How to Start a Business in California: Everything You Need to Know

Thinking about starting an LLC in California? We’ve got all the details you need.

Begin by selecting a unique business name, appointing a registered agent, and filing your Articles of Organization with the California State Corporation Commission, which includes a $100 processing fee.

You can do this independently, consult with a business attorney for specialized legal guidance, or join the other 75% of our readers and hire a specialized California LLC formation service (recommended).

Zenbusiness (Starting at $0 Plus State Fees)

Northwest ($39 + State Fees)

Is California Good for Starting a Business?

California is one of the best places in the world to start a business. It’s the 5th largest economy on the planet and has access to the Pacific Ocean, which opens up opportunities for easy shipping, manufacturing, and much more.

Easy access to this type of infrastructure makes it one of the easier places to start maritime operations, which is one of the largest industries in the world.

Aside from access to the coast, California is known for being an innovative state. Some of the largest technology companies in the world are based in California, so you’ll have access to excellent technology and hardworking employees.

While the cost of living is on the higher side, along with the cost to start a business, once you find success you won’t have many problems keeping up with the costs.

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

One of the biggest questions that people have about starting a business in California is the cost. While starting a business is an expensive endeavor, it doesn’t always have to be. On the cheap side, you can start and register a sole proprietorship for less than $100. However, if you want to start an LLC or a corporation you have to pay at least $800 annually.

Furthermore, you may have to pay additional fees for fictitious names, business licenses, and insurance. Therefore, starting a business in some industries can cost thousands; this is without factoring in employee compensation, property, and assets. You can learn more about how much it costs to start a business in California here.

Things to Do Before You Start

If you thought that you could charge head-first into the business world without a plan, we advise you to slow down. While you can choose a name and hit the ground running, what’s the harm in coming up with a plan? You may also want to think about your funding options, market research, and whether or not your business idea makes sense.

Below, learn about some initial preparations you should consider before starting a business in California.

Understand the Market

First and foremost, you need to understand the market. You should analyze your competitors, the industry, and the potential for your business to adapt. For example, if you plan on starting a web development company, you may need to adapt or incorporate artificial intelligence (A.I.) technology into your business to keep up.

Understanding the market is also about finding your niche and how you can better serve a population, even with competitors in the industry.

Create a Business Plan

A business plan is one of the most important things you need before starting a business in California. Any business is only as good as its plan because, without one, you won’t have any guidance. Plus, a good business plan will help you with the business formation process.

Your plan should include the name of the company, the reason why you want to go into business, and much more. Some additional information that a good business plan should include is:

• Executive summary
• Description of the company
• Marketing plan
• Expansion plan
• The company’s purpose of vision
• How much you plan to spend on the company
• Any goals you have for the company
• Any companies that will exist under this company; for example, additional LLCs
• The type of legal entity that your company will be

Depending on the type of business, you may need to include additional information, so keep this in mind before you get started.

Come Up With Your Why

When it comes to business, you shouldn’t just be in it for no reason. People who are passionate about their industry tend to do better than those who aren’t. Even if your reason is to make money, and that’s what makes you passionate about it, you should know that before you go into business.

Ultimately, you want to make sure you’re going into business for the right reasons. Otherwise, you can end up wasting a lot of time and money.

Requirements to Start a Business in California: Get Your Business off the Ground in 8 Steps

Now that you’ve done the prep work, it’s time to roll up your sleeves and dive into the beginning of your business. We break the process of getting your business started down into eight steps, read on to learn more.

Step 1: Register Your Business Name

When starting a business in California you need to register your business name. Failing to do so can result in you losing the name, even if you plan on working as a DBA or sole proprietorship.

You should choose a name during the planning phase and reserve your name with the California Secretary of State at this time. This ensures that you’ll have access to the name when it comes time to register your business, but it will cost you $10.

Additionally, you should check to see if the name you plan on registering is trademarked and if the domain for a website is available. Social media usernames are also something else you should consider if you want to register your business name in California.

We also recommend checking to see if the business name is available in other states, in case you plan on expanding.

Register Any Fictitious Name

Some businesses in California will have a fictitious name, which is sometimes referred to as a Doing Business As (DBA). When you want your company to operate under a different name, you have to register that name in California. This applies to companies from out of state as well.

Expect to pay between $10 and $100 to register a fictitious business name in California. The steps to register this name are also different, so make sure read up on the process to register your business name before you get started.

Step 2: Obtain the Necessary Licenses and Permits

Doing business isn’t as simple as registering a name and choosing a legal entity. Even after you have your employer identification number, you still have to obtain the necessary licenses and permits to get started.

You’ll need a business license to legally operate in most cities and counties within California. You may even need multiple licenses if you plan to operate in more than one county. For this reason, make sure you apply for the necessary licenses and permits before you start offering your goods and services.

The most common business license that you’ll need is one that allows you to collect tax on revenue, which is a seller’s permit.

If you’re in a specific industry you may also need a unique license. For example, Fresno County has a Handyman License Board you have to work with if you want to be licensed. Lawyers, doctors, and accountants also need unique licenses to operate in California.

You can learn more about how much a business license costs in California here.

Step 3: Choose Your Business Entity

California has a handful of business entities that you can choose from. While you can choose a business name and hit the ground running, we always recommend thinking your legal entity through. Ideally, you’ll want to consider it before you start looking into insurance, licenses, and other factors.

Furthermore, the steps to start a business in California will change based on the type of entity you have. Thankfully, the steps are still similar regardless of the entity. Learn more about some of the common legal entities you can choose from in California below.

Sole Proprietorship

Have you wondered about how to start a personal business in California, but don’t know where to start? One of the most common legal entities in California is a sole proprietorship, and it’s also one of the easiest business types to start.

When you think of a small business that’s owned by one person, in many cases it’s a sole proprietorship. There can only be one owner of the company and it can’t be incorporated. That said, sole proprietorships can still have employees, so just because a business has employees doesn’t mean it’s a corporation or LLC.

Furthermore, taxes for a sole proprietorship are paid based on the owner’s income minus expenses; along with some other factors. Ultimately, the income of a business is considered taxable income for the owner of the sole proprietorship.

Limited Liability Company (LLC)

Another common business entity in California is the limited liability company (LLC). The benefit of an LLC is that it separates the owner’s assets from the company’s assets. This means that if someone sues the company, as long as no funds were mixed, it’s the company’s assets on the line and not the owners.

There are also tax benefits for starting an LLC. While you have to pay the California state LLC tax of $800, you may be able to save more money depending on how your business is set up.

Additionally, LLCs can have more than one owner, a functional board, and even investors. This means that you can have more control over the company’s structure if you have an LLC. You can learn more about the specific instructions for how to start an LLC in California here.

Partnership

Partnerships are another option when you want to start an LLC in California. There are businesses that have two or more partners; usually two.

One of the most common partnership options is a general partnership. In this partnership, all partners must assume liability and other obligations for the company unless there is a contract in place stating that they don’t. For taxes, a general partnership is taxed like a sole proprietorship, so the profits of the partnership are taxed as income for the partners.

Another type of partnership in California is the limited liability partnership (LLP). Think of this partnership as the LLC of partnerships. There is liability protection for the partners and unique tax benefits.

However, there are specific rules for who can and can’t be an LLP in California. For example, lawyers, accountants, and architects can be limited liability partners, but a handyman can’t.

The last type of partnership is a limited partnership. In this partnership, one partner is hands-off, which means they don’t have to agree to any responsibilities. Furthermore, most limited partners have their liability based on their stake in the company; the more active the partner, the more liable they are, and vice versa.

Corporation

Another common legal entity in California is a corporation. Unlike a partnership, LLC, or sole proprietorship, corporations can’t be owned by a single person. Instead, they’re owned by many people, known as a board of directors.

This board oversees the company’s operation, appoints a registered agent, and handles how the money is managed for its shareholders. When it comes to taxes, corporations bear all of the responsibilities for taxes. How a corporation is taxed depends on its filing status.

Step 4: Select a Registered Agent

Not all businesses require a registered agent in California. However, if you plan on starting an LLC, LLP, or corporation, you need to appoint one. A registered agent is someone who will function as the point of contact between your business and the state or California.

Without a registered agent, your company can run into fines, penalties, and other problems. The good news is that anyone can be a registered agent for your business, even people who work for the company.

Many people choose a board member or someone high up in the company to function as the registered agent. This doesn’t always work, though, especially for people who have a single-member LLC. Being the registered agent takes a lot of responsibility, which can be too much added pressure on top of starting your own business.

So, many people turn to registered agent services. These are companies that offer registered agent services for a fee. Expect to pay around $50 to $300 depending on the service that you choose.

Lower-end services may be cheaper, but you might have to handle more. On the other hand, more expensive options cost more money, but they’re more hands-off. Ultimately, it comes down to the level of responsibility you want to take on.

Don’t forget that to run a business, you need to: register a business entity (LLC is the most suitable option, more details here), obtain an EIN (you can apply online here), open a business bank account (more details here), understand accounting and taxes (more details here), and register a domain and create a website (this is optional, you can do it here).

Alternatively, you can delegate all of this to a registered agent starting from $0 + State Fees and get everything done in 1 day. This can save you time and ensure everything is done correctly, leaving you to focus on growing your business.

Apply Online

Step 5: Register Your Business

Every business in California needs to be registered unless you operate a sole proprietorship. You must register your business with the California Secretary of State, which can be done online or through the mail. The forms may vary depending on the type of business you’re planning on registering, but expect to pay around $50 to $150 to start the process.

For example, you’ll have to file your articles of organization if you want to create an LLC in California, which can cost $70. More information about these forms and the process to file them can be found in our California LLC checklist.

The forms you’ll need to register most types of businesses in California include:

• Partnership: Statement of general partnership ($70)
• LLP: Limited Liability Partnership Form LLP-1 ($70)
• Limited Partnership: Certificate of Limited Partnership ($70)
• Corporation: Articles of Incorporation ($30-$150)

Some foreign LLCs and other entities may have to file different forms, so keep this in mind when starting or moving a business to California.

Step 6: Obtain Business Funding

When it comes to funding a business in California you have a few options. You can fund the company yourself, take out loans, or seek money from grants. Each option may help, but some are better than others depending on your situation. Learn more about each funding method below.

Self-Funding

Also known as bootstrapping, self-funding is one of the most common ways to fund a business in California. It works well for most small businesses and LLCs because funding comes from the founder. Money is often sourced from different companies or existing revenue sources, so no debt is required.

Self-funding doesn’t always work well for corporations or larger companies because of their size and the complications that come with having a board.

Loans

Another common source of revenue for a startup is a loan. These can range from bank loans to loans from family and friends. Unique small business loans are also possible, so there are plenty of options for companies that want to consider getting a loan.

Additionally, loans are one of the most common sources of funding for businesses in California because you can’t always find investors or self-fund your company. Having a good business plan can help your chances of being approved for a loan, but it’s never guaranteed.

The last thing to note is that California has a small business association (SBA) that offers micro loans. These are loans with a favorable rate that go up to $50,000. Depending on your business, these can be more common to come by.

Grants

California offers several grants that can help you get your small business off the ground. These are similar to loans, but you don’t have to pay them back.

Depending on your industry you can receive a few hundred to a few thousand dollars in grant money for a small business in California. That said, grants aren’t always on the table, and they’re usually industry-specific but you should still check to see if grants are available for your business model.

Investors

Finally, investors are people who are looking to put money into new businesses. This option will take some connections and tends to be best suited for corporations and other larger-scale businesses. However, if you have an LLC or other smaller business, you may get lucky depending on your niche (or networking skills!)

Step 7: Choose the Right Business Insurance

When starting a business in California you’re going to need insurance. It doesn’t matter if you’re starting a good truck or a more complicated business like a non-medical transportation company. Either way, some type of insurance is necessary to keep you safe from liability and to prevent unnecessary expenses.

California has a Commercial Insurance Guide you can view to determine what type of insurance you may need. California groups many insurance options together to help you manage your insurance policies in one place. Some examples of insurance options include:

• Building
• Automotive
• Inland marine
• Machinery
• Crime
• Boiler
• Peak season
• Inflation guard
• Glass

Depending on the size of your company, you may also need to provide employer health insurance. This can be tricky and will sometimes vary based on the industry. Fortunately, you can read more about employer health insurance requirements here.

Step 8: Pay Your Taxes

A lot of people say that only two things are guaranteed in this world: death and taxes, and there’s a lot of truth to that statement. When you start a business in California, you have to consider the taxes that you need to pay and pay them. Failure to pay your taxes can result in the loss of your license, or company, and even land you in prison.

While taxes are complicated, they don’t have to be. Learn more about some of the taxes that you need to prepare to pay below.

Get an Employer Identification Number (EIN)

An employer identification number is one of the most important things you need before you start doing business in California. If you plan on starting an LLC, LLP, or corporation, you’ll need one of these numbers to pay your taxes. Without one of these numbers, you won’t be able to pay your state or federal taxes.

If you’re starting a sole proprietorship or general partnership, it may be possible to use your Social Security number (SSN) instead.

Sales and Use Tax

When you sell goods and services in California you have to collect the sales and use tax. This is a statewide tax that’s 7.25%. As the owner of a company, it’s on you to collect this tax. Failing to do so can result in legal fees and even prison time.

Franchise Tax

One of the more expensive taxes that you’ll have to pay in California, if you start an LLC, LLP, or corporation, is the franchise tax. This is an $800 tax that these legal entities have to pay each year. Even foreign LLCs and LLCs that don’t do anything productive have to pay this tax.

The only time you don’t have to pay this tax is in the first year of your company’s operation. Furthermore, franchise taxes can increase once a company makes more than $250,000. This fee varies based on the level of income and the type of company.

Payroll Taxes

Paying employees? If so, you’ll have to pay payroll taxes in California. Overall, there are four types of payroll taxes that you have to worry about.

First and foremost, unemployment insurance is paid from employer contributions. While this can vary based on how much an employee is paid, the minimum amount is $434.

The employment training tax is another tax that employers have to pay for each employee. It’s .1% up to $7,000 per employee.

State disability insurance is paid from employee’s wages with a withholding rate of 1.1%.

Employees also have to pay state income tax. This varies based on how much the employee makes per year.

How to Start a Business in California FAQ

Have questions about how to start a business in California? We have answers to some of the most common questions below.

Can You Start a Business in California Online?

Yes, you can start a business in California online. While you can’t complete every part of the process online, there are several steps that you can follow online to speed up the process. Learning how to start a business online in California is easy when you follow the steps provided by the California Secretary of State.

You can also follow most of the steps provided in this article to start a business online.

How to Start a Business in California With No Money?

Yes, you can start a business in California with no money. While you have to pay a franchise tax or LLC tax on a limited liability company, limited liability partnership, or corporation, this doesn’t apply to sole proprietorships. This means that you can start freelancing or selling products without many overhead costs.

Once your business gets big enough, you may have to change the status of the company or register your business in California.

Can a Foreigner Start a Business in California?

Yes, foreigners can start businesses in California. Foreigners from other states can start businesses, but so can people from outside the United States – citizenship is not required.

All you need to get started is an employer identification number (EIN), information about yourself, and information about your company. Depending on the type of business, you may need to provide additional information and get licensed. You’ll also have to pay California taxes.

Start a Business in California Today

There’s nothing more rewarding than starting your business. It can give you the power to be your own boss and the freedom to live life on your terms. While starting a business is a great way to experience the most of what life has to offer, that doesn’t mean it’s easy. In fact, it may be one of the hardest things you ever do. So, why make it any harder?

As long as you follow the steps we covered in this article you should have no problem getting started.

That said, you may have specific questions or want to learn more about unique niche businesses in California. If that’s the case, you can learn more about how to start a business in California here. You’ll find additional categories and tips for starting specific businesses that range from IV injection companies to food trucks.