How To Start A Business in California 2021: The Ultimate Guide, Step-by-Step

How to start a business in California

To get good mileage out of the Golden State, you have to know how to drive through. In this article, I’ll work you through the step-by-step process of how to start a business in California.

According to Forbes, California’s $3.1 trillion economy would be the fifth biggest in the world, ranked between Germany and the United Kingdom. 

Before we take you through the process of registering a business in California, take a quick look at the table of contents below.

Economic Facts About California

If it were a country, California’s $3.1 trillion economy would be the fifth biggest in the world, ranked between Germany and the United Kingdom. The state represents 15% of the U.S. economy.

According to Forbes, home prices in the state are the highest in the nation at a median of $592,000, having doubled from the lows of 2011 and surpassing their pre-recession highs in 2017.

Is California a good place to start Business?

Starting a business in the Golden State is one that affords a golden opportunity that creates an ease of network that increases net worth.

California is home to more than 4 million small businesses, which employ 7.1 million people across the state. Small businesses makeup 99.8% of all businesses within the state and employ 48.8% of the state’s workforce, making them a vital part of the Golden State economy. California’s gross domestic product (GDP) grew at a rate of 3.5% through the third quarter of 2018, which outpaced the U.S. economy’s national growth rate of 3.4%.

Considering starting a business in California? Here are some advantages and steps to getting started.

Benefits of starting a business in California

#1 Networking opportunities

Due to the large population and friendly climate scenery, California comes out as one of the favorite business destinations in America where meetings and other activities take place.

Cities like San Diego and Anaheim are popular for companies to hold their conferences and conventions. Whether you’re starting a business in a large or niche industry, California hosts plenty of similarly minded people and events that can help you grow.

#2 Bolstering economy

The economy of the State of California is the largest in the United States, boasting a $3.2 trillion gross state product (GSP) as of 2019. If California were a sovereign nation (2019), it would rank as the world’s fifth-largest economy, ahead of India and behind Germany. Additionally, California’s Silicon Valley is home to some of the world’s most valuable technology companies, including Apple, Alphabet Inc., and Facebook. In total, over 10% of Fortune 1000 companies were based in California in 2018, the most of any state.

According to calmatters, more than half of all U.S. venture capital still flows to California companies. They’ve averaged 3.8% GDP growth over five years — compared, respectfully, to 2.5% national growth.

The dominant sectors in California are finance, business sectors, government agencies and the manufacturing sector. Much of the economic activity happens in the Coastal cities of Los Angeles, San Francisco Bay Area and San Diego.

#3 Diverse industries

California houses are the capital of the media, technology, and agriculture industries. This opportunity presents a multi-centered business pool where businesses thrive and keep the economy running.

Los Angeles is the entertainment mecca of the world, while San Francisco and the surrounding Bay Area have their grasp on the tech industry. 

#4 Good climate condition

The weather condition in California is nice and conducive. It allows businesses to thrive in and out of seasons without affecting productivity.  California enjoys mild weather year-round, especially in Southern California, where it is typically sunny and rarely rains or snows.

How To Register A Business In California

Generally, all businesses that wish to operate in California must register and form their legal entity with the California Secretary of State’s Office, file appropriate taxes, register as an employer, and obtain business licenses and other permits from appropriate cities or counties. In few lines to come, we’ll outline the step-by-step process to follow in order to start a business in California.

How to start a business in California: Step by step

Starting a business involves taking bold steps in order to establish your business. The following information will guide you to help plan, prepare, and operate your business.

To start a business in California, you need to heed to the following steps:

1. Choose a Business Idea

Take time to explore and analyze ideas for your business. At this stage, you need to consider your interests, skills, resources, availability, and the reasons why you want to form a business.

Your business idea should be formed with the knowledge of your target market, competition, milestones, and marketing plan.

After choosing a business idea, consider drafting a business plan to ascertain 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.

SEE ALSO: Starting A Business After College | 10 Avoidable Mistake To Look Out For

2. Decide on a Legal Structure

Choose a business structure. Here’s a list of the types of legal business structures :

  • 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. 

After that, your next step will be to file your tax and employer identification documents.

3. Choose a Business Name

For LLCs and corporations, you will need to check that your name is distinct from the names of other business entities already on file with the California Secretary of State (SOS). You can check for 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.

Is your business a sole proprietorship or partnership that uses a business name that differs 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 trade name in the county clerk’s office for the county where your business is located. Check county websites for more information.

If your business is online, you have to register your business name as a domain name. In addition, to avoid trademark infringement issues, do a federal and state trademark inquiry to ensure the name you want to use is not the same as or too similar to a name already in use.

SEE ALSO: What Is A Trade Name For Business? Registration, Procedures

4. Pick a Business Location and Check Zoning Regulations

You’ll need to pick a location for your business and check local zoning regulations. Choosing a specific location has to be done after due consideration of what’s best for your customers.

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.

While you must decide on a location, it is also important to verify that the location is zoned for your type of business.

Alternatively, 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.

4. Register 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.
  • 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 the 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 the 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).

5. Apply for California Licenses and Permits

Most businesses require licenses or permits in order to operate. Please click on each of the resources below to determine if your business requires any licenses or permits.

Tax Registration

 If you will sell goods in California, you must register with the Board of Equalization (BOE) to get 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 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

This covers 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

 This covers people who work in various fields. The state’s CalGold website provides information on professional and occupational licensing.

7. Register and Report Taxes

California places tax on 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.

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.

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.

8. Obtain Insurance

Business insurance protects your business and your personal assets from the fallout of unexpected disasters, such as personal injury lawsuits and natural catastrophes.

Utilizing the services of an insurance agent will 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.

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9. Open a Business Bank Account

Lastly, you need to open a business account to enable easy tracking of income and expenses. For some business types, including LLCs and corporations, a separate bank account is necessary to maintain your liability protection.

READ ALSO: Top 10 High Yield Business Savings Account in 2021

Can I Start A Business Without Money In California?

To most people, starting a business in California is one that requires huge financing. Nevertheless, there are businesses that might not require financial investments. All they need to breathe is the willingness to work hard and devotion.

The first step to starting a business without money in California is determining the type of business you want to venture into. For instance, if you have a specialized skill or trade, like; consulting business, coaching, housesitting, or petsitting, or concrete skills like computer repairs, you can afford to operate from home.

To get started, write out a business plan that highlights the services you charge, the fee, sample contracts.

Begin your business as a sole proprietorship and transition to an LLC or corporation once you’ve begun making profits, if you wish. In California, a sole proprietorship does not have to register as a business with the state, meaning that you do not have to pay the fees for registering your business as you would with any other kind of business. However, if you wish to use any name other than your own for your business, you must legally file a trade name or fictitious name.

Additionally, you can decide to post ads on free classified websites like Craigslist, Facebook and MySpace. This will help put your new service in front of your potential customers.

How Much Does It Cost To Register A Business in California?

The cost to register a business in California can depend on what type of business entity you are registering. When forming a limited partnership, for example, you can expect to pay a $70 filing fee for your Certificate of Limited Partnership.

Depending on the structure you have chosen for your business, you may not need to register with your state. Sole proprietorships and partnerships, for instance, typically don’t need to register, and only need to start doing business.

Other business entities, such as corporations and limited liability companies (LLC), will need to register with their state, which requires filing a sizeable amount of paperwork and paying the correct fees. In California, for example, both LLCs and Corporations must file a Statement of Information fees, which can be $20 or $25.

How do you register a business name in California?

If you intend to use a “doing business as” (DBA) name that differs from the official name of your LLC, you must register it within 40 days of the launch of the business. Locate the office near you and apply for your DBA.

California Reserving Business Name Fee

There are fees for various aspects of the incorporation process in California. Reserving a name has a fee (which varies by location) that is payable to the county or city where you are incorporating. – the fee varies depending on your location.

Top Businesses Located In California

Our list of top businesses located in California is made up of companies with the highest number of employees and those that are actually headquartered in California.

RANKCOMPANYCITYEMPLOYEES
1ConcentrixFremont225,000
2The Walt Disney CompanyBurbank201,000
3Taco BellIrvine175,000
4SafewayPleasanton137,000
5GapSan Francisco135,000
6AppleCupertino132,000
7Kaiser PermanenteOakland128,270
8SYNNEXFremont108,000
9PORACSacramento107,653
10IntelSanta Clara107,100
11State of CaliforniaSacramento100,000
12Governor of CaliforniaSacramento100,000
13AlphabetMountain View98,771
14AECOMLos Angeles87,000
15Ross StoresDublin82,700
16McKessonSan Francisco78,000
17Cisco SystemsSan Jose74,200
18Red LobsterSan Francisco62,000
19Hewlett Packard EnterpriseSan Jose60,000
20AidWest Hollywood53,100
21ChevronSan Ramon51,900
22HPPalo Alto49,000
23SanminaSan Jose46,000
24Seagate TechnologyCupertino41,000
25Panda ExpressRosemead39,000
26Sun MicrosystemsSanta Clara38,600
27L.A. UnifiedLos Angeles37,110
28QualcommSan Diego35,400
29UC DavisDavis34,060
30IHOPGlendale32,300
31MattelEl Segundo32,000
32Avery DennisonGlendale30,000
33TTM TechnologiesCosta Mesa28,360
34Petco HoldingsSan Diego25,000
35SalesforceSan Francisco25,000
36Princess Cruise LinesSanta Clarita25,000
37Men’s WearhouseFremont24,500
38PilotSan Francisco24,337
39Uber TechnologiesSan Francisco22,263
40BJ’s RestaurantsHuntington Beach22,220

Conclusion

Summarily, all businesses that wish to conduct business in California need to register and form their legal entity with the California Secretary of State’s Office, file appropriate taxes, register as an employer, and obtain business licenses and other permits from appropriate cities or counties.

References

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