How to Start a Tech Startup in California: Delaware vs California, the $800 Tax and Why SaaS Is Not Taxed

Starting a software company in California involves several decisions that are hard to reverse: where to form, how the minimum franchise tax applies, how sales tax treats your product, and which privacy and pricing rules apply once you have customers. This guide takes them in the order you will meet them. The figures come from the California Secretary of State, the Franchise Tax Board (FTB), the California Department of Tax and Fee Administration (CDTFA) and the statutes cited. Anything you should confirm with an agency is marked as such.

Informational content, not legal or tax advice. This article explains general California rules as they stood in October 2026. It does not account for your founders' agreements, investor terms, revenue mix or other facts specific to your company. Talk to a business attorney and a CPA before you file.

What You Need Before You Start

• Two or three candidate names, checked against the Secretary of State name search at https://bizfileonline.sos.ca.gov/search/business
• A California registered agent: an individual who resides in California, or a corporation that holds a Corporations Code 1505 certificate
• A California office address for the entity. An LLC must keep an office in California, though business activity does not have to happen there
• A bizfile Online account at https://bizfileonline.sos.ca.gov/
• Filing fees: $70 for Articles of Organization (Form LLC-1), $100 for stock corporation Articles of Incorporation, and $10 if you reserve a name
• A cash reserve for the $800 minimum franchise tax if you form an LLC, plus the LLC fee if your California-source income gets large enough
• A federal EIN from the IRS
• A clear picture of how you deliver your product: hosted (SaaS), downloadable, on physical media, or as hardware
• A list of where your customers and employees are located, including how many are in California

Step 1: Choose Where to Form: Delaware or California

Many founders hear that Delaware is the default for startups. That is true for companies that expect to raise money from investors who want Delaware law. It does not mean Delaware removes California obligations. A Delaware corporation or LLC that does business in California must register with the Secretary of State as a foreign entity and owes California franchise tax.

Revenue and Taxation Code 23101 defines doing business. An entity is doing business in California if it is organized or commercially domiciled here. A Delaware entity is also doing business if, for 2025, its California sales exceed $757,070, its California property exceeds $75,707, or its California payroll exceeds $75,707 (or 25 percent of its totals in each case). These amounts adjust every year, so check with the FTB for the current-year figures.

Forming in Delaware therefore adds Delaware fees without removing the California tax. For most early-stage companies with California founders, staff or customers, forming in California is simpler. Delaware usually makes sense mainly when investors require it. A business lawyer can tell you whether your situation is different.

What California Charges a Delaware Company

Item	Amount	Notes
Foreign corporation statement and designation	$100	Registering a Delaware corporation in California
Foreign LLC registration (Form LLC-5)	$70	Registering a Delaware LLC in California
Foreign corporation Statement of Information (Form SI-550)	$25 each year	Due within 90 days of registering, then every year
Corporation franchise tax	8.84% of net income, or the $800 minimum if greater	Rate under RTC 23151
LLC minimum franchise tax	$800	Owed from the first year for LLCs organized or registered in 2024 and later
LLC fee	$900 to $11,790	Based on California-source total income

The LLC fee is a separate charge on top of the $800 minimum. It applies once California-source total income reaches $250,000 ($900), $500,000 ($2,500), $1,000,000 ($6,000) or $5,000,000 ($11,790). Confirm which tier applies to your projections with the FTB.

The $800 minimum is the cost most founders underestimate. An LLC formed in 2021 through 2023 had a first-year exemption, but that exemption does not apply to LLCs formed in 2024 through 2026. An LLC whose first taxable year begins in 2027, 2028 or 2029 pays $400 in year one under RTC 17941(g)(2). Confirm that first-year amount with the FTB before you budget.

A corporation is treated differently. A newly incorporated or qualified corporation is exempt from the $800 minimum in its first taxable year (RTC 23153(f)(1)). After that, the corporation pays 8.84% of net income, or the $800 minimum if that amount is greater.

Step 2: Reserve Your Name and File Your Formation Documents

California has specific naming rules. An LLC name must contain 'limited liability company', 'L.L.C.' or 'LLC'. 'Limited' may be shortened to 'Ltd.' and 'company' may be shortened to 'Co.' No name may contain 'bank', 'trust', 'trustee', 'incorporated', 'inc.', 'corporation' or 'corp.' A corporation name needs no designator, because only close corporations use one.

You can reserve a name for $10. The reservation lasts 60 days and cannot be renewed for consecutive periods. Check availability and reserve at https://www.sos.ca.gov/business-programs/business-entities/name-availability.

Then file through bizfile Online at https://bizfileonline.sos.ca.gov/. Online filings are normally processed within about 5 business days or less. Paper filings take 10 or more business days. If you need speed, the Secretary of State offers expedited options: 24-hour processing for $350, same-day processing for $750 if the filing is received by 9:30 a.m., and 4-hour processing for $500, which is drop-off only and requires precleared paperwork.

After you file, you must submit a Statement of Information within 90 days. For an LLC, that is Form LLC-12 at $20, due within 90 days of filing the articles and then every two years during the six-month window ending on the last day of the anniversary month. For a corporation, that is Form SI-550 at $25, due within 90 days and then every year. If an LLC misses its Statement of Information, the FTB can assess a $250 penalty after a Secretary of State notice.

Two structural limits matter for software companies. California does not allow a domestic series LLC. And an LLC cannot render a licensed professional service, so if your product delivers regulated professional services, a professional corporation is the usual vehicle.

Step 3: Register for Taxes, Employees and Local Licenses

California has no general statewide business license. The Secretary of State issues none, and the CDTFA seller's permit is not a business license. Your registration obligations depend on what you do:

• Seller's permit: Register with the CDTFA if you sell taxable goods, such as hardware or physical media. The permit is free. Apply through https://www.cdtfa.ca.gov/ and see the sales and use tax page at https://www.cdtfa.ca.gov/taxes-and-fees/sales-use-tax.htm.
• Employees: Register with the Employment Development Department (EDD) if you have employees. California's minimum wage is $16.90 in 2026 and $17.40 from January 1, 2027. Verify both figures before you budget, since they come from a secondary source.
• Local business tax: Most cities charge a local business tax or registration certificate. Of the 483 cities in California, 445 report revenue from one. There is no common formula, so the answer depends on the city where you have an office or employees. Counties license only regulated activities.
• State licenses: Regulated trades and professions are licensed by state boards, such as the Contractors State License Board or the Department of Consumer Affairs boards. Most software companies do not need one, but confirm this if your product includes a regulated service.

If you operate under a name that differs from your entity name, you need a Fictitious Business Name Statement. File it with the County Clerk-Recorder in the county of your principal place of business (Sacramento County if you have none in California). You must file within 40 days of starting to use the name, publish it in a newspaper once a week for four weeks, and renew it every five years. The statutory fee is $10 plus $2 per additional name or owner (Business and Professions Code 17929), but counties charge more. For example, Tehama County charges $31 plus $5 for each additional name. The newspaper publication fee is separate. Details are at https://www.sos.ca.gov/business-programs/business-entities/fictitious-business-names.

Step 4: Understand Sales Tax on Your Software

This is where many tech founders get the most relief. California does not tax software delivered electronically. Under 18 CCR 1502, the sale or lease of a prewritten program is not taxable when it is transferred by remote telecommunications from the seller to or through the buyer's computer and the buyer receives no tangible media. Charges for remote time-sharing use of a computer are also not taxable. That covers SaaS subscriptions and software downloads.

'Not taxed' here refers to sales tax only. Your company still pays income or franchise tax, including the $800 minimum or the corporate rate described in Step 1.

Three situations change the answer:

• Software delivered on physical media, such as a CD or USB drive, is treated differently from remote delivery.
• Physical goods, such as devices or hardware bundled with your product, are taxable.
• A hybrid product, such as hardware with a required subscription, needs a specific answer. Ask the CDTFA before you finalize pricing.

If you do sell taxable goods, the statewide base rate is 7.25%. With district taxes, city rates run from 7.25% to 11.75%. A resale certificate has no required form. Build your seller's permit and tax setup before your first hardware sale, not after.

Step 5: Check the California Consumer Privacy Act Thresholds

The California Consumer Privacy Act (CCPA) applies to a for-profit business that does business in California and meets at least one of three tests:

1. Annual gross revenue above $25 million, as adjusted by the California Privacy Protection Agency. The agency lists the adjusted figure as $26.625 million, effective January 1, 2025. The Attorney General's page may still show $25 million, so use the agency's figure. Check https://cppa.ca.gov for the current number.
2. Buying, selling or sharing the personal information of 100,000 or more California residents or households.
3. Deriving 50 percent or more of annual revenue from selling or sharing personal information.

An early-stage company often falls below the revenue test but can still reach the consumer-count test quickly if it has a popular free tier or a large user base. Track your California user count from the start. This guide does not cover penalty amounts or rules for automated decision tools or AI, so check those with the California Privacy Protection Agency.

Step 6: Disclose Your Full Price

Civil Code 1770(a)(29) bars advertising a price that leaves out mandatory fees or charges. Government taxes and fees and actual shipping are the exceptions. This rule matters for subscription plans, platform fees and checkout surcharges.

In practice, the price on your pricing page and your checkout should include every mandatory charge. If every customer must pay a $3 platform fee, the advertised price should include it. List optional add-ons separately, and make the required fees visible before the customer commits.

Tips and Common Mistakes

• Assuming Delaware avoids California. It does not. You add Delaware fees and still owe California obligations.
• Confusing the $800 minimum with the LLC fee. They are separate charges, and the LLC fee starts only at $250,000 of California-source total income.
• Missing the Statement of Information. The 90-day deadline is short, and the FTB penalty follows a missed notice.
• Using a restricted word in your name. An LLC name containing 'Inc.' or 'Corporation' will be rejected or require a change.
• Letting the name reservation lapse. Reservations last 60 days and cannot be renewed back to back, so file the entity while the reservation is active.
• Missing the 40-day DBA deadline. Starting to use a fictitious name before you file creates a compliance gap.
• Treating a bundled hardware kit as software. Physical goods are taxable even if the software inside is not.
• Advertising a price that omits mandatory fees. This is a pricing-page problem, not just a checkout problem.
• Assuming one local tax answer for every city. Check the city where you have an office or staff.
• Planning a series LLC or a licensed professional service inside an LLC. California does not allow a domestic series LLC, and an LLC cannot render licensed professional services.

Expected Results

If you file online with an available name and a complete registered agent, your entity may appear on the Secretary of State's records within about a week, based on the normal processing window. Paper filings usually take longer, and expedited options can shorten the wait for an additional fee.

Your first-year government costs may include the filing fee, the $800 minimum franchise tax for an LLC, and the $20 or $25 Statement of Information. You may pay more if your California-source income reaches an LLC fee tier. These are typical costs rather than guaranteed amounts, and your actual figures depend on your entity type, income and location.

Founders who settle the local business tax, the DBA question and the pricing presentation before launch often avoid last-minute changes. Results will vary with your product, your customers and the cities where you operate.

Next Steps and Resources

• California Secretary of State, Business Programs Division: https://www.sos.ca.gov/business-programs
• bizfile Online filing portal: https://bizfileonline.sos.ca.gov/
• Name availability and reservation: https://www.sos.ca.gov/business-programs/business-entities/name-availability
• Fictitious business names: https://www.sos.ca.gov/business-programs/business-entities/fictitious-business-names
• CDTFA sales and use tax: https://www.cdtfa.ca.gov/taxes-and-fees/sales-use-tax.htm
• California Small Business Development Center network: https://californiasbdc.org/
• California Privacy Protection Agency: https://cppa.ca.gov

For a structure decision, an investor-driven round, or anything involving equity, ask a business attorney. For taxes, including the FTB's current-year doing-business thresholds, ask a CPA. The Small Business Development Center network can help you plan the business side of your launch.

Reminder: This article is informational content, not legal or tax advice. Confirm every figure marked for verification with the named agency before you file or pay.