Before you start a home-based food business in California, you need to consider some basic legal issues. For example, you must know which foods you are allowed to prepare in your home kitchen, choose a business structure, apply for permits and licenses, learn about food safety, and obtain insurance. If you want to hire an employee, you need to know the rules about that, too.
This article will get you started. To learn more about running a home-based business, see Nolo's section on Your Home Business.
In California, you may register your home kitchen to make the following food products for sale:
You can find this list and more information about the foods you can legally prepare in a home kitchen by visiting the website of the California Department of Public Health.
Many home-based food businesses are intended to be small. California restricts cottage food businesses to an individual operator with no more than one full-time employee. The state also limits the amount of money a home-based food business can earn each year. In 2013, the limit for gross annual revenue is $35,000. In 2014, it is $45,000. After that, the limit will be set at $50,000. (California Health and Safety Code § 113758.)
If your business is very small, running it as a sole proprietorship may be the only economically viable option. Keep in mind, however, that as a sole proprietor, you are personally responsible for every aspect of the business – from paying taxes to absorbing the risks of a lawsuit if your food products cause illness or injury to a customer. If you operate as a sole proprietor, you should purchase liability insurance to protect your personal assets (see below).
If you can afford it, consider choosing a business entity that protects you from personal liability, such as a limited liability company or corporation. These business structures ensure that your food business, not you personally, would be responsible for any damage if someone were sickened or otherwise harmed by your product.
For more information, see Choose Your Business Structure.
You must get a permit from the county health department to operate a home-based food business in California. You can choose from two types of permits, depending on whether you want to sell products directly to customers or through other local businesses like shops or restaurants.
Class A permit. You can get a Class A permit if you want to sell only directly to customers within the state of California. With a Class A permit, you can sell at farmers markets, festivals, from your home, or in other ways that allow individuals to purchase products directly from you. To get a Class A permit, you must complete a self-certification checklist, but there will be no physical inspection of your kitchen.
Class B permit. You need a Class B permit if you want to sell indirectly to customers – for example, through stores, restaurants, or other venues that will sell your products for you. In California, you may not sell indirectly outside of your own county, unless the county where you want to sell has specifically stated that they will allow indirect sales of cottage food products. To get a Class B permit, your kitchen must pass an annual physical inspection.
Required information. When you apply for a Class A or Class B permit, you will be asked to provide information such as the following:
You must also obtain the licenses and permits required of all businesses, such as a local business license and – if your business uses a name other than your own – a fictitious business name registration.
To operate a home-based food business in California, you must complete a California Department of Public Health food processor course within three months of obtaining your cottage food permit. In addition, your business must comply with extensive health and safety rules, including the following:
There are unique risks associated with food businesses, from food-borne illnesses to foreign objects like glass or plastic in food. These are added to typical business hazards such as fire, theft, or an employee who slips and falls on the job. Don't assume that your homeowners or renters insurance policy will cover your home business operations; it probably won't. You must carefully evaluate your existing policies and then contact a qualified insurance agent to purchase the additional insurance you'll need.
To find a good insurance agent, ask other food-business owners for recommendations. Look for an agent who has experience writing policies for food businesses and make sure all major risks are covered. General commercial liability insurance should cover everything from an employee who is burned by boiling water to a customer who gets sick from eating your food.
If you use a car or truck for deliveries or other business travel, be sure it is also properly insured.
In California, other members of your household or your immediate family members may help you with your cottage food business. Beyond that, the law allows you to hire only one full-time employee. (California Health and Safety Code § 113758.)
If you decide to hire an employee, you should learn about basic employment law issues such as hiring rules, how to avoid discrimination, and how to handle money matters like taxes and workers compensation.
For more information, see Nolo's Human Resources Law Center.