Registered Agent. All LLCs must appoint a registered agent, and the LLC cannot serve as its registered agent. The registered agent must have a physical address where certified mail can be delivered.
- Management Structure. California LLC owners can choose from one of three management structures: one manager, more than one manager, or all limited liability company members.
- Purpose. The business purpose is pre-filled by California law, and you cannot adjust. If you want to expand on your business’s purpose, this needs to be done in the operating agreement.
- Organizer Signature. The organizer is the person who prepares and files the Articles of Organization.
The attorney will sign as the organizer if you hire an attorney to draft and file your Articles of Organization.
How Do California Lawyers Charge for LLC Projects?
Hourly Rates for California LLC Projects
California LLC lawyers commonly use an hourly rate fee structure to charge clients. Under this fee agreement, the lawyer will keep track of their time working on LLC formation projects like filing Articles of Organization or drafting an operating agreement.
Depending on the lawyer’s contract duration and how long the business owner plans to use the attorney for legal services, the lawyer will either send monthly bills or wait until legal services have ended and send the client one final bill.
ContractsCounsel’s marketplace data shows that the average hourly rate for an LLC lawyer in California ranges from $200 - $350 per hour.
Flat Fee Rates for California LLC Projects
Suppose a lawyer is hired for a specific project with a definitive end, like drafting an operating agreement. In that case, they will most likely use a flat rate fee instead of charging hourly.
Under a flat fee rate agreement, the lawyer will determine a fair total cost of services based on how long the project should take. Flat rate fees are usually paid upfront before the lawyer begins work.
ContractsCounsel’s marketplace data shows that the average flat fee rate for an LLC project in California is $750.00.
Get Help with Forming an LLC in California
Do you need help with a California LLC project? If so, post a project in ContractsCounsel’s marketplace to receive flat fee bids from business lawyers who are licensed to practice law in California. All lawyers on the ContractsCounsel’s platform are vetted by our team to make sure you are provided with top tier service.
