Do you have a great business idea, but you’re not quite sure how to get from the idea phase into owning and operating your own business in California? You’ve come to the right place! There are many important aspects to running a company, and like any other state, California has its own rules and regulations to consider.
In this guide to starting a business in California, we’ll discuss all the relevant details to business ownership in this state. By the time you’re done reading, we think you’ll have a strong grasp on the necessary steps involved.
How to Start a Business in California (in 10 Steps)
1) Create a Business Plan
The first step to creating any business in any state is to plan what products and services you’ll sell, set your operational budget, and figure out how you want to market your company.
Your business plan doesn’t have to be fancy at all, you just need to make sure you spend enough time considering these important aspects before you actually launch your business. To get started, SBA.gov has a great free tool.
2) Choose a Name
The name of your business is an extremely important attribute because it’s often how you make your first impression to potential customers.
Legal Considerations
Depending on whether you choose to form a corporation or a limited liability company, there are some legal aspects as well (for example, an LLC must include “LLC” or “limited liability company” in the business name, and a corporation must include “incorporated,” “corporation,” “Inc.,” or “Corp.”).
Explanatory Naming
Beyond the basic legalities, you should focus on clearly identifying what your company does in your business name. You can also consider incorporating your values into your business name, like using the word “green” to denote environmental friendliness.
Something You Love
Finally, choose a name that you personally like and take pride in, and one that both sounds good when spoken aloud and looks good on paper.
One big piece of advice we have for naming a business is that you shouldn’t get too focused on one idea until you either form your company or reserve the name.
In California, there is no tool for checking business name availability through the Secretary of State website. Instead, you will have to search the Internet to see if it is already in use. To ensure that you have not missed anything, you must then fill out and submit the Name Availability Inquiry Letter to the Secretary of State’s office. If your desired name is available, you can reserve the name by filing a Name Reservation Request Form. You must also include a check for $10 made payable to “Secretary of State.” Currently, there is no way to check availability or reserve a name online or through email. However, both forms can be mailed to the Secretary of State’s office at the following location:
Secretary of State, Name Availability Unit
1500 11th Street, 3rd Floor
Sacramento, CA 95814
3) Decide on a Registered Agent
A California registered agent is the person or service in charge of receiving your important government documents, and forwarding them to you.
Every business must have a registered agent, which is often referred to as an “agent for service of process” in California. However, substituted service of process via the Secretary of State’s office is available under certain circumstances.
This position is vital to any California business because without a registered agent, you could lose your good standing with the state, see your business dissolved by the state, or even remain unaware of a lawsuit progressing against your company.
Your registered agent must have a permanent physical address in California and be available to receive documents during normal business hours (9AM to 5PM).
For more information, check out our full article about California registered agents.
Rocket Tip: We recommend designating an online service to handle these requirements. This eliminates junk mail and keeps your personal and/or business address off public record. ZenBusiness and IncFile both offer a free registered agent service when you use them to form a business online.
4) Choose a Structure and Form Your Business
If you’re just operating a sole proprietorship or general partnership, you don’t need this step (or several of the others in this guide, including selecting a registered agent), because those business structures don’t require any sort of formal formation process.
This leaves two main options: the corporation and the limited liability company.
The LLC is the more common option, partially because it’s much simpler. There’s not much paperwork involved, and the maintenance requirements basically amount to an annual report. Furthermore, LLC owners still receive the personal asset protection that makes a corporation so attractive as a business type in the first place. For more specific information about starting an LLC, check out our full article on the topic.
For some entrepreneurs, the corporation is the better choice. There’s far more effort involved both in forming one and in maintaining it with the state of California, but for larger businesses they’re usually the better option, as they allow for more growth and investment than LLCs generally do.
If you would like to know more, check out our “LLC vs Corporation: What Is the Difference?” article. No matter which business structure you choose to form, you can find all the relevant forms on the Iowa Secretary of State’s website or have a professional business formation website do it for you.
5) Take Care of Tax Obligations
The vast majority of businesses operating in California will need a federal tax ID number (EIN), which can be acquired from the IRS.
Tax rates will vary based on the type of business you own. You can find a breakdown of different California business tax rates and exemptions at this link.
Thankfully, the state of California makes it pretty easy for businesses to register and pay taxes online. All of the forms and information can be found on the California Franchise Tax Board website.
Keep in mind that your city and/or county may have taxation requirements as well, so make sure to check with them to make sure you aren’t missing anything.
Here are some business resources for a few of the largest cities in California:
6) Acquire Business Licenses and Permits
In California, every business must obtain a seller’s permit and/or a sales and use tax account. Additional licenses and permits are required for certain industries, like cannabis, timber, and telecommunications. To find out which license(s) your business needs, consult the California Department of Tax and Fee Administration website.
Much like with taxation issues, there’s also the matter of local licenses to consider. You can learn more about county-level occupational licenses right here.
7) Obtain Required Insurance Policies
The state of California does not require businesses to acquire commercial liability insurance, however there is no state-mandated cap on liability lawsuit rewards, so many California businesses choose to get a policy anyway. All businesses that employ one or more workers must obtain workers’ compensation insurance.
You can learn more about your insurance options and requirements by visiting the California Department of Insurance website.
It is the employer’s responsibility to get these policies to protect your employees, regardless of what line of business you’re in. Of course, it’s probably a good idea to acquire industry-specific policies to protect your company in other ways, but unemployment and workers’ comp are the ones strictly required by law.
8) Open a Business Bank Account
Whether you start a limited liability company or a corporation, you’ll need to keep your business and personal assets separated.
This is where opening a business bank account comes in. While having a separate checking account for your company isn’t a legal requirement, it makes separating your assets considerably easier, and we always advise that any business owner does so.
9) Develop a Business Website
In this day and age, even strictly local businesses should have a website, because the internet is your first point of contact for many of your customers. Your site doesn’t need to be fancy, but you should put some thought into your domain name, and make sure it’s something memorable and easy to type without misspellings.
If you’re not comfortable designing a site yourself ― and if you also don’t have the budget to hire a professional designer ― there are plenty of website builder tools that can help you put together a solid website. WordPress and Weebly are very easy to use.
10) Don’t Be Afraid to Ask for Help
If you run into problems with any of the steps outlined in this guide, remember that you can always find help.
In California, one of the best resources for small businesses is the California Small Business Development Center. With 97 locations across California, the SBDC is available to help you start and grow your business.
Another great resource for small business owners is the California chapter of the U.S. Small Business Administration. Their website has information regarding small business events, business resources, funding options, SBA programs, and more.
Conclusion
While there are several vital steps in the process of starting a business in California, taken individually these steps aren’t terribly complex.
It can seem overwhelming if you consider the entire process all at once, but if you break down these steps and take care of them one at a time, they’re all quite manageable. Keep in mind that you don’t need to go it alone with the DIY option ― if this process becomes overwhelming, or if you simply don’t have the time and energy to devote to these steps ― assistance is available.