How to Start a Business in California

ith its booming economy, diverse consumer base, and extensive pool of opportunities, California is a haven for those looking to start a new business. This guide will help you turn your innovative ideas into a successful venture. Read on to learn how to start a business in California.

‍

Before you open a business in California

Before you open a business in California, you should do some planning to make the process smoother and increase your chances of success.

Identify your business idea and do market research

Evaluate your skills, interests, and the problems you want to solve to come up with a business idea. Then, conduct market research and assess the feasibility of your business. Analyze your target market, understand customer needs, and study the competition. This research helps assess whether your product or service has a viable market in California.

Create your business plan

Once you have a viable business idea, create your business plan. A business plan is a blueprint that outlines your business goals and the strategies you'll use to accomplish them. This document should include an overview of your business, market analysis, organizational structure, a description of your product or service, marketing strategies, and financial projections.

Determine how you’ll get funding

Finally, determine how you’ll get funding for your business. Evaluate different funding options such as personal savings, loans, angel investments, venture capital, or crowdfunding. Next, create a financial plan that outlines how much money you need to start and run your business and how you will allocate the funds.

Learn more about How to get a small business loan in California

‍

Choose the right business structure

When setting up a business, choosing the right business structure is vital as it impacts your taxes, liability, and how you can raise capital. By establishing the best legal framework for your business, you can support your goals and protect your interests.

Types of business entities

Start by familiarizing yourself with the different types of business entities. In California, you have several options, including a sole proprietorship, partnership, limited liability company (LLC), corporation (S Corp or C Corp), and nonprofit.

Learn more: How to form an LLC in California or How to Start an S Corp in California

Choosing the right business entity

When choosing the right business structure for your situation, there are some considerations for each to take into account:

• A sole proprietorship is simple to set up but doesn't separate your personal and business liabilities.
• A partnership allows you to share responsibilities but might expose you to the actions of your partners.
• A California LLC offers liability protection without corporate formalities.
• California S corps and C corps are suitable for larger businesses looking to raise capital through stock, but they require more paperwork and formalities.
• A nonprofit will give you tax-exempt status, but you'll have to follow strict regulations and limit your profits.

Choose the right business entity that aligns with your business goals, financial needs, and risk tolerance.

Get an EIN

After selecting your business structure, obtain an Employer Identification Number (EIN) from the IRS. This is essential for tax purposes and is often required when opening a business bank account. You can apply for an EIN online through the IRS website.

Pick your business name

Picking your business name is an exciting step in establishing your brand identity. Here’s how to approach it:

• Brainstorm a list of names that reflect your business, values, and products or services.
• Check the availability of the names you’ve shortlisted with the California Secretary of State’s business name search tool.
• Check for the domain name corresponding to your business name.
• Register your name with the appropriate authorities. In California, the registration process varies depending on your business structure. For example, if you’re forming an LLC, you’ll need to include the name in your Articles of Organization.

‍

Designate a registered agent

Designating an "agent of process" is a legal requirement when forming a business entity such as an LLC or corporation in California. A registered agent serves as your business's official point of contact with the state. They are responsible for receiving and managing important legal documents and government notices on behalf of your business, including service of process, tax notices, and compliance documents.

The registered agent must have a physical address in California and be available during regular business hours.

‍

Register your business in California

The exact steps you need to take to register your business will depend on your business structure, but generally, here's how to register a business:

• File formation documents: Depending on your business structure, you must file specific formation documents with the California Secretary of State.
• Register your business name: You may have to register your business name as part of your formation documents. Or, if you’re operating under a different name than your legal business name, you might need to file a Doing Business As (DBA) name.
• Register for state taxes: Depending on the nature of your business, you may need to register for various state taxes, including sales tax, employment taxes, or corporate taxes.
• Register with the Employment Development Department: If you plan to have employees, you must register with the Employment Development Department (EDD) within 15 days of paying wages.
• Complete a Statement of Information: Within 90 days of registering your business, you must file a Statement of Information with the California Secretary of State, providing details about your business. This filing must be updated every two years.

‍

Register a DBA

Registering a DBA name, also known as a fictitious business name, allows your business to operate under a name different from its legal name. This can allow you to modify your branding without forming a new business. Here’s how to register a DBA in California:

• Fill out the Fictitious Business Name Statement form.
• Take the completed form to the county clerk’s office in the county where your business is located.
• Pay the filing fee associated with registering a DBA.
• Publish a notice in a local newspaper announcing your new DBA within 30 days of filing your Fictitious Business Name Statement.
• File a Proof of Publication after the notice has been published for four weeks. You must file this with the county clerk’s office within 30 days of receiving it from the newspaper.
• Renew your DBA registration as required, usually every five years.

‍

Understand California’s tax obligations

California has several categories of taxes you may need to understand.

State business taxes

California imposes taxes on different types of business entities. Corporations are subject to corporate income tax. On the other hand, LLCs, partnerships, and sole proprietorships are subject to an income tax on the owner’s share of the profits.

Sales and use tax

If your business sells tangible goods in California, you must collect sales tax from customers. The sales tax is then remitted to the California Department of Tax and Fee Administration (CDTFA). Use tax is similar to sales tax but is applied to items purchased for use in California from out-of-state sellers.

As a business owner, you must register for a seller’s permit with the CDTFA if you are engaged in business in California and intend to make sales subject to sales and use tax.

Employee taxes

If you have employees, there are several taxes and obligations you need to withhold or pay. These include:

• State income tax from your employees’ wages
• Unemployment insurance tax
• Employment training tax
• State disability insurance

For more information, check out ouf California estimated taxes guide.

‍

Obtain business licenses and permits in California

The licenses and permits you need to do business in California will depend on your business type.

Determining required licenses and permits

Common licenses include general business licenses, professional licenses, and health permits. Use the CalGold website to enter your business type and location to get a list of the required federal, state, and local permits, licenses, and registrations.

Obtain licenses and permits

Once you have identified the licenses and permits you need, begin the application process. This may involve filling out forms, paying fees, and sometimes undergoing inspections or providing additional documentation.

To learn more, check out our full guide on How to Get a Business License in California.

‍

Set up your business finances in California

Keeping good financial records isn’t just a good practice—it’s also often a legal requirement. Using a business banking account and obtaining funding will get you off to the right start.

Opening a business bank account

Start by opening a business bank account. This is essential for keeping your business finances separate from your personal finances in your accounting and tax files.

With expert customer support, financial insights, and no monthly fees or minimums, Novo’s online business banking provides all your business banking needs in one platform.

Funding your business

As previously mentioned, you have several options for funding your new business venture:

• Personal savings, which is straightforward but involves personal financial risk
• Bank loans
• Investors and venture capital
• Small grants or loans
• Crowdfunding through platforms like Kickstarter and Indiegogo

Analyze the pros and cons of each to determine which option is right for your business.

Want to compare more options? Check out our review of the 4 best banks in California for small businesses.

Other considerations

Finally, there are some other factors you may need to consider when starting a business in California, including hiring employees and obtaining insurance.

Hiring employees in California

Consider the following when hiring your workforce:

• Begin by recruiting and selecting the right candidates through channels such as job boards, social media, and networking.
• If you decide to conduct background checks, be sure to comply with both federal and California laws regarding the use of background information in hiring.
• Set up an effective onboarding process to help new employees understand their roles and the company culture.
• California has specific laws regarding minimum wage, overtime, meal and rest breaks that you’ll need to follow.
• California also has strict laws against workplace discrimination, so ensure your hiring practices and workplace policies comply with these laws.
• Understand and comply with state and federal laws regarding sick leave, family leave, and other types of leave.
• Be aware of the legal requirements regarding termination and layoffs, including notice requirements and final pay.

Getting your business insured in California

Evaluate the risks associated with your business to determine what types of insurance are necessary. Compare policies and prices from different insurance providers. Consider working with an insurance broker who specializes in business insurance.

Some types of business insurance you may need include:

• General liability insurance if your business is sued for injury or property damage.
• Property insurance protects your space and contents against theft, vandalism, and damage from events like fire if you own or lease a physical location.
• For businesses that provide services, professional liability insurance covers legal costs and damages if you’re sued for professional errors or negligence.
• If you manufacture or sell products, product liability insurance covers you if a product causes injury or harm.

‍

Takeaways

Starting and running a business in California requires meticulous planning and adherence to many regulations. From the early stages of refining your business idea and crafting a business plan to the later steps of securing funding and hiring employees, there are a number of best practices that you should follow to ensure your business gets off to a good start.

Additionally, complying with state tax and labor laws, registering your business, and obtaining the necessary licenses and permits will keep your business in good legal standing. By tackling these elements with diligence—and possibly the counsel of professionals such as lawyers and accountants—you can position your business for success in the vibrant and competitive landscape of California.

‍

Novo Platform Inc. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. Novo Platform Inc. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.

Novo is a fintech, not a bank. Banking services provided by Middlesex Federal Savings, F.A.: Member FDIC.