Deep Dive10 min readSeptember 12, 2026

By Alexander Stylianoudis

Running a Delaware Company in California: The $800 You Owe Either Way

Most articles about this situation get the causation backwards. They present foreign qualification as the thing that costs money: register your Delaware LLC in California, and now California starts taxing you. So founders quietly skip the registration and assume they have dodged something.

They have not. California's $800 annual tax attaches to doing business in California, not to registering there. A Delaware LLC run from a bedroom in Oakland owes the $800 in its first year whether or not the Secretary of State has ever heard of it. Registration costs $70 once and $10 a year after that. It is close to the cheapest line on the page. The expensive part already happened when you started working from California.

This post covers what actually triggers California's tax, what the registration does and does not change, what the real annual bill looks like next to a plain California LLC, and why converting the company out of Delaware saves less than people expect. If you are still deciding where to form, read where to incorporate your business instead. This one assumes the Delaware entity already exists and you are in California.

This article is for general information only and does not constitute legal, tax, or financial advice. Laws and regulations change frequently. Consult a qualified professional before making decisions based on this content.

How founders end up here

New York, incidentally, is the mirror image of what follows: it barely taxes the entity but makes you advertise it in two newspapers, and its penalty for non-compliance is far milder than California's. See running a Delaware company in New York.

The path is almost always the same. Someone reads that Delaware is where real companies incorporate, forms there through a template service in about ten minutes, and never encounters the second question: incorporation state and operating state are separate decisions, and only one of them is about where you actually sit.

Delaware has no objection to this. Its corporate franchise is an export product and most entities on its register operate elsewhere. California is a different kind of state. It taxes activity within its borders, and it defines activity broadly enough that a single founder with a laptop qualifies.

What "doing business in California" actually means

California defines doing business as "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit" within the state. For an LLC, the Franchise Tax Board adds a line that catches nearly every remote founder: an LLC is doing business in California if any of its members, managers, or agents performs activities in California on behalf of the LLC, regardless of where the LLC otherwise conducts business.

The FTB's own published examples make the reach clear. A California resident who is a member of a Nevada LLC that owns only Nevada property, and whose involvement amounts to occasional phone calls from California to the Nevada management company, is conducting business in California on behalf of that LLC. So is a California resident who simply uses a California address and a California accountant for an Oregon LLC's tax filings. In both cases the FTB's conclusion is the same: the out-of-state LLC must file a California return.

Separately, there are bright-line thresholds. You are doing business in California if your California sales, property, or payroll exceed set amounts, which the FTB revises annually. For the 2025 tax year, the most recent published figures, those were:

California sales over $757,070, or 25% of total sales
California real and tangible property over $75,707, or 25% of total property
California compensation paid over $75,707, or 25% of total payroll

Those thresholds matter for an out-of-state company selling into California. They are not what catches the resident founder. If you live in California and run the company from there, you are over the line long before revenue is relevant, because the activity test is met by you being at your desk.

The part most write-ups get wrong

Here is the thing worth internalising: the $800 is not a consequence of registering.

An LLC owes California's $800 annual tax if it is organized in California, or if it registers with the Secretary of State, or if it does business in California. Those are three independent triggers. Doing business is one of them all by itself.

So the choice a California-based founder with a Delaware LLC actually faces is not "pay California or stay quiet." It is:

Register. Pay the $800 you already owed, plus $70 once and $20 every two years, and hold enforceable contracts and a company in good standing.
Do not register. Owe the same $800, accumulate it unpaid, and lose the ability to defend your own agreements in California courts.

Framed that way, the non-registration route is paying full price for a worse product.

While we are correcting things: the widely repeated "$2,000 per year penalty for not registering" is not quite right either. That penalty exists, but it is not automatic on non-registration. It applies when an unqualified foreign entity that is doing business in California fails to file a required return within 60 days after the FTB sends a notice and demand to file, absent reasonable cause. The penalty is real. The trigger is failing to respond to the state, not failing to file a form with the Secretary of State.

The LLC fee, which is the line that actually hurts

The $800 is flat and predictable. The item that surprises people is California's separate LLC fee, charged on top, and calculated on total income, not profit. Total income here means gross income plus cost of goods sold. A business with thin margins pays on the whole top line.

Total income from California sources	Annual LLC fee
Under $250,000	$0
$250,000 to $499,999	$900
$500,000 to $999,999	$2,500
$1,000,000 to $4,999,999	$6,000
$5,000,000 or more	$11,790

A consultancy billing $520,000 and keeping $180,000 pays the $2,500 tier. A reseller turning over $1.2m at 8% margin pays $6,000 out of roughly $96,000 of profit. This fee has survived multiple constitutional challenges and is still on the books. If your business is high-revenue and low-margin, this line, not the $800 and certainly not the Delaware side, is the number that should drive your structure.

One more thing worth knowing because outdated articles still repeat it: there was a first-year exemption from the $800, introduced by Assembly Bill 85. It applied to LLCs, LPs, and LLPs that organized or registered with the California Secretary of State on or after 1 January 2021 and before 1 January 2024. It expired at the end of 2023, so an LLC registering in 2026 pays the full $800 from year one. But a 2026 budget bill has since brought back a half-measure: under R&TC 17941(g)(2), added by SB 180 in July 2026, an LLC whose first taxable year begins in 2027, 2028 or 2029 pays $400 for that first year, then $800 from the second. If you are reading this in 2027 or later and about to register, that is the number to check first.

Registering: what the process looks like

Foreign qualification in California is short. Verify current fees with the Secretary of State, since they change.

Get a certificate of good standing from Delaware. California requires one issued by the formation state's authorized public official, attached to the application, and the Secretary of State's form instructions call for a certificate issued within the last six months. Order it after you have decided to register, not before, or it can go stale. Delaware charges $50 for the short-form certificate.
Appoint an agent for service of process in California. This can be an individual with a California street address, including you, or a registered corporate agent. A commercial agent runs roughly $100 to $150 a year.
File the Application to Register a Foreign Limited Liability Company (Form LLC-5). The fee is $70. This one is filed online through bizfile; there is no paper form to post. For a foreign stock corporation, the equivalent is the Statement and Designation by Foreign Corporation at $100.
File the Statement of Information (Form LLC-12). $20, due within 90 days of registering and then every two years. Also online only. For a foreign corporation it is Form SI-350 at $25, annually.
Pay the FTB. Form 3522 for the $800 annual tax, and Form 3536 for the estimated LLC fee if your total income will reach $250,000.

None of this replaces the Delaware side. The company still owes Delaware's franchise tax, which is $400 flat for an LLC from tax year 2026 following House Bill 400, and still needs a Delaware registered agent.

The annual bill, side by side

Steady state for a single-member LLC run by a California resident, with total income under $250,000 so the LLC fee is zero:

	Delaware LLC operating in California	California LLC
Delaware franchise tax	$400	$0
Delaware registered agent	~$125	$0
California annual tax (FTB 3522)	$800	$800
California Statement of Information	~$10 (=$20 biennial)	~$10 (=$20 biennial)
California agent for service of process	$0 (be your own)	$0 (be your own)
Every year	~$1,335	~$810

Add the LLC fee to both columns identically once you cross $250,000, because it follows the California activity, not the formation certificate.

The gap is about $525 a year. That is the entire cost of the Delaware layer for a founder in California. It is worth removing if the Delaware entity is doing nothing for you, and it is worth every cent if you are raising a priced round from institutional investors who expect Delaware. What it is not is the main event. The main event is the $800 plus the fee, and both of those follow you.

What happens if the company just does not register

Three things, in escalating order of seriousness.

The tax accrues anyway. The $800 is owed per year for every year the company was doing business in California, and the FTB bills backwards when it finds you. There is no statute of repose that rewards having stayed quiet.

The company's rights get forfeited. A foreign LLC that does not pay what it owes can have its powers, rights, and privileges forfeited in California. The practical consequence is the one that bites: contracts entered into while forfeited are voidable at the request of the other party. Your customer can walk away from an agreement and you cannot compel them, because the entity that signed it was not in good standing. A forfeited entity also cannot file a claim for refund, and cannot maintain an action in California courts until it is revived.

Then the $2,000 penalty, on the terms described above.

For a business with no California customers and no contracts to enforce, this is an abstract risk. For anyone selling to Californian companies, it is a live one, and it tends to surface at the worst possible moment, which is diligence.

The exit, and what it actually saves

If the Delaware entity is not earning its keep, California allows a foreign entity to convert into a California LLC using Form LLC-1A, Articles of Organization - Conversion, at $70. The company continues as the same legal entity rather than being dissolved and re-formed, and normally keeps its EIN, then you close out the Delaware side and stop paying Delaware.

Be clear-eyed about both the result and the entry price. Leaving Delaware is not just California's $70: Delaware charges $220 to cancel an LLC, plus the franchise tax for the year you cancel, so the real one-off cost is closer to $690. After that you save the Delaware franchise tax and the Delaware agent, roughly $525 a year, so it pays back in a little over a year. You keep the $800 and you keep the LLC fee. Converting out of Delaware is a tidiness decision and a small cost saving. It is not a tax strategy, and no amount of restructuring the formation state changes where you live.

The founders for whom Delaware genuinely pays are the ones raising institutional money, issuing preferred stock, or relying on Delaware's case law for a real governance reason. For a bootstrapper operating from California, the Delaware layer is usually a $525 annual subscription to a decision made in ten minutes years ago. Worth reviewing. Just do not expect removing it to solve the California bill, because the California bill was never about Delaware.

FAQ

Can a Delaware LLC do business in California?

Yes. It must register with the California Secretary of State as a foreign LLC using Form LLC-5, appoint an agent for service of process in California, and file and pay with the Franchise Tax Board. It continues to owe Delaware's franchise tax and keep a Delaware registered agent at the same time.

Does a Delaware LLC have to pay California's $800 if it never registers?

Yes, if it is doing business in California. The $800 annual tax is triggered independently by organizing in California, registering with the Secretary of State, or doing business in the state. Skipping the registration does not remove the liability, it just means the amount goes unpaid.

Does living in California make my out-of-state LLC taxable there?

In most single-founder cases, yes. The FTB treats an LLC as doing business in California if a member, manager, or agent performs activities in California on its behalf, regardless of where the LLC otherwise operates. Its published examples include founders whose only California activity was phone calls or using a California accountant.

What is the penalty for not registering a foreign LLC in California?

The most-cited figure is $2,000 per taxable year, but it applies when an unqualified foreign entity doing business in California fails to file a required return within 60 days of an FTB notice and demand. The more immediate consequences are forfeiture of the company's rights in California and contracts signed during forfeiture becoming voidable by the other party.

Is it worth converting a Delaware LLC into a California LLC?

It saves roughly $525 a year, being Delaware's $400 franchise tax plus a registered agent of about $125. It does not reduce the $800 California annual tax or the LLC fee, both of which follow the California activity. Getting out costs about $690 up front: $70 for California's conversion filing and $220 to cancel in Delaware, plus the Delaware franchise tax for the year you leave. Whether it is worth doing depends mostly on whether you have a real governance or fundraising reason to remain in Delaware.

Sources

Primary sources for the rates and rules cited in this article:

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About the author

Alexander Stylianoudis · Legal and Financial Executive

Alexander has spent over 15 years working with US, UK, Canadian, and European companies. He built IncorpAssist after getting tired of searching for objective incorporation guidance and finding formation-service marketing instead.