Start Your Own Business in California: Seven Steps You Need to Take

From licenses and permits to taxes and insurance, learn what you need to do to start a business in California.



Here’s an overview of the key steps you’ll need to take to start your own business in California.

Step 1. Decide on a Legal Structure

The most common legal structures for a small business are:

  • sole proprietorship
  • partnership
  • limited liability company (LLC), and
  • corporation.

There also are special versions of some of these structures, such as limited partnerships and S corporations. You’ll want to consider which business entity structure offers the type of liability protection you want and the best tax, financing, and financial benefits for you and your business. Check  Choose Your Business Structure  on Nolo’s website for more information on how to choose the best ownership structure for your business.

Step 2. Choose a Name

For LLCs and corporations, you will need to check that your name is distinguishable from the names of other business entities already on file with the California Secretary of State (SOS). You can check for available names by doing a  business entity name search  on the SOS website. You can reserve an available name for 60 days by filing aName Reservation Request Form. There are certain name requirements for LLCs and corporations (like including a word such as “LLC” for LLCs or “Corporation” for closely-held corporations). See  How to Form an LLC in Californiaand  How to Form a Corporation in California  for more information.

Is your business a sole proprietorship or partnership that uses a business name that is different from the legal name of the business owner (for a sole proprietorship) or surnames of the individual partners (for a partnership)? If so, you must file a Fictitious Business Name Statement in the county clerk’s office for the county where your business is located. Check  county websites  for more information.

If you plan on doing business online, you may want to register your business name as a domain name. See  Choose and Register a Domain Name  for more information. In addition, to avoid trademark infringement issues, you should do a federal and state trademark check to make sure the name you want to use is not the same as or too similar to a name already in use. See  How to Do a Trademark Search  for more information.

Step 3. Create Your Business Entity

  • Sole proprietorship:  To establish a sole proprietorship in California, you don’t need to file any organizational documents with the state. For more information, see  How to Establish a Sole Proprietorship in California.
  • Partnership:  To create a general partnership in California, you don’t need to file any organizational documents with the state. Although not legally required, all partnerships should have a written partnership agreement. The partnership agreement can be very helpful if there is ever a dispute among the partners. For more information, see  How to Form a Partnership in California.  To form a  limited liability partnership(often used by professionals), you must file a Registration with the California SOS. For more information, seeHow to Form a Limited Liability Partnership in California.
  • LLCs:  To create an LLC in California, you must file  Articles of Organization  with the California SOS. You will also need to appoint an individual agent or corporate agent for service of process in California (in other states, this is known as a  registered agent). In addition, while not required by law, you also should prepare an  operating agreement  to establish the basic rules about how your LLC will operate. The operating agreement is not filed with the state. For more information, see  How to Form an LLC in California.
  • Corporations:  To create a corporation in California, you must file  Articles of Incorporation  with the California SOS. You will also need to appoint an individual agent or corporate agent for service of process in California (in other states, this is known as a  registered agent). Although not legally required, you also should prepare  bylaws  to establish your corporation’s internal operating rules. Bylaws are not filed with the state.  S Corporations  must also file IRS Form 2553,  Election by a Small Business Corporation,  with the IRS. For more information, see  How to Form a Corporation in California  and  How to Form a Professional Corporation in California  (for professionals).

Step 4. Licenses and Permits

Tax Registration.  If you will be selling goods in California, you must register with the Board of Equalization (BOE) to obtain a seller’s permit. You can  register online  at the BOE website. If your business will have employees, you must register with the California Employment Development Department (EDD) for employer withholding taxes. You can register online using the EDD’s  e-Services for Business.

EIN.  If your business has employees or is taxed separately from you, you must obtain a federal Employer Identification Number (EIN) from the IRS. Even if you are not required to obtain an EIN, there are often business reasons for doing so. Banks often require an EIN to open an account in the business’s name and other companies you do business with may require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There is no filing fee.

General Business License.  Every California business must obtain a general business license from the city where the business is located. In the case of unincorporated sections of the state, the license is issued by the county where the business is located.

Regulatory licenses and permits.  These cover areas such as health and safety, the environment, building and construction; and specific industries or services. Regulatory licenses and permits frequently are issued by state agencies. For step-by-step guidance about state licenses or permits you may need, check the state’s  CalGold website. For information about local regulatory licenses and permits, check the websites for any cities or counties where you will do business.

Professional and occupational licenses.  These cover people who work in various fields. The state’s  CalGold website  provides information on professional and occupational licensing.

Step 5. Business Location and Zoning

You’ll need to pick a location for your business and check local zoning regulations. That includes if you work from home. You may be able to find zoning regulations for your town or city by checking  municode.com.

Step 6. Taxes and Reporting

California taxes every kind of business. This includes imposing a corporate income tax that applies to corporations and other entities that are taxed as corporations, and a franchise tax that applies to corporations, LLCs, and many partnerships. See  California State Business Income Tax  for more information on state business taxes in California.

Sole proprietorships.  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. In addition, California partnerships also must file  Form 565,  Partnership Return of Income.

LLCs.  Members pay state taxes on their share of LLC income on personal tax returns. In addition, LLCs themselves have to file an  additional state tax form. The specific form used will  depend on how  the LLC is classified for federal tax purposes. California LLCs also are required to file a biennial statement of information. See  California LLC Annual Filing Requirements  for more information.

Corporations.  Shareholders must pay states taxes on their dividends from the corporation. A shareholder-employee with a salary also must pay state income tax on his or her personal state tax return. Moreover, the corporation itself is subject to California  corporation taxes. And, finally, corporations must file an  annual statement of information  with the California SOS.

If you have employees, you must also deal with state  employer taxes.

And, apart from California taxes, there are always federal income and employer taxes. Check IRS Publications 334,Tax Guide for Small Business, and 583,  Taxpayers Starting a Business, available at irs.gov.

Step 7. Insurance

Insurance is a good idea for most kinds of business. While insurance often is regulated at the state level, the types of business insurance available are usually similar across the fifty states. Check  Obtaining Business Insurance  for more information.

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