Starting a small business in California can be a great decision. California has a large economy, a large workforce, and a streamlined way to start your small business.
Although starting a small business in California is relatively easy compared to other states, there are some things to keep in mind. California has several naming requirements, and there are additional requirements to be aware of. Here is how to start a small business in California in 8 easy steps.
Why Start a Business in California?
Starting a business in California may allow your business to thrive. California offers a large population, several cities to open your business, and one of the largest economies in the world.
These factors create an environment where businesses in almost every industry are successful in the state.
How Much Does it Cost to Start a Business in California?
The exact cost to start a business in California will vary based on your business entity. Some of the expenses you can expect to pay will also vary based on your business entity.
In California, corporations pay for:
- Articles of Incorporation: $100
- Name Reservations: $10
- Statement of Information – Domestic Stock: $25
General partnerships in California have a single fee, a Statement of Partnership Authority fee of $70.
In California, LLCs have the following fees:
- Articles of Formation: $70
- Certificate of Amendment: $30
- Name Reservations: $10
- Statement of Information: $20
In California, limited partnerships have the following fees: a Certificate of Limited Partnership fee of $70 and a Name Reservations fee of $10.
Limited Liability Partnerships (LLPs) have the following fees in California: an Application to Register fee of $70. There is also an Alternative Security Provision, an annual confirmation, that costs $30.
Step 1: Business Idea
The first step to starting your small business in California is to develop your business idea. Your business idea can consist of a business plan, which can serve as a way for you to outline your business as it develops.
A business plan can either be traditional or lean. While a traditional business plan is useful for investing and lending opportunities, a lean business plan may also be helpful to summarize your business.
Step 2: Entity
Second, you’ll choose a business entity. This may be the most critical step because it determines your legal structure, potential liability, taxation. In California, you can choose from:
- C Corporation
- General Partnership
- Limited Liability Company (LLC)
- Limited Liability Partnership (LLP)
- Limited Partnership
- S Corporation
- Sole proprietorship
Unlike other states, California has more specific requirements with limited liability partnerships. In California, LLPs are limited to professional practice types, such as:
- Land surveyors
Step 3: Name
The third step of starting your small business in California is to choose a business name. California has a few business naming rules you’ll want to know about:
- If your business name will include your last name, you
- If your business name doesn’t include your last name, you’ll file a Fictitious Business Name Statement (or D.B.A., or “doing business as”).
- If your business name is a corporation that isn’t doing business using its legal name, you’ll file a Fictitious Business Name Statement.
- For businesses that are partnerships or sole proprietorships doing business not using the owner’s surname, these entities will file a Fictitious Business Name Statement.
To register your fictitious business name, you’ll contact your city clerk or county clerk. There’s a limit of 40 days to file the statement from when your business opens.
A second deadline for business names must happen within 30 days after filing the fictitious name statement. The registrant will publish a statement about your business in the county where your business will operate, which must appear once weekly for four weeks.
Finally, within 30 days of the last publication, the registrant will file an affidavit of publication with the county clerk’s office.
Step 4: Registration
The fourth step to start your small business in California is to register your business. You’ll register your business with the California Secretary of State if your business is a corporation, LLC, or partnership.
If your small business is a sole proprietorship, you won’t need to file with the California Secretary of State.
Step 5: EIN
If you haven’t applied for an EIN, you’ll want to do so at this step. You can apply for an EIN by fax, mail, or online, but applying online is the fastest option.
If you apply by fax, you’ll receive an EIN within four business days. If you choose to apply by mail, you’ll receive an EIN within four weeks. No matter which option you choose, applying for and receiving an EIN is free.
Step 6: Bank Account
If you haven’t applied for a business bank account, you’ll need to at this point. Opening a business bank account has several benefits:
- Building a credit history
- Keeping business funds separate from personal funds
- Providing a line of credit in case of emergency
To open a business bank account, you’ll need:
- Business formation documents
- Business license
- Employer Identification Number (EIN)
- Ownership agreements
Step 7: Licensing and Permits
One of the last steps in starting your business in California is to receive licensing and permits. There are four additional licensing or permit requirements that may apply to your small business.
If your business collects sales tax, you’ll file state income tax with the Franchise Tax Board. By doing so, you’ll receive a sales tax permit, known as a California Seller’s Permit.
Second, if your business will sell property, you’ll work with the California Department of Tax and Fee Administration to receive a seller’s permit.
Third, for businesses with employees, there are additional requirements for employment, wages, and workers’ compensation. There are two departments to work with: the California Department of Industrial Relations and the California Employment Development Department.
Finally, if your business will export or import goods in California, you may need a sales and use tax permit. To receive this permit, you’ll work with the Department of Tax and Fee Administration.
Step 8: Reports
In California, annual reports are also known as a Statement of Information. There are two schedules for corporations and LLCs to complete.
Corporations will file the Statement of Information annually, while LLCs must complete the Statement of Information every two years.
New corporations and LLCs must complete the Statement of Information within the first 90 days of filing either Articles of Incorporation or Articles of Organization.
Other Considerations (location/funding/etc)
Before starting your business in California, there are a few things to keep in mind. The population in California is diverse and spread out, but Southern California is the most populated area of the state.
Second, your business’s location within the state matters. Technology industries excel in the central part of California, whereas entertainment and similar industries excel in different parts of the state.
Get Advice from the Experts
Are you thinking of starting a business in California? Let us help you get off on the right foot! Our entity formation experts can be there to guide you every step of the way. Starting a business should never be stressful. Work with the experienced professionals at 1-800Accountant to begin your small business entity in California.