How to Start a Consulting Business in California

October 29, 2026

California has no state license for general management, marketing or business consulting. The Secretary of State issues none, and the CDTFA seller's permit is not a business license. That makes starting a consulting business here simpler than starting a licensed trade, but it does not mean you can skip the checks. Three issues catch most consultants: whether your specific advice falls under a licensed profession, how you classify yourself and anyone you hire, and the local business tax in your city.

This guide covers those consulting-specific steps in order. For the state filings to form an LLC or corporation, use the Secretary of State's Business Programs Division pages. This article does not repeat those fees.

What You Need Before You Start

Gather these items before you file anything:

• A written list of every service you plan to sell, with one sentence describing each
• A list of any licensed fields your work could touch (see Step 1)
• A business name you have checked in the Secretary of State's business search
• Your city's business tax and home occupation rules, if you will work from home
• A separate business bank account and a bookkeeping tool
• A standard client contract, reviewed by an attorney
• A budget that includes filing fees, local tax, insurance quotes and a CPA consultation

Step 1: Confirm Your Services Are Not a Licensed Activity

California licenses people by what they do, not by the title they use. A person who gives advice in a licensed field still needs that license, whatever the business card says. The main examples are:

• Real estate: licensed by the Department of Real Estate
• Public accountancy: licensed by the California Board of Accountancy
• Law: licensed through the State Bar of California
• Tax return preparation: registration with the California Tax Education Council under Business and Professions Code 22250 and following
• Construction: licensed by the Contractors State License Board (CSLB)

Construction is the category consultants most often miss. If you consult on a home improvement project and you provide or oversee a bid, or you arrange and set up work schedules for contractors and subcontractors and keep oversight of the project, you are acting as a contractor under Business and Professions Code 7026.1(a)(2)(B). You then need a CSLB license. The contractor license threshold is $1,000, so confirm how it applies to your jobs with CSLB before you bid.

If your work touches any of these fields, call the relevant board before you take the first client. Advertising yourself as a consultant does not change what the law treats as the regulated activity.

Step 2: Choose Your Structure

Most new consultants start as a sole proprietor and form an LLC later, or form one from the start. Compare the options with these California-specific points:

• Sole proprietor: No state entity filing is needed if you operate under your own legal name. If you use a business name, you must file a fictitious business name statement (Step 3).
• LLC: Formation details, fees and annual reports are on the Secretary of State's site. For consultants, the key point is that California does not allow a domestic series LLC, so you cannot split different service lines into separate protected cells inside one LLC.
• Professional corporation: If you hold a license in a profession, an LLC cannot render that licensed professional service. A professional corporation is the vehicle California uses for those practices, so ask your licensing board and an attorney which entity fits your license.

Whether an S corporation election makes sense depends on your income, your expenses and your state tax picture. This article does not advise on that choice. Ask a CPA before you elect anything.

Step 3: Handle Your Business Name

If you operate under a name other than your own legal name, you need a Fictitious Business Name Statement (FBN). You file it with the county clerk-recorder in the county where your main business office is located. If you have no office in California, file in Sacramento County. Here is what to plan for:

• Timing: File within 40 days of starting to use the name.
• Publication: The statement must be published in a newspaper once a week for four weeks. The publication fee is separate from the filing fee.
• Expiration: The statement expires after five years, so calendar the renewal.
• Fees: The statute sets a base fee of $10 plus $2 for each additional name or owner, but counties charge more. Check with your county clerk-recorder for the exact amount and the newspaper cost.

The state's FBN instructions are at sos.ca.gov.

Step 4: Check Your City and Home Rules

The state does not set a general consultant tax, but cities often do. Of California's 483 cities, 445 report revenue from a local business tax or registration certificate. There is no common formula, so the amount depends on the city. Counties generally license only regulated activities, so for a standard consulting practice the city is the main local agency to check.

If you work from home, check your city's home occupation rules before you sign a lease or start taking clients. Zoning rules and the business tax can both apply. Do not assume a fee. Ask the city's business license or planning office for the current amounts and requirements.

Step 5: Set Up Your Tax Registrations

Your registrations depend on what you sell and whether you hire anyone. Use this table as a starting point:

Your situation	What to register or file	Where
Pure advice, no physical goods	No seller's permit is needed for advice alone	Confirm with CDTFA
You also sell physical items	Seller's permit (free). Sales tax is 7.25% statewide plus district taxes	CDTFA, check with the agency
You have one or more employees	Employer registration and payroll reporting	Employment Development Department (EDD)
You operate as an LLC	Franchise tax of $800 minimum each year from the first year for LLCs organized in 2024 through 2026	Franchise Tax Board (FTB)

If your LLC's first taxable year begins in 2027, 2028 or 2029, the first-year amount may be lower. Confirm it with the FTB before you budget. The LLC fee applies once California-source total income reaches certain levels, so check the FTB's schedule as your revenue grows.

For the seller's permit and sales tax rules, see the CDTFA's sales and use tax page.

Step 6: Price Your Insurance Risk

Two policies come up most often in consulting contracts:

• Professional liability (errors and omissions): Covers claims that your advice caused a client financial loss.
• General liability: Covers bodily injury and property damage claims, which matter if you meet clients in person or visit their sites.

Clients may require one or both before they sign. Get quotes from an insurance broker who works with consultants in your field. Costs vary widely with your services, so do not budget from a guess. Ask the broker to explain exclusions in writing.

Step 7: Classify Your Workers Correctly (AB 5)

This is the largest California-specific issue for consultants. Under AB 5, a company that hires a worker is presumed to have hired an employee, unless the company can prove the worker meets the ABC test in Labor Code 2775. The company must show all three of these:

1. The worker is free from the company's control and direction, both under the contract and in fact.
2. The work is outside the usual course of the company's business.
3. The worker is customarily engaged in an independently established trade, occupation or business of the same nature.

Two exemptions can change the test that applies:

• Business-to-business exemption (Labor Code 2776): Applies when a sole proprietor or entity contracts with another business and meets every listed condition. The conditions include freedom from control, a written contract stating the payment amount and due date, a business license or tax registration where the location requires one, a separate business location (which can be the provider's home), an independently established business of the same nature, the ability to serve other clients, and advertising to the public. When these conditions are met, the worker is judged under the older Borello test instead of the ABC test. Read the full list in Labor Code 2776, because missing one condition removes the exemption.
• Professional-services exemption (Labor Code 2778): Lists specific occupations, including marketing, human resources administrators, travel agents, graphic designers, grant writers, fine artists, enrolled agents, payment processing agents, photographers, writers, appraisers and foresters. There is no general entry for consultants. If you do marketing or grant work, you may fit a listed occupation, but check the section's conditions for your exact work.

The practical rule: if you hire help, treat that help as an employee unless an exemption clearly fits. If you are a consultant whose client asks you to sign an independent contractor agreement, remember that the label on the contract does not decide classification. The facts of the relationship do. For any hiring decision or a contract with a long-term client, ask an employment lawyer to review the arrangement.

Step 8: Put the Business Side in Writing

Set up the operational pieces before your first invoice:

1. Written contract: State the scope of work, the payment amount, the due date and the termination terms. A written payment term is also a condition of the business-to-business exemption.
2. Separate business location: A dedicated office space is one option. Your home can count, but only if it is set up as a separate business location and your city's home rules allow the work.
3. Separate bank account: Keep client payments and business expenses out of your personal account.
4. Bookkeeping: Track income and expenses by month, and set aside money for estimated taxes and the LLC franchise tax if you form one.

Step 9: Set Realistic Expectations

Consulting income depends heavily on your field, your experience, your location and how many clients you can serve at once. Many consultants find that their first clients come from former employers, professional contacts and referrals, and that building a steady pipeline takes months rather than weeks. Expect early months to include unpaid marketing work, slow billing cycles and some months with uneven cash flow. This guide cannot predict your income. Plan your budget around your own numbers, and ask a CPA to review them.

Common Mistakes to Avoid

• Assuming there is no license: Confirm whether your advice falls under a licensed field before you advertise it.
• Overlooking construction: Advising on bids or overseeing contractor schedules can make you a contractor under Business and Professions Code 7026.1.
• Using a contractor agreement as your only classification proof: The ABC test, the business-to-business exemption and the professional-services list all depend on the actual relationship.
• Skipping the fictitious business name filing: Operating under a business name without the FBN can create problems when you open accounts or sign contracts.
• Forming an LLC for a licensed practice: An LLC cannot render a licensed professional service. Ask about a professional corporation first.
• Ignoring the city: Check the local business tax and home occupation rules before you launch.

Tips for a Smoother Start

• Write your service list first. The list tells you which licenses and exemptions to check.
• Use a written contract for every client, including friends and former employers.
• Ask your county clerk, city office and CDTFA for current amounts in writing, and save the answers.
• Use a California Small Business Development Center for free or low-cost planning help: californiasbdc.org.
• Schedule one session with a CPA and one with an employment lawyer before you hire anyone.

Key Resources

• Secretary of State, Business Programs: sos.ca.gov/business-programs
• bizfile Online business search: bizfileonline.sos.ca.gov
• Fictitious business names: sos.ca.gov fictitious business names
• California Department of Tax and Fee Administration: cdtfa.ca.gov
• California Small Business Development Center network: californiasbdc.org

Important Disclaimer

This article is informational content, not legal or tax advice. Laws, fees and agency rules change, and some figures here are marked for you to confirm. Before you form an entity, classify a worker, elect an S corporation or take on a licensed activity, consult a qualified attorney, a CPA or the relevant state board.