Did you know that, in the state of California, 99.8% of businesses are small businesses? There are over 4.2 million small businesses registered in the state, which we hope helps you feel pretty confident that if you’re wondering how to start a business in California then you’re in good company!
However, just because millions of other people have done it before you doesn’t mean that the process is as easy as setting up an Instagram page and starting to sell goods online (okay, it could be that easy, sure, but it’s not the legal way to go about doing it). While it’s not difficult to start a business in California or get a CA business license, there are some things you’ll wanna know before you start the process.
Keep reading to learn all about the steps required to set up a business in California so that you’re fully legal and have all of the resources you need to succeed.
Already a California business owner? If you have more than 5 employees, you’re going to be legally required to offer them retirement options in 2022. Click here to learn more about the state mandate.
How to Start a Business in California
1. Create a Business Plan
Okay, so this first step isn’t legally necessary, but from a business standpoint, it’s super helpful. Your first business plan can be bare bones, but just the act of putting one together really helps you focus on the right things and ask the right questions.
In your business plan, you’ll want to include a brief analysis of the market you’ll be operating in along with your projected expenses and revenue. Be sure to analyze the market need for your business along with the current competitors in the space. If you’re not sure where to start, the SBA has a helpful guide to starting a business that covers all of the above.
2. Decide on a Legal Structure
Now, this one is legally required for you to start a business in California. Usually, if you’re just getting started, your business will likely be a sole proprietorship. However, you can also research and choose to register your business as an LLC (limited liability company) or a partnership or corporation.
Not sure which one is best for you? If you’re operating alone, it probably makes sense to register as a sole proprietor. However, depending on what your earnings are or are projected to be, it could make more sense tax-wise to set up the company as an LLC and choose to be taxed like a corporation.
Ultimately, we suggest thoroughly researching your options first or contacting your local SBA office for advice. For a brief overview of the different types of legal business structures available in California, you can check out the state’s Entity Types website.
3. Register Your Business in California
Now that you know what kind of business you want to start, it’s time to register it with the state of California! If you’ve decided to create an LLC or corporation, this means ensuring that your name is different from the other registered businesses in the state.
Aside from that, the process can look slightly different depending on what kind of business entity you’ve decided you’d like to create. Let’s break down the three most common types.
How to Register a Sole Proprietorship in California
Great news! If you’re setting up a sole proprietorship in California, you don’t have to file any official documents with the state. When you file your taxes, you’ll file as a sole proprietor, which just means that you’re a 1099 employee technically and will be taxed as an independent contractor (read more about that here).
You might, however, still want to register the business name so that you can officially “do business as” whatever name you’d like your business to be. Learn how to register a DBA in the state of California here.
How to Register an LLC in California
To set up an LLC in California, you’ll first need to file Articles of Organization with the California Secretary of State. You can learn more about that here. To do this, you’ll have to appoint an agent (individual or corporate) to the process.
How much does it cost to register an LLC in California? It depends. There are platforms that will help walk you through this process and take care of the paperwork for you. Sites like LegalZoom, Inc Authority, and IncFile all offer these types of services. Most of them don’t charge for the process in California, but you’ll still be required to pay the filing fee, which is currently $70 in California.
NOTE: That filing fee is much lower than it is in other states. The state fee is $300 in Texas, for example.
How to Register an Corporation in California
Forming a corporation in the state of California requires that you just follow the same steps as what’s required to register an LLC (just a reminder that you can find out more about how to file Articles of Organization here).
Aside from that, though, you’ll also have to file IRS Form 2553 with the IRS if you’re registering as an S Corporation.
4. Get a California Business License
Great, now you’re registered! Congrats! However, it’s not quite over yet. Regardless of what you sell, in the state of California, you’ll need a general business license. Depending on what your business offers to the public, though, you might also require a zoning permit or special license.
Every business in California is required to get a general business license. You can get that at the city office of where your business is registered. What about specific licenses? If you’re selling goods (i.e. not services), then you’ll also have to register with the Board of Equalization (BOE) to obtain a seller's permit.
Outside of that, it just varies, really, depending on what you sell, where you sell it, and what kind of equipment you use. Because it’s so broad, we suggest checking out the CalGold website to run through their list of professional and occupational licensing requirements and resources.
5. Prepare to Report Your Taxes
Now that you’re fully registered and have all of the business licenses you need to operate, you’re ready to start rolling! However, be sure that as soon as you start to sell and get some cash flowing in that you’re keeping track of everything!
This means invoices, receipts, whatever you need to make sure that you’re able to report all of the movements of your business when it comes time to file taxes.
Already a California business owner? If you have more than 5 employees, you’re going to be legally required to offer them retirement options in 2022. Click here to learn more about the state mandate.
Increase Your Business Value with Wealth Stack
Creating a business in California can be exciting. There are certainly lots of opportunities for you to do great things. However, that’s just the first step. Building, scaling, and truly growing a business long-term requires you to invest in yourself and your employees.
At Wealth Stack, that’s what we specialize in. We help you manage your financial success and capital. How?
- We offer fully-managed IRA plans for small businesses like yours that are designed to help you attract and retain top talent.
- We also offer digital advisory services via the Wealth Stack platform that facilitates access to alternative sources of capital.
We’ve been doing a lot of research and know that these two services work really well in helping you:
- Access the funding you need at the terms you want
- Learn how to use that cash to increase the value of your business
- Attract top talent
- Increase business productivity
- Retain your best employees
Ready to increase the value of your business? Book a call with our in-house investment expert here.
