Are California LLC Fees Still Waived?

New businesses considering a Limited Liability Company (LLC) structure in California often have questions about the associated costs. For a period, the state offered a significant financial reprieve for new entities, specifically targeting one of the primary annual expenses. This created a favorable environment for startups, but the availability of this benefit has changed.

The First-Year Franchise Tax Waiver

A notable incentive for new businesses was established by Assembly Bill 85 (AB 85), which provided a waiver for a significant startup cost. This legislation specifically eliminated the $800 annual franchise tax for LLCs, Limited Partnerships (LPs), and Limited Liability Partnerships (LLPs) during their first taxable year. The intent behind this law was to reduce the financial burden on new small businesses.

To qualify for this automatic waiver, an LLC had to be formed or registered with the California Secretary of State on or after January 1, 2021, and before January 1, 2024. The benefit was automatically applied to all eligible entities based on their formation date. Businesses formed during this window received an exemption from the $800 tax for their first year of operation only.

However, this waiver program has expired. For all LLCs formed on or after January 1, 2024, the first-year franchise tax waiver is no longer available. These newer LLCs are now responsible for paying the $800 franchise tax in their first year and every subsequent year of operation. The initial payment for these entities is due by the 15th day of the fourth month after the LLC is officially formed.

Ongoing and Other Required California LLC Fees

While the first-year franchise tax waiver was a temporary relief, prospective LLC owners must account for several other mandatory fees that were never included in the AB 85 exemption. The initial formation process requires submitting the Articles of Organization along with a one-time state filing fee. This fee is separate from any tax obligations and is required to officially register the LLC with the state.

Beyond the initial setup, LLCs face recurring compliance costs. A Statement of Information must be filed within 90 days of the LLC’s formation and then every two years thereafter. This filing carries its own fee and is necessary to keep the state updated on the LLC’s address, agent for service of process, and management details. Failure to file this statement on time can result in penalties and could lead to the administrative dissolution of the LLC.

A separate obligation, known as the LLC Gross Receipts Fee, applies to LLCs with total annual income sourced from California at or above $250,000. This is an additional fee paid to the Franchise Tax Board and is calculated on a tiered basis. The fee starts at $900 for incomes between $250,000 and $499,999 and increases with higher revenue brackets, reaching a maximum fee for incomes of $5,000,000 or more.

Information Needed to Form Your LLC

The primary document for creating a California LLC is the Articles of Organization, designated as Form LLC-1. This form serves as the official charter that, once filed with the Secretary of State, legally creates your company.

You will need to decide on a unique name for your LLC that is not already in use and complies with state naming regulations. You must also provide the LLC’s principal business address and a separate mailing address if different. The Articles of Organization require a brief statement of the business’s purpose; a general statement is usually sufficient. You must also designate a registered agent, an individual or company with a physical street address in California who agrees to accept legal documents on behalf of the LLC. Finally, you must specify the management structure, indicating whether the LLC will be member-managed or manager-managed.

How to File Your LLC Formation Documents

Once you have completed the Articles of Organization (Form LLC-1) with all the necessary information, the next step is to submit it to the California Secretary of State. There are several methods available for filing this document. The most efficient option is the online portal, which allows for direct submission and payment, often resulting in faster processing times.

Alternatively, you can mail the completed Form LLC-1, along with the required filing fee payment, to the Secretary of State’s office. For those who prefer it, in-person drop-off is also an option at the Sacramento office.

After the Secretary of State processes and approves your submission, you will receive a filed-endorsed copy of your Articles of Organization.