California is famous for two things when it comes to forming a business: how easy the paperwork is, and how much the state charges you to keep it alive every year. The $70 filing fee is the easy part. What actually costs money is the annual franchise tax, and it applies whether your business made money or not. Here's what it takes to start a business in California in 2026.
1. Which business structure fits you?
Before you file anything, it helps to know what you're actually choosing between.
- Sole proprietorship. No filing required to start, and you and the business are legally the same entity. Simple, but you're personally liable for whatever the business owes.
- Partnership. Two or more people running a business together, with the same liability exposure as a sole proprietorship, just split across partners.
- LLC. The most common structure for small businesses in California. It shields your personal assets, but it's also the structure that triggers the $800 franchise tax, so weigh that against the liability protection.
- Corporation, either S-corp or C-corp. More paperwork and more formality, usually worth it once you're bringing on investors or multiple shareholders.
For a deeper comparison, see our guide on choosing a business structure.
LLCs and corporations register with the California Secretary of State, the agency that handles business filings statewide. Sole proprietorships and partnerships don't file there, since there's no formation document required.
2. Register your business
Forming an LLC
You form an LLC in California by filing Articles of Organization with the Secretary of State. The filing fee is $70. Within 90 days of forming, you also have to file a Statement of Information (Form LLC-12) for $20, and again every two years after that.
Every LLC needs a registered agent, California calls this an agent for service of process, with a physical in-state address, available during business hours. You can act as your own agent, or pay a commercial service.
An operating agreement isn't filed with the state, but California law does require LLCs to have one internally. Draft it even for a single-member LLC.
Sole proprietorships and DBAs
Sole proprietorships don't file anything with the Secretary of State. If you're operating under a name other than your own legal name, you'll file a Fictitious Business Name statement, a DBA, with the county clerk where your business is located, not with the state. Requirements and fees vary by county.
3. Get an EIN
An Employer Identification Number is free straight from the IRS and takes about 15 minutes online. You'll need one to open a business bank account, hire anyone, or file most business tax forms, even if you're a single-member LLC with no employees.
4. Check licenses and permits
California doesn't have one general statewide business license either. What you need depends on your city, county, and industry: a local business license or tax certificate from your city, professional licensing for regulated fields, health permits for food businesses, and a seller's permit if you're selling taxable goods. Our guides on professional licensing by industry and zoning laws for home businesses cover more of this.
5. Understand California taxes
This is where California gets expensive. Every LLC doing business in the state owes an $800 annual franchise tax to the Franchise Tax Board, regardless of income, for as long as the LLC exists. There's no first-year exemption anymore, that waiver expired. If your LLC's California gross income tops $250,000, you'll also owe an additional LLC fee on top of the $800, scaled to revenue.
Personal income tax in California is progressive, from 1% up to 12.3%, plus an extra 1% surcharge on income over $1 million, for a top effective rate of 13.3%, the highest of any state. Sales tax starts at a 7.25% statewide base and climbs to around 10.75% in some cities once local district taxes are added.
If you elect corporate tax treatment for your LLC, different rules and rates apply. Our guide on choosing a business structure walks through how each option is taxed.
6. Stay compliant
Beyond the $800 franchise tax, California LLCs file a Statement of Information every two years ($20) to keep their address and management information current with the Secretary of State. Miss it and the state can suspend your LLC, which blocks you from bringing or defending a lawsuit until you're back in good standing.
California business costs at a glance
| Item | Cost |
|---|---|
| Articles of Organization (LLC) | $70 |
| Statement of Information (initial + biennial) | $20 |
| Annual franchise tax (every year) | $800 |
| Additional LLC fee (if CA gross income over $250,000) | $900 to $11,790 |
| Registered agent service (optional) | $100 to $250/year |
| EIN | Free (IRS) |
| State income tax | 1% to 13.3% (progressive + surcharge over $1M) |
| State sales tax | 7.25% base, up to ~10.75% with local |
Frequently asked questions
How much does it cost to form an LLC in California?
$70 for Articles of Organization, plus a $20 Statement of Information due within 90 days and again every two years.
What is California's $800 franchise tax?
An annual tax every LLC doing business in California owes to the Franchise Tax Board regardless of income, with no first-year exemption anymore since that waiver expired.
What's the top personal income tax rate in California?
13.3%, the highest of any state, combining a 12.3% top progressive rate with an extra 1% surcharge on income over $1 million.
Do I need to register a sole proprietorship in California?
No, not if you're operating under your own legal name. If you use a different name, you'll file a Fictitious Business Name (DBA) statement with your county clerk instead.
How much is sales tax in California?
A 7.25% statewide base, climbing to around 10.75% in some cities once local district taxes are added.
Fees and rates above come from the California Secretary of State and Franchise Tax Board as of 2026, and they do change over time, so double check before you file. None of this is legal or tax advice. Talk to a California-licensed attorney or CPA about your specific situation.