I recently set out to incorporate a new company with one of my friends as an LLC. We both live in California and our product will be made and sold here so initially we figured the best approach would be to incorporate here. We had explored the S Corp and other business entities but eventually decided that an LLC offered the most protection from lawsuits and was the best choice so off we went.

I explored the LLC Overview on Wikipedia as well as the California LLC website and was shocked to discover that California charges $800 per year just do do business here! Discouraged, I set out to find other options. It didn't take long to find a slew of websites offering incorporation and registered agent services. They would offer to help process and expedite paperwork, act as a physical address, and accept service of process (legal papers if you are sued) on your behalf.

What I found is that most Fortune 500 Companies incorporate in Delaware because it has favorable case law, furthermore, many new businesses go to Nevada and Wyoming because they have similarly favorable laws but are cheaper in the long run. These locations don't charge fees for issueing stock, filing updates, etc. etc. which many other states do. Eureka I thought! I will incorporate my company in Wyoming where I have family and friends, I'll save a bundle and appear smart someday when I'm selling off my company. Not so fast...

Upon further investigation I found out that even if I incorporate my company in some other state, as long as I'm doing business in California I will be required to pay a "franchise tax" which is, you guessed it, $800 per year. So, had I jumped in on the Wyoming incorporation I would have paid a service fee to a company to help me file the papers as well as pose as my registered agent, and I would still end up owing California.

In conclusion, as a California resident and business founder it is to my benefit to incorporate here and simply bite the $800 bullet. Additionally, I found a great service right here in San Francisco that will act as my registered agent and even let me use their physical address for my business for just $85 a year (which means I don't get slapped with fees each time I move and have to update company records, granted I am working out of my home office... and my home is an apartment).

Some states don't require a registered agent (California not being one of those states) but it can still be wise to use one anyway because they act as a buffer and secretary if you get sued, nobody wants to receive that kind of news or a summons in front of clients or family so the registered agent takes care of it and keeps you informed. As mentioned above, I found a great service that focuses specifically on the West Coast called Pacific Registered Agents, Inc. and they have offices in both Oregon and California. Their owner is also really friendly :)

As a resource for other people trying to incorporate in California who are facing similar decisions I have listed a few resources below specific to California. Note, I am not a lawyer please don't try to sue me or take this as legal advice, I'm simply making your job easier!

• A domestic limited liability company must complete and file Articles of Organization (Form LLC-1) with the Secretary of State. The fee for filing Articles of Organization is $70.00.
• Every limited liability company which is doing business in California or has filed Articles of Organization or an Application for Registration with the Secretary of State's Office is subject to the annual limited liability tax of $800. The tax must be paid for each taxable year until a Certificate of Cancellation is filed. Questions regarding franchise tax requirements must be directed to the Franchise Tax Board. The franchise tax is also $800 per year.
• Must have a Registered Agent in state (can't be the LLC owner) to accept service of process if LLC is sued
• A domestic limited liability company must file a Certificate of Dissolution (Form LLC-3) and a Certificate of Cancellation (Form LLC-4/7), unless all the members vote to dissolve, in which case only the Certificate of Cancellation is required; or in limited circumstances, a Short Form Certificate of Cancellation (Form LLC-4/8) may be filed. In addition, certain franchise tax requirements must be met.