Starting a Business in California: Everything to Know
Starting a business in California requires several steps and depending on the type of business you are starting, you have several ways to create a business. 6 min read
2. Why Start a Business in California?
3. Common Mistakes
4. Additional Information
Starting a business in California requires several steps. Depending on the type of business you are starting, you have several ways to create a business entity. You will need to choose the one that best fits your needs tax and liability needs, which means you should probably seek the advice of an attorney. You can choose from a sole proprietorship, a partnership, a limited liability company, or corporation. All of these offer various benefits and disadvantages, so do your research before you choose.
Steps to Start a Business
Before you File
Create a business plan. The business plan not only outlines the steps you need to take to get your business up and running, but it also helps you determine which location is best for your business. The business plan also helps lenders see how viable your plan is so that you may obtain financing.
Next, you’ll need to choose a business name. Check the Secretary of State's website to determine if the name is available. You can reserve a name for up to 60 days before you being filing the official paperwork for a small fee of $10.00 At the same time, you can determine what kind of entity you wish your business to be. If your business is a higher-risk business, you may want to choose a corporation instead of a DBA. Your personal assets are not protected under some entity forms, like a sole proprietorship. Entities are also taxed in different manners. A corporation is taxed twice while a limited liability company is not. You may choose a corporation, which offers the most liability protection, but is often double taxed.
When you file
File tax and employer identification documents. You'll most likely need an employer identification number from the IRS, state licenses and certificates and local level licenses and certificates at the county and city levels. Check with your county and city for their requirements. Depending on your business structure, you may also need to file various documents such as a certificate of formation, a ‘Doing Business As’ or DBA, or articles of incorporation.
Check to see what kind of taxes you might be subject to. The California Franchise Tax Board is for corporate and personal income tax and franchise taxes for California. The State Board of Equalization is where you get seller's permits and pay the state's various taxes, including tobacco tax, alcohol tax and sales and use tax. The Employment Development Department regulates franchises, financial services, investment services, commercial and consumer finance lending and more. For help with payroll taxes, income taxes, sales and use tax and other taxes you may be required to pay, visit the California Tax Service Center.
Get a business license. California requires all businesses to have a license. Each general business license is governed by each city or county where your business is located, and they are called different things depending on where you are - sometimes they are called business licenses, sometimes they are called a business tax certificate. Don’t confuse the general license with other, additional licenses that might be specific to your particular industry. Most licenses require a fee, sometimes even paid annually. Typically, agnecies will require your business name and address, phone number, type of business, EIN, permit numbers, if applicable, and each individual owner’s name and contact information.
After you file
Check to see if you need any other permits or licenses, depending on your industry. Obtain a seller's permit or a resale certificate if you are selling taxable goods. Some types of businesses must be licensed, bonded and insured. Be sure to get the required documents for your business. For example, contractors need to be licensed and bonded. Get covered by the insurance that best meets your needs, whether it is general liability, professional liability, equipment insurance, property insurance, employment practice liability, workers' compensation or other specialty insurance that you may need. Visit the CalGOLD database to verify whether you need any special licenses or permits for your business.
If you didn’t do this as part of your business plan, find a location. This could be your home at first, or another brick and mortar location. The California Business Investment Services unit of the Governor’s Office of Economic Development (GO-Biz) offers services to help you in selecting an appropriate site for your business. Check with zoning to make sure that it is zoned for your business. Some businesses such as automotive repair may not be allowed to operate on a property that is zoned residential, agricultural or light industry. You’ll also need to keep in mind logistical aspects such as parking, access and visibility.
Finally, you can 0pen a business bank account. Most banks will require that you provide your incorporation documents and employer identification number. Some banks may ask for a copy of your business plan. You might need to get an EIN from the IRS, which can be done online for free.
Obtain financing to get your business off the ground. Most investors will require a copy of your business plan. While you should shop around for the best rates, start with the bank where you opened your business account.
You will be required to file annual reports of your business in California, called Statements of Information. They usually need to be filed either every eyar or every other year. Luckily, these can typically be done online for a small fee.
Why Start a Business in California?
California offers a lot of ease and convenience in running a business. California allows you to file many business start-ups online, and you can pay most business taxes online. California is one of the best markets to start a business given its thriving small business community, as well as significant help from the government and local chambers of commerce to encourage entrepreneurship.
If you form a corporation, you’re in luck as California has some of the most flexible management options - you need only a president, chief financial officer and secretary to create a corporation. Stockholder names need not be disclosed in California - only the director and resident agents, which means it is easier for shareholders to disguise their wealth from creditors.
California offers a lot of incentives to producers of energy-efficient products. Learn more at the Database of State Incentives for Renewable & Efficiency. You may also find more incentives and rebates at Cool California. On top of these incentives, California also offers special privileges to veterans and women. Learn more at SBA, CalVet and The Veterans Business Outreach Center for veterans; and at Women's Business Enterprise National Council and National Association of Women Business Owners for women.
Make sure you have sufficient capital to start your business. Without it, you have a much higher chance of failing. Remember - you need money to live on as well as money to invest in your business. This is where proper planning will come in handy. Capital may come from friends, family, home equity, angel investors or start-up loans.
It’s worth saying again - Check the zoning to make sure that your business is allowed to operate in the location you chose. Never assume that because a similar business used the spot previously that your business will meet zoning regulations.
Check the cost of business licenses. Some cities based the cost of the business license on the company's gross receipts. You may want to start your company in a different city with lower licensing costs.
Know your rights as a tenant under commercial leases and rental agreements. Don't assume that the landlord has to repair major problems under a commercial lease. Read the terms of every agreement before you sign, and if you ever have any questions about it, you have the right to seek independent legal counsel to ensure you understand it completely.
If you decide to hire employees, do not use “one size fits all” employee handbooks that you might get a department store or HR consultant. If you must have an employee handbook, get have an attorney help you draft the document.Make sure your employees complete and return Forms I-9 and W-4 before starting to work. Ensure that employees have the proper documents to work legally in the state of California.
Finally, Establish good accounting practices before you open the doors. A common reason for the failure of start-ups is because new business owners mismanage funds. Keep track of all revenues and expenditures to make cash management and income reporting for tax reasons easier.
California does not impose deadlines to start the process of starting a business. However, once you get started, you may have deadlines to meet, including obtaining certificates and paying taxes before you open your business to the public. Deadlines later in the process include paying taxes quarterly or yearly and filing the proper yearly incorporation documents to keep your business from being administratively dissolved.
Don't forget to follow through by marketing your business and creating a website for your business. And, if you need help starting your business, post your legal on UpCounsel's Marketplace.