How to Start an ADU Building Business in California: 60-Day Permit Clock and the CSLB License You Need

If you plan to build accessory dwelling units in California, start with the license. ADU construction needs a building permit, and the $1,000 small-job exemption can never apply to work that needs a permit (Business and Professions Code 7048). You need a Contractors State License Board (CSLB) license to contract for this work. Your entity, registrations and permit strategy all depend on getting that right. This guide covers how to start an ADU business in California in the order the steps happen: license first, then the business entity and registrations, then the state permit rules every ADU project lives under, and finally the contract and payment practices that protect you.

Informational content only. This article is not legal or tax advice. Entity, licensing and tax decisions depend on your specific facts. Consult a qualified attorney and a CPA before you form a company, sign contracts or hire employees.

What You Need Before You Start

• A CSLB license in the class that fits your work, plus the fees, exam, bond and insurance described in the CSLB guide
• A business entity filed with the California Secretary of State (an LLC or a corporation)
• A California registered agent and, for an LLC, a California office address
• A business name that meets the state name rules, and a fictitious business name statement if you will trade under any other name
• A bank account in the business name
• A written home improvement contract template and a payment schedule
• Contact with the planning counter in each city or county where you plan to work, because every ADU project starts there
• State tax and employer registrations if you will sell taxable goods or hire employees

Step 1: Confirm Your CSLB License Class

Licensing comes first because it controls what you can legally sell. Two classes come up in ADU work: the B General Building license and the B-2 Residential Remodeling license.

A B license covers structures that need at least two unrelated trades. B-2 covers improvements to an existing residential wood-frame structure that use at least three unrelated trades (Business and Professions Code 7057.5). That split matters for ADUs. A garage or basement conversion is an improvement to an existing structure, so B-2 may fit that kind of job. A new detached unit is generally a general building job. A B contractor also cannot take a prime contract for a single trade other than framing or carpentry (Business and Professions Code 7057(b)), so a general building license does not let you sell a single-trade job as your own contract.

Check with CSLB which class it accepts for each type of ADU work before you bid. Do not assume B-2 covers every ADU project. For fees, exams, bonds and workers' compensation, use the CSLB contractor license guide at https://www.cslb.ca.gov/. If you apply as an LLC, the same guide describes the extra $100,000 bond and liability insurance that LLC licenses require.

Step 2: Form Your Entity

Most builders choose between an LLC and a corporation. Both are filed with the California Secretary of State, Business Programs Division (https://www.sos.ca.gov/business-programs). This guide does not recommend one structure. Make that choice with an attorney and a CPA.

To form an LLC, file Articles of Organization (Form LLC-1) for $70 through bizfile Online (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. Expedited options are $350 for 24-hour service, $750 for same-day service if the filing is received by 9:30 a.m., and $500 for 4-hour service (drop-off only, precleared). If you need to hold a name while you prepare, a name reservation costs $10 and lasts 60 days. It cannot be renewed for consecutive periods.

An LLC name must include “limited liability company,” “L.L.C.” or “LLC.” “Limited” may be shortened to “Ltd.” and “company” to “Co.” The name cannot contain “bank,” “trust,” “trustee,” “incorporated,” “inc.,” “corporation” or “corp.” To form a corporation instead, file Articles of Incorporation for $100. A corporation name needs no designator.

Two California rules catch new builders. California does not allow a domestic series LLC. An LLC also cannot render a licensed professional service, and professional corporations are used instead. If your model includes licensed design work, ask counsel how that rule applies to you.

Every California LLC or corporation must keep an agent for service of process. That agent must be an individual who lives in California or a corporation that holds a Corporations Code 1505 certificate. An LLC must also keep a California office, which does not have to be a place where business activity happens.

After filing, calendar the Statement of Information. An LLC files Form LLC-12 for $20 within 90 days of filing the articles, then every two years during the six-month window ending on the last day of the anniversary month. A corporation files Form SI-550 for $25 within 90 days, then every year. If an LLC misses its Statement of Information, the Franchise Tax Board assesses a $250 penalty after a Secretary of State notice.

Plan for the franchise tax too. Every LLC organized or registered in California in 2024 through 2026 owes the $800 minimum annual franchise tax from its first year. The first-year exemption covered only LLCs formed from 2021 through 2023. An LLC whose first taxable year begins in 2027, 2028 or 2029 pays $400 in year one under RTC 17941(g)(2), but confirm that amount with the Franchise Tax Board (https://www.ftb.ca.gov/). LLCs also owe an LLC fee of $900, $2,500, $6,000 or $11,790 once California-source total income reaches $250,000, $500,000, $1,000,000 or $5,000,000, respectively. A newly incorporated or qualified corporation or S corporation does not owe the $800 minimum in its first taxable year, but confirm the details with the Franchise Tax Board.

Step 3: Register for Taxes and Local Permission

California has no general state business license. The Secretary of State issues none, and the CDTFA seller's permit is not a business license. Instead, you register the entity, then register for the taxes and local licenses that apply to your activity.

• Sales tax (CDTFA): Register at https://www.cdtfa.ca.gov/ if you sell taxable goods. The statewide base rate is 7.25%, and district taxes bring city rates to between 7.25% and 11.75%. The seller's permit is free. The resale certificate has no required form.
• Employees (EDD): Register with the Employment Development Department if you hire employees. Confirm the requirements with EDD before your first payroll.
• Local business tax: 445 of 483 California cities report revenue from a local business tax or registration certificate. There is no common formula, so the answer depends on the city where you work. Counties license only regulated activities. Ask your city's business tax office what applies to your address and work sites.
• Fictitious business name: File the statement with the County Clerk-Recorder in the county of your principal place of business within 40 days of starting to do business. The statutory fee is $10 plus $2 per additional name or owner (Business and Professions Code 17929), but counties charge more. Tehama County, for example, charges $31 plus $5 for each additional name. You must also publish the statement in a newspaper once a week for four weeks, which is a separate cost. The statement expires after five years.

If you hire crew, California's minimum wage is $16.90 in 2026 and $17.40 starting January 1, 2027. Verify both figures before you build them into a bid.

Step 4: Learn the ADU Permit Rules

State law sets floor rules for ADUs whatever your city's own ordinance says. Read them before you sell a project, because they determine what your city must allow and how fast it must decide.

Under Government Code 66317, an ADU permit application is considered and approved ministerially, with no discretionary review or hearing. The agency has to act on a predictable schedule:

• Completeness: The agency must tell the applicant in writing within 15 business days whether the application is complete.
• Decision: When a single-family or multifamily home already exists on the lot, the agency must approve or deny within 60 days of a complete application, or the application is deemed approved.
• Denial: A denial must include a written list of defects and how to fix them, and the jurisdiction must have an appeal process.
• Fees: The agency may charge a fee to recover its costs. Ask the planning counter for its current schedule in writing.
• Combined projects: When the ADU is filed together with a new home, the agency may wait to decide the ADU until it decides the home.

Government Code 66323 sets what cities must allow. On a lot with a single-family home, that includes one ADU plus one junior ADU created inside existing or proposed space of the home or an accessory structure. An addition of up to 150 square feet, limited to entry and exit with exterior access, is also allowed. A lot may also get one new detached ADU with side and rear setbacks of no more than four feet. The city may cap that detached unit at 800 square feet of living space and may set a height limit. The 800 square foot figure is a cap a city may apply, not a state minimum or maximum for every ADU, and a city's own ordinance can allow more.

On multifamily lots, the rules allow ADUs inside non-livable space such as storage rooms or garages, at least one and up to 25% of the existing units. Detached ADUs are allowed up to eight on a lot with an existing multifamily building, never more than the number of existing units. Two detached ADUs are allowed on a lot with a proposed multifamily building.

Government Code 66321 limits how far a city's size rules can go. A city cannot set a maximum below 850 square feet, or below 1,000 square feet for a unit with more than one bedroom. A city also cannot block an 800 square foot unit with four-foot setbacks.

Government Code 66322 bars parking requirements in several situations: within one-half mile walking distance of public transit, in a historic district, when the ADU is part of the home or an accessory structure, when on-street permits are required but not offered to the occupant, when a car share vehicle is within one block, or when the ADU is filed with a new home. A permit also cannot be denied to fix nonconforming zoning or unpermitted structures that are not a safety threat.

Each city and county has its own ADU ordinance, forms and fees. The state rules set the floor, so confirm the local details at the planning counter for every project.

Step 5: Set Up Your Contracts and Payments

Sell every homeowner job under a written home improvement contract. Under Business and Professions Code 7159.5, the down payment is capped at the lesser of $1,000 or 10% of the contract. Your payments also cannot get ahead of the work. Build a payment schedule tied to completed milestones that stays inside those limits. Do not quote a price or timeline from a generic template before you have the local requirements in hand.

Step 6: Run the Permit Clock on Every Project

The 60-day decision window is the part of the process you can plan around, but it only starts once the application is complete. Track each project in one spreadsheet with these dates:

Milestone	What the rule says
Completeness notice	Written notice within 15 business days (Government Code 66317)
Decision, lot with existing home	Approve or deny within 60 days of a complete application, or the application is deemed approved
Denial	Written list of defects and fixes, plus an appeal process
Fees	The agency may charge a fee to recover its costs
ADU filed with a new home	The agency may wait to decide the ADU until it decides the home

Record the submission date, the completeness notice date, the date the application was deemed complete, and the decision due date. When a city asks for more information, log the date and the request, because that date controls when your 60 days begin.

Step 7: Check Current Occupancy Rules

State housing officials (HCD, https://www.hcd.ca.gov/) report that owner-occupancy rules for ADUs have ended. AB 1154 limits occupancy rules for junior ADUs starting January 1, 2026. Verify both points with HCD and your city planning department before you write any occupancy language into a client contract or marketing copy.

Tips for Getting Started Right

• Confirm the license class with CSLB before you sign your first contract or quote a job.
• Reserve your LLC name before filing if you need time to prepare the paperwork.
• Calendar your Statement of Information and franchise tax dates the day you file.
• Ask each planning counter for its completeness checklist and fee schedule in writing.
• Keep one tracker for every ADU project so no permit deadline gets missed.

Common Mistakes to Avoid

• Treating a job under $1,000 as exempt when it needs a permit. The exemption cannot apply to permitted work.
• Taking a prime contract for a single trade under a B license.
• Assuming B-2 covers all ADU work. A new detached unit is generally a general building job.
• Using “Inc.” or “Corp.” in an LLC name.
• Missing the Statement of Information, which can draw a $250 penalty.
• Forgetting the franchise tax in your first year.
• Taking a down payment above the lesser of $1,000 or 10% of the contract.
• Treating 800 square feet as a statewide rule. It is a cap a city may apply to a new detached unit.
• Assuming owner occupancy is still required, or stating it as a requirement to clients.
• Starting work before you have read your city's own ADU ordinance.

What Results to Expect

Builders who complete these steps in order may be better positioned to bid ADU work legally and to track permit deadlines with fewer surprises. Results depend on your license class, local demand, how your city processes applications, and how well you execute. This guide does not cover construction costs, margins, build timelines or revenue, because those vary widely by project and locality. Expect a first project to take longer than the permit clock alone suggests, since the 60 days covers only the agency's review.

Next Steps

Confirm your CSLB class, file your entity, and then call the planning counter in the city where you plan to build. Before you take on work, have an attorney review your entity and contract terms and have a CPA review your tax setup. This article is informational content, not legal or tax advice.