How to Start a Business in California

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

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

1. Choose a Business Idea

Take time to explore and research ideas for your business. At this stage, take into consideration your own interests, skills, resources, availability, and the reasons why you want to form a business. You should also evaluate the likelihood of success based on the interests of your community, and whether your business idea will meet an unmet need. Read our article for more tips on how to evaluate business ideas.

After you select an idea, consider drafting a business plan to determine your chances of making a profit. When you create a plan, you will have a better idea of the startup costs, your competition, and strategies for making money. Investors and lenders will want to review your business plan before providing financial assistance, and you can be prepared by drafting a plan before you start soliciting funding.

2. 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. Read our article for information on how to choose the best ownership structure for your business.

3. Choose a Business 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 a Name 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 California and 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.

4. Register Your Business Entity

5. Apply for California 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 Employer Services Online.

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.

6. Pick a Business Location and Check Zoning Regulations

You'll need to pick a location for your business and check local zoning regulations. Consider the needs of your customers, and if you have the kind of business that could benefit from foot or highway traffic. Before you commit to a location, take time to calculate the costs of running your business in the desired spot, including rent and utilities. Refer back to your business plan to evaluate whether you can afford your desired location during your company's early months.

It is important to verify that the spot is zoned for your type of business. You might find zoning regulations for your town or city by reviewing your local ordinances and contacting your town's zoning or planning department. Read our article for more tips on picking a location.

One alternative to opening your business at a new location is running your company out of your home. If you decide to run a home-based business, again check your local zoning laws. You should also review your lease (if you rent your home) and homeowners association rules (if applicable), either of which might ban some or all home businesses.

7. Register and Report Taxes

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 state 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.

8. Obtain Insurance

Business insurance can protect your business and your personal assets from the fallout of unexpected disasters, such as personal injury lawsuits and natural catastrophes. An insurance agent can help you explore the different coverage options for your business, which might include general liability insurance to protect you against claims relating to bodily injury or property damage, or cyber liability insurance to cover litigation and settlement fees following a data security breach. To learn more, see Nolo's article, What Types of Insurances Does Your Small Business Need?

9. Open a Business Bank Account

No matter the type of business you form, you should consider opening a separate business account to make it easier to track your income and expenses. For some business types, including LLCs and corporations, a separate bank account is necessary to maintain your liability protection. To learn more, see Opening a Business Bank Account.

Find the business structure that fits your business. Take our business formation quiz for help deciding the best structure for your business.

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