Business Formation for Car Dealers in California — LLC, Corporation, or DBA?

Above-the-Fold Highlights

• Step-by-step business formation process for auto dealers
• Compare LLC, Corporation, and DBA options
• Learn how to register your entity, EIN, and bank account
• Avoid DMV inspection delays caused by mismatched names
• Includes free templates and checklists

Set Up Your Dealer License Download the Dealer Entity Formation Checklist Get Started with Dealership Setup

Step-by-Step: How to Form Your Dealership Business in California

Step 1 — Choose Your Business Structure

There’s no one-size-fits-all structure, but these are the most common for California auto dealers:

Structure	Liability Protection	Tax Flexibility	DMV Compatibility	Best For
LLC (Limited Liability Company)	✅ Excellent	✅ Pass-through or S-Corp election	✅ DMV-friendly	Most small & mid-size dealerships
Corporation (Inc.)	✅ Excellent	⚠️ Double taxation unless S-Corp	✅ DMV-friendly	Dealers planning multiple owners or investors
Sole Proprietor / DBA	❌ None	✅ Simple taxes	⚠️ Accepted but risky	One-person startups testing the waters

Quick Tip: Most new independent dealers in California choose an LLC because it’s simple, flexible, and provides liability protection without the extra corporate formalities.

Step 2 — Check and Reserve Your Business Name

The DMV requires that your business name match across all formation, bond, and signage materials.

1. Search the California Secretary of State website to make sure your name is available.
2. If available, file your Articles of Organization (LLC) or Articles of Incorporation (Corp).
3. If you’ll operate under a trade name (e.g., “Prime Auto Group” instead of “Prime Holdings LLC”), file a Fictitious Business Name (DBA) with your county.

Ensure the exact same name appears on: DMV application, surety bond, insurance policies, lease or property documents, and signage.

Common mistake: Using “Auto Sales” on your sign when your LLC is registered as “Prime Auto.” → This inconsistency can cause inspection delays or rejection.

Step 3 — Register for an EIN (Employer Identification Number)

You’ll need an EIN for banking, insurance, and DMV filings.

• Apply online at IRS.gov/EIN
• Use your new business name exactly as registered with the Secretary of State
• Print and keep the confirmation letter — you’ll attach it to your dealer application

Step 4 — File with the California Secretary of State

For LLCs and Corporations, you’ll need to:

• File your formation paperwork online via the California Secretary of State’s BizFile portal.
• Pay the filing fee (current typical fees: $70 for LLC, $100 for Corporation).
• File your Statement of Information (within 90 days of formation).
• Maintain your registered agent (you can be your own, or use a service).

Once processed, you’ll receive a stamped copy of your formation documents — keep this for your DMV packet.

Step 5 — Open a Business Bank Account

DMV inspections and future audits may require proof of your business banking setup. To open a bank account, bring:

• Your EIN confirmation
• Formation documents (Articles + Statement of Info)
• Driver’s license and proof of address
• Operating agreement or corporate bylaws if applicable

Pro Tip: Use a dedicated account for all deposits, vehicle purchases, and bond/insurance payments. Commingling personal and business funds can raise red flags during inspection.

Step 6 — Obtain a Seller’s Permit from the CDTFA

A Seller’s Permit from the California Department of Tax and Fee Administration (CDTFA) is required for all vehicle dealers. This allows you to collect and remit sales tax.

• Apply online at cdtfa.ca.gov.
• You’ll need: Entity and owner information, EIN, business address and contact info, bank account details, lease or property proof.

Keep your CDTFA permit posted at your business location.

Step 7 — Register with the DMV as an Occupational Licensee

Once your entity is formed, you’ll register with the DMV as an Occupational Licensee. Your entity must be active and in good standing, match signage, bond and insurance, and have a compliant business address and zoning approval.

Learn how to complete this step → Dealer Licensing Guide

Step 8 — Apply for a Dealer Surety Bond and Insurance

Before submitting your DMV packet, you’ll need a $50,000 surety bond and garage liability insurance. Bond providers and insurance carriers must list your legal business name exactly as filed.

Bond & insurance guidance → Bond & Insurance Requirements

Step 9 — Maintain Records and Renew Annually

Once licensed, maintain good standing by:

• Renewing your entity registration yearly
• Filing annual statements with the Secretary of State
• Paying California’s annual $800 minimum franchise tax (for LLCs and Corps)
• Keeping a registered agent on file
• Renewing your DMV dealer license each year

LLC vs. Corporation — Which Is Right for You?

Choose an LLC if you want:

• Simple structure with liability protection
• Pass-through taxation
• Minimal paperwork and annual filings
• Easy setup and flexible ownership

Choose a Corporation if you plan to:

• Add multiple partners or investors
• Issue shares or grow into multiple locations
• Take advantage of certain tax planning strategies (S-Corp election)
• Build a dealership brand that may expand statewide

Avoid starting as a Sole Proprietor (DBA only) if you can — it offers no personal protection and can complicate future expansions.

Common Mistakes to Avoid

• Mismatched business name on bond, insurance, and signage
• Leasing or buying property before confirming zoning approval
• Forgetting to obtain your Seller’s Permit from CDTFA
• Applying for a DMV license before your entity is active
• Missing annual filings or letting your registered agent lapse

Get expert help avoiding these mistakes → Set up your dealer license

Timeline and Cost Overview

Task	Typical Cost	Timeline
Entity Formation	$70–$150 filing fee	1–5 business days
Statement of Information	$25	Within 90 days of filing
EIN Registration	Free	Instant online
Seller’s Permit	Free	1–3 business days
Surety Bond	$250–$1,000/year	Same day
Insurance Setup	$500–$2,000/year	1–2 days
Annual Franchise Tax	$800/year	Due each year

Downloads & Tools

• Entity Formation Checklist
• Name Consistency Worksheet
• Bank Account Setup Guide
• CDTFA Seller’s Permit Prep Sheet
• Annual Renewal Calendar Template

Get all downloads: Browse Resources

Why Work With California Dealer Academy

• DMV-approved education for California dealer licensing
• Step-by-step business formation guidance from startup to inspection
• Access to trusted partners for bond, insurance, and entity filings
• Practical support — we help you get it done right the first time
• Free consultations for aspiring and expanding dealers

Ready to get started? Set up your dealer license

Get Your Business Properly Formed — The Right Way, the First Time

Starting your dealership the right way begins with proper business formation. Whether you’re opening a used car lot, wholesale operation, or dealership group — getting your entity, tax, and licensing setup right saves you time, money, and stress.

Set up your dealer license Download the Entity Formation Checklist Enroll in Pre-Licensing

California Dealer Academy — DMV-approved, California-specific, and trusted by hundreds of new dealers statewide.