The State of California is a major hub for businesses and entrepreneurs. In fact, 99.8% of businesses in the Golden State are small businesses (3.9 million), creating employment for nearly half of the population of California.
Below, we provide a step-by-step guide on how to start a small business in CA and answer a few commonly asked questions.
How to Start a Business in California - Business Plan Template
Download a free business plan checklist and follow our steps to starting a business in California.
How to Start a Small Business in California:
1. Do market research.
Market research includes deciding type of products or services you are planning to provide, what problems they aim to solve, who your potential customers are, and how you intend on attracting them to buy what you are selling.
You will also need to decide whether you need to hire employees, and most importantly, how much money you will need to get started and where you will source it from. Once you have answered all these questions, you should have a good outline of how to start a company in California.
2. Create a business plan.
Your business plan should detail financial resources, ownership, marketing, production, and other important information on how to run a business successfully during the early stages.
For more information on how to write a business plan, refer to our handy checklist above. Make sure that your business plan is as comprehensive as possible, as you'll be showing the plan to potential investors and lenders in the near future.
3. Secure financing.
Financing a small business can take the form of personal savings, secured and unsecured loans, as well as funding from friends and family.
Here are a few places where you can get assistance with securing startup capital in California:
- Small Business Development Centers.
- Small Business Loan Guarantee Program.
- Financial Development Corporations.
- California Capital Access Program.
- Industrial Development Bonds.
You can also check out our article on Small Business Loans - Best Lenders and Loans for 2019.
4. Choose a legal entity and business name.
The type of legal entity that you choose will affect your business in many ways, including how your business will be taxed and how you manage and run your business. We recommend consulting with an attorney and tax accountant to help you determine which business entity is the best option for you.
For Limited Liability Company (LLC), Limited Partnership (LP), or Limited Liability Partnership (LLP), status you must comply with statutory name requirements, as you may not register a name that is already in use. Be sure to do a preliminary search of business names using the California Business Search tool at BusinessSearch.sos.ca.gov.
5. Register with the Secretary of State.
Next, you will need to register your business with the state. You can do so by e-filing on the Secretary of State website, or in person by filling in the necessary forms and submitting them at the Secretary of State’s Business Programs Division filing counter. It costs $100.00 to register a corporation, and $70.00 to register an LLC, LP, or LLP respectively.
6. Register a Doing-Business-As (DBA) name (if applicable).
If you choose to do business under a name other than your business' legal name, you will have to file a fictitious business name with the county clerk or recorder closest to your business location. This is important as you want other businesses and startups to be able to find your fictitious business name if they do a name search in your county.
If you do not register a DBA you may not be able to enforce your business agreements. This also applies to businesses who are required to operate under a different name to obtain licenses and permits. Refer to your county's website for requirements, forms, and fees.
7. Choose a location and check local zoning regulations.
If you intend on purchasing or leasing a building, renting retail space, or operating your business from another location (including your home), you are required to contact the city and county where you plan on conducting business before finalizing any plans to ensure that you comply with zoning regulations. You can also contact your Local Community Development Department for more information.
8. Obtain specialty licenses and permits (if applicable).
Visit the CalGold website at calgold.ca.gov for detailed information on business licenses, permits, registration requirements, and fees. Once you know which licenses and permits to apply for, visit the Department of Consumer Affairs to obtain your licenses and permits.
If you are hiring employees you will also need to obtain an Employee Identification Number (EIN) so that you can manage and file income tax for your staff. To obtain your EIN, go to www.irs.gov and apply online. Once all validations have been made, you will receive your EIN immediately.
9. Complying with Tax Regulations in California.
California levies three types of business taxes - corporate tax, franchise tax, and alternative minimum tax (AMT). Corporate tax (8.84%) and AMT (6.65%) applies to C corporations and certain LLCs. In contrast, S corporations only pay 1.5% of corporate tax.
Franchise tax is imposed on S corporations, LPs, LLCs, and LLPs, which is either a minimum of $800.00 per year or an amount based on net income, whichever amount is greater.
Sole proprietors (excluding LLCs with one member) are only subject to personal income tax as their businesses are not registered with the state.
10. Purchase insurance.
Every small business needs small business insurance to protect it against any damage or legal issues that may arise. By law, you are also responsible for providing your employees with state disability insurance, unemployment insurance, and equal employment opportunities.
11. Ongoing Secretary of State filing requirements.
All corporations and LLCs are required to file a Statement of Information (SOI) with the Secretary of State within 90 days of registering the business. Thereafter, stock corporations and foreign corporations must file an SOI on an annual basis, while LLCs are required to file biennially. An SOI, also known as an annual report, can be filed online at bizfile.sos.ca.gov for a fee of $20.
Starting a Business in California FAQs:
How much does it cost to start a business in California?
Registering a business in California costs between $70.00 - $100.00, depending on your business structure.
Where can I apply for a California business license?
For a business license, you can apply through the Department of Consumer Affairs, and for a seller's license, you can apply via the Department of Tax and Fee Administration.
Are there any specific rules for an LLC in California?
In California, you must file Articles of Organization with the Secretary of State to form an LLC. The fee is $70.00.
How do I register a business name in California?
You can register a business entity through the Secretary of State website at www.sos.ca.gov.
Fees for Starting a Business in California:
Business registration (Corporation)
Business registration (LLC, LP, LLP)
How to start a home business in California:
Starting a home business in California can be a lot more profitable than opening one in a retail space with high rental costs. But with this decision comes lots of planning and preparation. A home-based business also requires less start-up capital, which allows you to maximize your personal savings if you are self-funding your business.
If you are planning to start a home business, use the steps above to help you get the ball rolling. You can also check out IRS publication 587 to work out tax deductions for a home business. Bear in mind that certain businesses require specific licenses and permits, so be sure to refer to calgold.ca.gov to learn more.
For more information about starting your own business, be sure to check out How to Start a Business.