Start‌ ‌a‌ ‌Small‌ ‌Business‌ ‌in‌ ‌California‌ ‌in‌ ‌9 ‌Easy‌ ‌Steps‌

Deciding to establish a small business in California can be a great move as long as you're prepared. These 9 easy steps to starting a small business in the state will help, along with your own market research to plan for regulations, high taxes, and intense competition. Smart and savvy tax planning from the start helps California small businesses thrive.

Small business owners and entrepreneurs should use this blog to learn how to select an entity, register with the state, and maintain compliance after launch.

Why Start a Business in California?

California presents numerous opportunities to the over 4 million small businesses established there. They account for 99% of the businesses and employ nearly half of the state's private sector workforce. So, while it may seem crowded, there's a lot of upside in establishing your business in California, but three reasons stand above the rest.

• Diverse population

• Multiple cities to serve

• Large economy

These factors create the conditions for small businesses in virtually every industry to succeed.

How Much Does it Cost to Start a Business in California?

The exact costs of starting your business in California will vary.

While fees can vary by entity type, most businesses will be responsible for paying the $800 Annual Franchise Tax.

9 Steps to Establishing Your Business in California

Follow these steps to learn how to start a business in California. Be sure to gather pertinent materials, financial records, and legal documents before you start, as they contribute to your business formation documents.

Step 1: Business Idea

The first step in starting your small business in California is to develop a business idea. What's the next big thing that Californians can't live without? Asking tough questions and conducting market research will help you form and tweak your vision, all while considering how you'll expand, fund, and plan your California small business.

Creating a business plan to flesh out your idea is also helpful. A business plan should include:

• What product or service you will be selling

• Total startup costs

• Where you will get the funds (loan, investment, credit card, etc.)

• Competitor profile

• Target market or demographic

Step 2: Entity

Now you’ll choose a business structure. This may be the most critical step because it determines liability, ownership, and how you pay taxes. The state of California allows you to choose from several business entities:

• C corporation

• General Partnership

• LLC

• Limited Liability Partnership

• Limited Partnership

• S corporation

• Sole proprietorship

Unlike other states, California has more specific requirements for a limited liability partnership. They are limited to professional practice types, such as accountants, engineers, and land surveyors.

1-800Accountant provides formation services that streamline the process for you, ensuring the paperwork is handled and your California business is established.

Step 3: Name

You’ll want to choose a business name that’s both available and unique. California has business naming rules you’ll want to adhere to:

• 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 partnerships or sole proprietorships not using the small business owner’s surname, these entities will file a Fictitious Business Name Statement.

Step 4: Registered Agent

Like other states, California requires most LLCs, corporations, and partnerships to designate an agent for service of process, also called a registered agent. To qualify, the agent must have a physical California address and be available during business hours to accept important documents in person.

You can serve as your own agent at no cost, or hire a California registered agent service, which typically costs between $100 and $300 annually.

Step 5: Registration

You’ll register with the California Secretary of State if your business is a corporation, LLC, or partnership. LLC and corporation filings are submitted through the Secretary of State's BizFile Online portal.

The registration process can differ for every type of business entity, and you won’t need to file with the California Secretary of State if your small business is a sole proprietorship. Typically, you will provide the following information:

• Business address

• Purpose of your business

• Owner

• Business name

• The California-based registered agent you are working with

Step 6: EIN

An EIN (aka Federal Tax ID) is like a Social Security number for your business, which the IRS uses to identify you for tax purposes. Without an EIN, you won't be able to hire employees, open a business bank account to separate personal and business finances, and do other things essential to the successful operation of your business in California, like tax filing.

There is no cost to obtain an EIN, and you can file for one in minutes with the IRS.

Step 7: Bank Account

If you haven’t applied for a business bank account, you’ll need to at this point. Opening a business bank account for your California small business has several benefits, including:

• Establishing business credit and building a credit history.

• Keeping business funds separate from personal funds.

• Providing a line of credit in case of emergency

Step 8: Licensing and Permits

While there is no single statewide business license, there are additional licensing or permit requirements that may apply to your small business activities.

• If your business collects sales tax, you’ll file state income tax with the California Franchise Tax Board. By doing so, you’ll receive a sales tax permit, known as a California Seller’s Permit.

• If your business will sell property, you’ll work with the California Department of Tax and Fee Administration to receive a seller’s permit.

• For businesses with employees, there are additional requirements for employment, wages, and workers’ compensation insurance. There are two departments to work with: the California Department of Industrial Relations and the California Employment Development Department.

• 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.

Use CalGold, the state's permit assistance tool, to easily apply.

Step 9: Reports

In California, annual reports are also known as a Statement of Information. There are two schedules for corporations and LLCs to complete.

Corporations file the Statement of Information annually, while California LLCs must complete the Statement of Information every two years. There is a $20 filing fee.

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.

Ongoing Compliance and Costs After You Launch

The costs don't stop after you launch. It's important to plan for ongoing compliance costs that keep your business operations in good standing.

The $800 annual minimum franchise tax serves as a baseline fee for the legal privilege of operating a registered business in California. It is owed regardless of whether the company is profitable or active. The tax applies to both corporate and non-corporate business entities, including different LLC types, limited partnerships, S corporations, and C corporations. Foreign LLCs from outside the state and corporations registered to do business in California or actively conducting business within the state are also subject to this $800 minimum.

California LLCs must also file a Statement of Information biennially (every 2 years), while corporations must file annually.

Most businesses must calculate and pay quarterly estimated taxes and address payroll tax obligations if they have employees.

Other Considerations

California's population is diverse and spread out, but Southern California is the state's most populated region. Business location matters. For example, technology industries excel in central California, whereas entertainment and similar industries excel in different parts of the state.

In addition to location and population, it’s important to consider federal funding. There are grants and loans, including the California IBank Small Business Finance Center, available that can be a valuable source of cash.

California Resources for Small Business Owners

For small businesses on a budget, several free and low-cost resources are available.

• California GO-Biz

• California Small Business Development Centers (SBDCs)

• SCORE mentoring

• Local Chambers of Commerce

• Small Business Administration (SBA)

FAQs About Starting a Business in California

How much does it cost to start a business in California?
To register your LLC, you will pay a $70 filing fee for the Articles of Organization and a $20 Statement of Information fee. If you form a corporation, the initial filing fee is $100. Additionally, most entities must pay the recurring $800 minimum annual franchise tax, even if they're unprofitable.

Do I need a registered agent in California?
Yes, California requires formal business entities like corporations, LLCs, and limited partnerships to designate and maintain a registered agent. This agent must be available at a physical street address within the state to accept official legal notices and state documents during standard business hours. Sole proprietorships and general partnerships are not officially formed with the state, so they avoid this requirement.

What is the $800 California franchise tax, and who has to pay it?
The $800 California franchise tax is a mandatory annual fee charged to corporations and LLCs for the privilege of doing business in the state. Virtually all registered LLCs and S corporations must pay this fee every year, even if the business is inactive, operates at a loss, or generates zero income. Newly formed LLCs typically qualify for an exemption from this fee in their first taxable year.

Do I need a business license if I only sell online?
While California does not have a single statewide business license, you almost certainly need local licenses issued by your specific city or county. You can check exact requirements for your city using the California CalGold Database tool. If you are selling tangible products directly, you are legally required to register for a California Department of Tax and Fee Administration Seller's Permit.

How long does it take to start a business in California?
The time it takes to form a business depends heavily on how you submit your initial paperwork to the California Secretary of State. Online filings submitted through California BizFile Online are typically processed within a few business days. Mailed-in documents, however, can take several weeks to process depending on current state volume.

What's the difference between an LLC and an S corp in California?
An LLC protects your personal assets and passes business profits through to your personal tax return without formal corporate meetings. In contrast, an S corp is a corporate tax election that can reduce self-employment taxes for profitable businesses but demands stricter structural compliance. Unlike the LLC business type, S corps in California are taxed at $800 or 1.5% of net income (whichever is greater). LLCs operate with a flat $800 minimum annual tax regardless of income or tax liability.

Can a non-U. S. citizen start a business in California?
Yes, non-U. S. citizens can legally start and own a business in California. Foreign nationals can form LLC or C corporation business entity types. However, they may face restrictions on S corp ownership or require specific visas to work and manage the business on the ground actively. For more information, review the California Governor's Office of Business and Economic Development resources.

Let 1-800Accountant Help You Start Your Business in California

Now that you know the initial costs, formation steps, and ongoing compliance obligations of running a California business, you can start yours with confidence. While resources are available to help guide you, professional support ensures you're set up the right way from the start.

For owners and entrepreneurs who want the peace of mind that comes with knowing their California businesses are set up correctly, explore 1-800Accountant's entity formation service to learn more and get started.