Last updated October 12, 2020
Starting a Business in California
Starting a business in California takes 7 steps:
- Choose a name for your business
- Choose the right type of business entity
- Register your business with the California Secretary of State
- Get your EIN Number (Federal Tax ID Number)
- Open a business bank account
- Get any necessary business licenses or permits
- Register for taxes
We’ll show you how to complete each step. We’ll also give you some tips to make starting your business in California easier.
Important: Sole Proprietorships and Partnerships don’t need to comply with Step 3. We’ll show you why later.
Step 1: Choose a Name for Your California Business
Choosing a name for your California business is not something you want to breeze through. In fact, rushing the process of choosing your business name can be a big mistake.
We recommend taking some time to choose a name people will remember and associate with your business.
To make sure your business is worth remembering, you should choose a name that:
- rhymes or contains alliteration (ex: Piggly Wiggly, Dunkin’ Donuts)
- speaks about the benefits of your business
- you can say with pride
- is easy to pronounce
- has a positive connotation for potential customers
- and ideally, is available as a “.com” domain name
By the way, the first bullet point above refers to the phonological loop. Your brain can better remember words that rhyme and sound similar. So this can help if you want to establish a business name that will “stick” in your customer’s mind.
For more tips on coming up with a good business name, check out how to choose a good business name.
After you’ve thought of a few business names, you should search them on the California Business Search page to make sure they are available for use: https://businesssearch.sos.ca.gov/
Find a good domain name:
Finding a good domain name is not always that easy. However, if you use Lean Domain Search (https://www.leandomainsearch.com) and enter one or two keywords relevant to your business, the tool will come up with a list of domain names that are not only available, but are easy to spell and easy to remember.
Note: We have more tips on building a website for your business towards the bottom of this guide.
Step 2: Choose your Right Business Structure
Next, you’ll need to decide the best type of legal structure for your California business.
The most common are:
- Sole Proprietorship
- Limited Liability Company (LLC)
A Sole Proprietorship in California happens when you operate your business as yourself. There is no separate legal entity created; the law treats you and your business as one person. You are responsible and personally liable for all business activities and any wrongdoing.
A California Partnership is the same as a Sole Proprietorship, but just with 2 or more people. And like a Sole Proprietorship, a Partnership isn’t a separate legal entity and the partners are responsible and personally liable for any business activity and wrongdoing.
A California Corporation is a more complex legal structure that requires a board of directors, corporate officers, and shareholders. And while a Corporation is a separate legal entity, they don’t usually work for most small business owners because they face double taxation. Corporations are more commonly used by companies that are looking to raise capital investment, take the company public, or have large healthcare expenses (for their employees). The most common types of companies that form Corporations are high-growth technology and startup companies.
Unlike a Sole Proprietorship or Partnership, because a Corporation is a separate legal entity, it provides personal liability protection for its owners.
An LLC in California is a “hybrid” legal entity that combines the benefits of a Corporation and a Sole Proprietorship/Partnership.
A California LLC is a separate legal entity under state law and like a Corporation, it provides personal liability protection for the owners. If your LLC is sued, the owner’s personal assets – like their home, cars, and bank accounts – are protected. And like a Sole Proprietorship, an LLC has pass-through taxation (so there’s no double taxation).
A California LLC is the most popular option and a good choice for people who want to run a business for two reasons:
- Personal liability protection (your personal assets are kept safe)
- No double taxation
Unlike a Sole Proprietorship (and a Partnership), your California LLC’s assets are separate and distinct from your personal assets. In the event your LLC gets sued, your personal assets are protected.
And unlike a Corporation, your California LLC is not subject to double taxation. Instead, your LLC’s profits will “flow through” to your personal tax return.
For more information on the different types of business entities, please see LLC vs Sole Proprietorship vs Corporation.
If you want to form an LLC in California, we have instructions here: California LLC formation.
If you want to form a Corporation in California, you can file the paperwork yourself or you can hire a filing company. We recommend Northwest Registered Agent.
Step 3: Register Your Business with the CA Secretary of State
You may need to file business formation documents with the California Secretary of State.
All of the state’s forms and links to online filings can be found here: http://www.sos.ca.gov/business-programs/business-entities/forms/
The cost to form a California LLC is $70.
The filing form is called the Articles of Organization (Form LLC-1). It can be filed by mail or it can be filed online.
The cost to form a California Corporation is $100.
The filing form is called the Articles of Incorporation (Form ARTS-GS). It can also be filed by mail or it can be filed online.
California Sole Proprietorship or Partnership:
Unlike a California LLC and a California Corporation, if you choose to operate your business as a Sole Proprietorship or a Partnership, you don’t have to file a formation document with the state.
Having said that, Partnerships in California have the option to file a Statement of Partnership Authority. The filing fee is $70. This is not mandatory though.
California Secretary of State
If you have any questions about registering a business entity in California, you can contact the Secretary of State:
Main website: http://www.sos.ca.gov/business-programs/
Contact page: http://www.sos.ca.gov/business-programs/business-entities/contact/
California DBA/Fictitious Business Name:
If you would like for your Sole Proprietorship or Partnership to operate and do business under a name besides the first and last name of the owner(s), you’ll want to register a Fictitious Business Name, also known as a DBA or Doing Business As.
The same goes for a California LLC or Corporation. If you want to operate your business under a name different than the filed legal LLC or Corporation name, you’ll also need to file a Fictitious Business Name/DBA.
Note: If you’re going to form an California LLC or Corporation and operate under the LLC or Corporation’s full name, you don’t have to file a Fictitious Business Name/DBA. For more information on whether or not a DBA name is needed, please see: Do I need to file a DBA?
In California, Fictitious Business Names/DBAs aren’t filed with the Secretary of State. Instead, they are filed at the county-level (in the county where you do business) with the County Clerk’s Office. In order to determine the proper filing forms and fees for a DBA Name, you’ll need to call your County Clerk’s office and ask for instructions.
You can find all County Clerk information here:
Newspaper publication (Fictitious Business Name):
If you end up filing a Fictitious Business Name Statement with your County Clerk’s office, there is an additional requirement that you need to meet.
You must publish a notice in a local newspaper that your California business is operating under a DBA/Fictitious Business Name.
This must be done within 30 days from the time the Fictitious Business Name Statement was filed with the county.
The notice must be published in a newspaper that has a general circulation and is located in the same county where the Fictitious Business Name Statement was filed.
When you call the County Clerk’s office you can also ask them for a list of approved newspapers in the county. They will either send you a list or direct you to the appropriate page on their website. From there, you’ll want to call one or two newspapers and ask how much the ad will cost and instructions on how to submit your information (most of the time, things are done by email).
Most newspapers will run your Fictitious Business Name Statement for 4 “runs” (publishing cycles). After the 4th publication, they’ll send you proof in the mail. This is usually called the “Proof of Publication” or an “Affidavit of Publication”. It’s essentially a legal document the newspaper signs showing proof that your ad ran.
Then one last step: you need to file your Proof of Publication or an Affidavit of Publication with your County Clerk’s office (the same office where you originally filed your Fictitious Business Name Statement) to complete the publication requirement.
Step 4: Get an EIN Number
An EIN Number is also known as an Employer Identification Number or Federal Tax ID Number. It is used by the IRS to identify your California business for tax purposes.
Think of your EIN Number as the “social security number” for your California business.
The EIN Number for your California business is used to open a bank account, file taxes, get financing, and handle employee payroll (if applicable).
You can get an EIN for your California business by mail, by fax, or by applying online. Getting your EIN online is the fastest option since it only takes about 15 minutes.
You can access the IRS EIN Online Application here:
For instructions on how to complete the online EIN application for a California LLC, please see our California EIN Number page.
Note: Make sure your LLC or Corporation is approved before applying for your EIN Number.
Step 5: Open a Business Bank Account
Opening a separate business bank account and getting a business debit card (or credit card) for your California business is important because:
- it keeps your personal assets separate from your business assets
- accounting and finances will be easier to manage
One of the main reasons courts are able to “pierce the corporate veil” is due to the commingling of assets. This is when business and personal finances are mixed together.
Keeping the assets of your California company separate from your personal assets also helps keep your records and paperwork more organized.
To learn how to open a bank account for your California LLC, you can read this lesson: LLC business bank account
Debit card: Your bank will provide you with a business debit card when you open the account.
Credit card: You can also get a business credit card and earn cash back or other rewards.
Step 6: California Business Licenses and Permits
Whether or not you’ll need a business license and/or permit will depend on:
- where your California business is located
- and what industry you’re in
Location: Some cities (and counties) in California require businesses to have a business license in order to operate.
For example: Companies in Los Angeles, or companies that do business within Los Angeles, need to register their business with the Los Angeles Office of Finance. They also need to get a Business Tax Certificate.
Industry: Certain industries are more regulated than others, usually due to higher risks to the public and/or to the environment. And businesses in these type of industries may need special licenses and/or permits to operate.
For example: If you’re opening a restaurant in San Diego, you may need to apply for a plan review, schedule a plan inspection, apply for a health permit, get a food safety certification, make sure food handlers have a valid food handler card, and pass a final inspection. Additionally, depending on how the restaurant is setup, you may also need a building/construction permit, a fire department inspection, and food establishment
wastewater discharge permit.
CalGold: There is a great tool provided by the state of California called CalGold which can help you determine your business licensing and/or permit needs based on your industry and location: http://www.calgold.ca.gov/. Just enter city or county and your type of business.
Tip: If you can’t find your business type, just enter “General Business Information”.
Step 7: Register for taxes
In addition to your federal income tax requirements, you may also need to register your business for California state taxes as well as local taxes (county or city).
There are 4 agencies in California which govern state taxes:
- California Franchise Tax Board
- California Department of Tax and Fee Administration
- California Employment Development Department
- California State Board of Equalization
The California Franchise Tax Board handles state income tax and business taxes.
The California Department of Tax and Fee Administration handles sales and use tax, fuel, and other taxes.
The California Employment Development Department handles payroll tax.
The California State Board of Equalization handles property tax, alcoholic beverage tax, and tax on insurers’ programs.
What taxes are you responsible for?
Taxes are complex and the taxes you are responsible for will vary depending on what type of business structure you’re using, who owns your business, where it’s located, the industry you’re in, and how you make money.
Rather than trying to figure everything out yourself, we recommend working with an accountant. They will help you determine your tax filing requirements and they’ll also make sure you properly file your federal, state, and local taxes.
Below are some resources and information on California taxes.
Sole Proprietorship taxes:
$800 annual franchise tax:
California LLCs must pay an $800 franchise tax every year (Form 3522). They must also file Form 568 with the California Franchise Tax Board. Additionally, if a California LLC earns more than $250,000 per year, it must also file an LLC Estimated Fee (Form 3536).
Back-to-back franchise tax payments ($1,600):
The timing of when you set up your California LLC can either save you $800 or cost you an extra $800. We recommend reading how to avoid back-to-back franchise tax payments.
Note: Like LLCs, California Corporations must also pay an annual $800 franchise tax, however, it’s not due until the 2nd year.
After Your California Business is Started…
1. Meet with a Local California Business Expert for Free Counseling
Getting advice from others who’ve been there can be helpful after just starting your business.
In California, we recommend SCORE. They provide face-to-face mentoring as well as online counseling and workshops.
You can find all their locations in California here: https://www.score.org/find-location?state=CA
There are other helpful organizations in California too:
- Calvet Women Veterans
- California Business Portal
- California Small Business Development Center
- Department of General Services – Resource Guide
2. Start a Website
Having a website these days is very helpful for your California small business. It gives your company a professional feel and allows people to learn about your products and services.
Building a website can seem like a complicated process. And it will be if you don’t have the right information.
However, I’ve built over 130 websites and used to teach people how to use WordPress to build their website. WordPress (which is free) is the tool I use and recommend. It can be used to build simple websites or it can be used to build more complicated websites, like eCommerce sites.
There are 4 components to starting a website:
• Domain registrar,
• Website hosting,
• and WordPress theme
Let’s use a housing analogy:
The domain registrar is where you purchase your domain name. Think of this as the label on the mailbox or your street address.
A website hosting company is where all the code, images, graphics, and text are stored that gets provided to the world. Think of this as the foundation of your home. It gives you the ability to build on top of it and display information to others.
WordPress is a CMS (content management system) which makes it easy to build a website. Rather than constructing your home from scratch, think of WordPress as a prefabricated home where you can easily resize rooms, move walls, and have complete flexibility in design and customization. WordPress – or the prefabricated home – “sits on top of” your foundation (the website hosting).
A WordPress theme is a “design skin” that sits on top of the WordPress CMS. If the WordPress CMS is the prefabricated home, think of the theme as all the interior decorations and painting. There are free WordPress themes, but I recommend against them for various technical reasons. Instead, I recommend using a “premium” WordPress theme. The difference between a free WordPress theme and a premium theme is the difference between an amateur designer and a world-class professional designer.
Here are some links and prices to get you started:
Domain registrar: I recommend NameSilo.com which is $10 per year (per domain name). This is the service we use as it includes domain privacy for free to keep your address and phone number off of public record websites. It’ll also help prevent those annoying telemarketing phone calls!
Website hosting: SiteGround.com ($10-$15 per month)
WordPress: This is automatically included (again, for free) with nearly every hosting company these days. After you sign up with SiteGround, just call them to help you install it. They’ll walk you through the steps.
WordPress theme: ThemeForest.net (one-time fee of $40 to $60)
Note 1: Make sure you’re using the “wordpress.org” self-hosted version. Not the “wordpress.com” version, which is stripped down and comes with limitations on how much you can customize your website.
Note 2: If you need help selecting a theme from ThemeForest, check out this video I made for you:
3. Design a Logo and Get Business Cards
Designing a logo doesn’t have to be too complicated.
We recommend starting off with a “words only” logo to keep things simple (no need for fancy graphics). You can choose the font family and color yourself, or get help from 99 Designs. A cheaper option is to use Fiverr.
For some great tips on using a tagline with your logo, check out Neville Medhora’s article.
And for business cards, I like using Moo.com.
4. Get a Business Phone Number
Instead of giving out your actual cell phone number (or home telephone number), it might be a good idea to get a business phone number for your California business. You’ll be able to customize the number so it forwards to your cell phone.
Our favorite company is Phone.com. They have the cheapest plans and the best customer service.
You can get a local California telephone number or you can get a 1-800 number for your business. Phone.com lets you easily setup call forwarding to any number you like, create pre-recorded messages, and you can get your voicemails sent right to your email.
Getting a separate phone number for your California business is a good idea if you’d like to keep your actual phone number off of those annoying “public record” websites (and stop the spam phone calls).
I hope this guide has been helpful for you. Best wishes with your business!