How Much Does It Cost To Form A California Corporation?
What are the different fees you need to pay to incorporate?
What’s essential to know?
In this article, I will break down the question How Much Does It Cost To Incorporate In California so you know all there is to know about it!
Keep reading as I have gathered exactly the information that you need!
Let me explain to you how much it costs to incorporate in California!
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How Much Does It Cost To Incorporate In California
If you’re looking to form a corporation in California, you should consider the incorporation fees and taxes that you may be asked to pay.
To form a corporation in California, here are the common fees you will be expected to pay:
- Filing fees to form a corporation in California
- California Statement of Information Report Fee
- California Franchise Tax Fee
Keep reading as I will now break down exactly how much you need to pay to incorporate in California.
California Corporation Filing Fees
As of the writing of this post, you are required to pay $100 in filing fees for your general stock articles of incorporation in California provided you file your incorporation papers online.
If you choose to file your articles of incorporation in paper format, you will need to pay an additional $15 in handling fees bringing up your California incorporation fees to $115.
If you are a foreign corporation filing a Statement of Designation by a Foreign Corporation, you will also have a filing fee of $100 along with a potential handling fee of $15 if you are making an in-person filing submission.
Typically, foreign corporations must also factor in the fees charged by the foreign corporation’s state of formation to obtain a certificate of good standing to file with the foreign corporation filing papers.
Statement of Information Fees
Within 90 days from the moment you receive confirmation from the California Secretary of State that your general stock corporation is formed, you will need to file an initial Statement of Information.
Your initial Statement of Information will cost you $25.
Minimum California Franchise Tax
No matter what type of corporation you have registered (domestic corporation or foreign corporation), your corporation is required to pay the California Franchise Tax that is payable to the California Franchise Tax Board (FTB).
The Annual Minimum tax is $800 and must be paid during the first quarter of your corporation’s accounting period.
Keep in mind that the annual minimum tax of $800 is due regardless of the fact that your corporation is profitable or not, active or not, or even doing business at all.
For new corporations in California, the tax is measured based on their income for the first year and subject to estimate requirements.
Then, for all subsequent years, the minimum tax is $800.
Additional California Franchise Tax
Depending on your corporation’s income, you may be required to pay additional taxes to the state of California calculated based on your total annual income.
Essentially, your California Franchise Tax will be the greater of $800 or the applicable tax rate percentage of your net income.
This means that you will always pay $800 at a minimum.
However, if your corporation’s income is high enough, you will pay a franchise tax based on a percentage of your net income.
The California Franchise Tax rates depend on your business’s tax classification:
- C corporations: 8.84%
- S corporations: 1.5%
- Partnerships (such as LLCs, LPs, LLPs, LLLPs): $800
For example, if your C Corporation makes $20,000 this year, you will owe the minimum of $800 or 8.84% of your total income (whichever is greater).
Since 8.84% of $20,000 is equal to $1,768, your California Franchise Tax will be set to $1,768 being greater than $800.
On the other hand, if your company earned below $9,049 in a year, it will be required to pay the minimum $800 in Franchise Tax.
Other Fees When Forming A Corporation In California
In addition to the fees you’ll need to pay to form a corporation in California, you will need to consider other fees that may apply to you, such as:
- California Permits and Licenses
- IRS Payroll Tax
- California State Income Tax
- Sales and Use Tax
California Business License And Permits
If your business needs to obtain a business license or permit to legally operate in California, you’ll need to identify the specific license or permit you need so you can assess its costs.
Typically, business licenses and permits may be required based on the nature of your company’s operation and where it is located in California.
IRS Payroll Tax
If your company pays wages over $100 in any calendar quarter, it will become subject to the IRS Payroll Tax.
The California Employment Development Department issues employer account numbers (sometimes called state employer identification numbers or SEINs) and administers California’s payroll taxes, including Unemployment Insurance, Employment Training Tax, State Disability Insurance, and California Personal Income Tax withholding.
California State Income Tax
Any corporation generating revenues out of California must pay California state income taxes to the state of California.
You can consult the California Tax Service Center for more information on this.
Sales and Use Tax
Corporations selling goods and services to California residents will be required to pay sales and use tax.
To see how much you must pay in sales and use tax, you can consult the California Tax Service Center.
California Incorporation Cost FAQs
Let’s look at a few common questions regarding the cost of incorporating in California.
What is the California corporate tax rate?
The California corporate tax rate is 8.84%.
Every year, you’ll need to pay an amount that is the greater of either $800 or 8.84% of your total income.
Do corporations have to pay the California Franchise Tax?
Yes, your corporation must pay the California Franchise Tax.
It’s irrelevant whether or not your company is making money, you will owe a minimum of $800 every year in Franchise Tax to maintain your company in good standing.
How much does it cost to amend Articles of Incorporation in California?
Amending your articles of incorporation will cost you $30.
With an amendment, you can change things like your company name.
So there you have it folks!
There are many advantages to forming a corporation in California.
One of the main reasons why many choose to incorporate in California is to benefit from the limited personal liability protection offered by operating a business under a separate business entity.
In this post, I offer a quick breakdown of the different fees you may have to pay to incorporate a general domestic stock in California or qualify as a foreign corporation.
In a nutshell, you will need to pay for:
- The corporation filing fees (and applicable handling fees)
- Your Statement of Information filing fees
- Your California Franchise Tax
In some cases, entrepreneurs will choose to handle the incorporation paperwork by themselves saving some money in the process.
However, you can also hire incorporation attorneys (or business lawyers) or by doing business with companies offering incorporation services.
Both these options will cost you some money depending on who you choose.
Now that you have all the information about the costs of forming a corporation in California, good luck with your business venture!
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