If you want to begin a business, you’ll have to take important steps to start your company. You’ll make important decisions, and it’s necessary to know the rules at the government, state, and local levels.
Here’s a quick look at the important steps you’ll need to follow to start your own business in California.
1. Select a Business Plan
Take some time to think about and research ideas for your business. Consider your own interests, skills, what you have, and when you’re available. Think about why you want to start a business. Maybe you already have an idea.
Check if your community would be interested in your business, and if your idea would meet a need. You can read our article for more tips on how to figure out if your business idea will work.
Once you choose an idea, think about making a business plan to see if you can make money. When you make a plan, you’ll understand:
- How much it costs to start.
- Who else is doing something similar.
- Ways to make money.
Before you ask for money from investors or lenders, they’ll want to see your plan. By making a plan early, you’ll be ready when you need financial help for your business.
2. Select a Business Legal Framework
Picking a business structure is a really important step. It decides how you run your business, handle taxes, and how responsible you are for your business’s debts. Sometimes, you can begin with one structure and switch to another as your business changes. However, it’s smart to choose a structure from the beginning that can adjust as your business gets bigger.
For a small business, the following legal structures are most common:
- Sole proprietorship
- Partnership
- Limited Liability Company (LLC)
- Corporation
There are also special versions of some of these structures, like limited partnerships and S corporations. Your industry might limit which structure you can use. For instance, in California, most service providers needing a license (like lawyers, accountants, and engineers) must form a professional corporation, with a few exceptions (Cal. Corp. Code §§ 13400 and following (2024)).”
You should think about which business structure gives you the protection you need and the best tax, financing, and money benefits for you and your business. For example, sole proprietorships and general partnerships have fewer rules to follow, but owners are responsible for the business’s debts. On the other hand, LLCs and corporations have more rules and costs, but owners are more protected from the business’s debts.
3. Select Specific Name for Your California Business
Your business name must be special and able to be registered. If you have an LLC or corporation, California needs your business name to be different from other names already registered with the California Secretary of State (SOS). You should check if your chosen name is available by doing a search on the SOS website for business names.
Reserving your business name: Want to make sure your business name is safe? You can hold it for 60 days by submitting a Name Reservation Request. There are specific rules for names of LLCs and corporations, such as adding “LLC” for LLCs or “Corporation” for certain corporations. Check our guides on forming an LLC and corporation in California for more help. The SOS website has a section about name reservations with details on what names are allowed for businesses.
Filing a fictitious business name statement: If your business, like a sole proprietorship or partnership, uses a name different from the owner’s legal name or partner surnames, you have a fictitious business name (DBA). Register it by filing a statement in your county clerk’s office, and publish it in a local newspaper as required by California law. Check county websites for details. The California Franchise Tax Board (FTB) offers a guide to DBAs.
If you plan to do business online, consider registering your business name as a domain name. Also, to avoid trademark issues, do a federal and state trademark search to ensure your chosen name isn’t already in use.
4. Register Your company entity With California Secretary of State
The registration process for your California business varies depending on the chosen business structure.
- Sole Proprietorship: No need to file organizational documents with the state.
- Partnership: For a general partnership, no state filing is required, but having a written partnership agreement is recommended for dispute resolution.
- Limited Partnership: File a certificate of limited partnership with the SOS and consider having a written partnership agreement.
- Limited Liability Partnership (LLP): LLPs can only be formed by licensed professionals such as lawyers, architects, and accountants. File an LLP registration application with the SOS.
- LLCs: File articles of organization with the SOS. Optionally, prepare an operating agreement to set basic rules, not required to file.
- Corporations: Creating a corporation in California involves filing articles of incorporation with the SOS. Though not mandatory, it’s advisable to prepare bylaws for internal rules, and like operating agreements, bylaws aren’t filed with the state.
- S Corporations: Unlike legal entities, S corporations function as tax entities. To form one, start with a regular corporation in California. After filing articles of incorporation, submit IRS Form 2553 to elect S corporation tax status.
- Professional Corporations: Similar to regular corporations, you need to file separate articles of incorporation for a professional corporation.
Find all necessary business formation forms on the SOS website. Register online through bizfile California or by mail or in person using paper forms.
5. Apply for Licenses & Permits in California
Most businesses will need to apply for at least one license, permit, or registration. For detailed information, check our article on California business licenses.
Tax Registration. If you’re selling goods in California, get a seller’s permit from the California Department of Tax and Fee Administration (CDTFA) – you can register online. For businesses with employees, register with the California Employment Development Department (EDD) online for employer withholding taxes.
Employer identification number (EIN). If your business has employees or is taxed separately, you need an EIN from the IRS. Even if not required, it’s often necessary for banking and payment processing. Get an EIN by applying online on the IRS website – no filing fee.
General Business License. Usually, you must apply for a business license from the city or county where your business is located. Some cities require licenses for all businesses, while others have specific criteria.
Regulatory licenses and permits. These licenses, covering health, safety, environment, construction, and specific industries, are often issued by state agencies. Visit the state’s CalGold website for state licenses and permits guidance. For local licenses, check the websites of the cities or counties where you’ll operate.
Professional and occupational licenses. These licenses and certifications apply to professionals in various fields. Find information on professional and occupational licensing from the state’s Department of Consumer Affairs and the Department of Industrial Relations.
6. Select a Business Location and Verify Property Laws
Choose a business location considering customer needs and traffic. Calculate costs, evaluate affordability based on your business plan, and negotiate favorable lease terms for long-term success. Check local zoning regulations to ensure suitability for your business type.
Verify that the chosen spot is zoned for your business type. Check zoning regulations in your town or city by reviewing local ordinances and contacting the zoning or planning department.
Consider running your business from home as an alternative to a new location. Check local zoning laws, review your home lease (if applicable), and consult homeowners association rules, as they may have restrictions on home businesses.
7. Get a Business Tax Registration and Report
California imposes taxes on all types of businesses. This includes a corporate income tax for corporations and entities taxed similarly, and a franchise tax for corporations, LLCs, and many partnerships. Businesses and owners must report and pay taxes to the FTB using designated income tax forms.
- Sole Proprietorships: Owners pay state taxes on business income as part of their personal state income tax returns (Form 540).
- Partnerships: Partners pay state taxes on partnership income on personal tax returns and file Form 565, Partnership Return of Income.
- LLCs: Members pay state taxes on their share of income on personal tax returns. LLCs file additional state tax forms, depending on their federal classification. Biennial statements of information are also required.
- Corporations: Shareholders pay state taxes on dividends, and the corporation pays California corporation taxes. Corporations are required to submit a statement of information to the Secretary of State (SOS).
If you have employees, you must handle state employer taxes. Additionally, there are federal income and employer taxes, outlined in IRS Publications 334 and 583, Taxpayers Starting a Business.
8. Obtain company insurance in California
Business insurance safeguards your business and personal assets in the face of unforeseen events like personal injury lawsuits or natural disasters. An insurance agent can guide you through various coverage options, including general liability insurance for protection against claims related to bodily injury or property damage.
Cyber liability insurance is also available to cover legal and settlement costs in the event of a data security breach.
9. Create a Bank Account for Your Business
Regardless of your business type, it’s advisable to open a dedicated business account for easy tracking of income and expenses. In certain cases, such as with LLCs and corporations, having a separate bank account is essential to preserve liability protection.
Extra Advice Getting Your California Business Started
The Secretary of State (SOS) has a dedicated section on their website offering valuable information and resource links to assist small business owners. It covers frequently asked questions, filing tips, and other essential business resources.
The SOS also provides a publication on starting a new business in California along with a helpful business checklist.
Additionally, the California Office of the Small Business Advocate (CalOSBA) provides information and support for small businesses, including sections on starting, managing, and growing your business. Small business owners can also benefit from visiting a California Small Business Development Center, exploring the various business services offered.
