Starting your own business is always exciting – it’s breathtaking prospects, new opportunities, and wide horizons. However, it’s also a big responsibility. A lot of unfamiliar tasks wait for you ahead. Thus, to avoid confusion, it’s best to divide the whole process into several stages.
We’ve prepared a list of 16 steps to open a business in California. This will help you form a new company without losing focus on anything in the process.
So you feel motivated to start your own business, have already worked out the basic concept, and are ready to conquer the heights of business. That’s wonderful! In theory. In practice, even the most promising idea can often be completely ineffective. Therefore, before you open a business in California, you need to analyze your opportunities and answer the following questions:
To answer the questions above, you need a business plan that will become the cornerstone of successful development and allow you to attract partners and investors.
The main elements your business plan should contain are as follows:
Your business name is your brand’s basis, which may one day make you worldwide famous. So choose it wisely. Apart from looking good and being easy to remember, your business name must also meet legal requirements as follows:
Even if brainstorming and generating various business name ideas took you considerable time and effort, don’t rush to put it in your documents right away. First, you need to make sure that there are no other companies operating under your chosen name. You can do this in two ways:
Note that an individual name search will not show you the whole picture. Namely, you will not be able to check if your chosen name is already reserved by some other company, which has not yet gone through the registration process.
The purpose of name reservation is to protect the name in case you are not yet ready to open your business but are already working on it. This may be the best solution if the name you came up with is free and you would like to keep it for future registration.
The reservation period is 60 days. The cost is $10.
California is one of the most popular states for growing your business. It offers a wide range of different legal structures for businesses, with the following being the most popular:
Let’s look at each of these company types in more detail.
If you start your business without applying for business registration, the state will treat you as a sole proprietorship. However, the absence of a registration paperwork requirement does not mean there is no paperwork at all. You will still need to obtain licenses and permits, as well as file tax reports.
Individual entrepreneurs report all business losses and income on their own tax returns. They are also personally liable for business obligations and risk all of their assets in case of debt or bankruptcy.
Two or more persons who want to do business together can form a general partnership. The financial and legal responsibility in such a case is shared equally between them. Profits are taxed as personal income.
Protection of the personal assets of the participants is the main feature of a limited liability company, which distinguishes it from partnerships or sole proprietorships.
On the federal level, LLCs also do not file their own tax returns, passing-through this duty to the owners.
An independent legal entity doing business under its own name. In California, it’s customary to distinguish several basic types:
In addition, depending on the tax status chosen, corporations are divided into:
Thus, we have reviewed the main types of business structures. Its choice will significantly affect the future of the company and your personal financial stability, so there is no need to rush in this matter.
Carefully study the pros and cons of each option and compare them. For this, you can read our LLC vs. Corporation or LLC vs. Sole Proprietorship articles.
In case you have any questions, you can also refer to the official Secretary of State’s website to find information on the types of legal entities and forms required for them.
When opening a business in the State of California you will need to choose an agent for service of process by entering the agent’s information in your articles of incorporation.
An agent for service of process (or a registered agent) is an intermediary between the state and a company that receives official correspondence addressed to it. Any person who meets the following criteria can become a registered agent:
No California LLC may be its own registered agent, though its members or managers may perform these functions.
Much of the quality of the agent’s work defines the well-being of the company, so you should take a careful approach to select a candidate.
Business owners often take on the duties of a registered agent. However, this approach has several drawbacks:
Contracting with a professional organization that provides Agent for Service of Process for LLC in California will avoid these problems, but it’s always up to you.
Regardless of which option you choose, you need to make sure that the state always has your registered agent information up to date. If you appoint a new one or your agent resigns, you must notify the Secretary of State by filing the necessary documents.
Depending on your business structure, the procedure for officially registering your business may be as follows:
An Employer Identification Number (EIN) is a unique nine-digit combination of digits assigned to each company. With an EIN, the IRS can easily identify you from other businesses.
If you are in doubt about whether you need an EIN, this page will provide detailed information on who needs it and what you may need an EIN for. This is where you can also apply for an EIN online to get it right away.
If you prefer a paper version, download Form SS-4, fill it out, and mail it to the address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
To open a company in California and make it sustainable, not only do you need to register but also take care of the future. For example, the “corporate veil” that keeps LLCs and corporations running smoothly can be disrupted if your personal assets (as the LLC owner) mix up with the company’s assets. To avoid this, a clear separation must be maintained at all times.
Opening a separate bank account for a business is simple. It’s enough to choose a suitable financial institution and provide the following paperwork:
Whether you are a foreign LLC or a sole proprietor, everyone who does business in California has to pay taxes. Their specifics are determined by the chosen business structure.
LLCs and S corporations:
Individual entrepreneurs and general partnerships:
Based on the scope of a business, the most common types of taxes are as follows:
If the income exceeds $250,000, you must also pay an additional fee (Form 568).
If you have questions, you can visit the California Tax Service Center website or contact a lawyer.
As your business grows, the need to keep financial records can become a serious issue that is easier to entrust to a professional.
Not only will an experienced accountant help you with filing paperwork and make sure you pay your taxes properly, but also give you a few tips on how to save money.
Unlike many states, California requires you to have an operating agreement. The good news is that it can be both verbal and written.
An Operating Agreement is an internal document that governs:
Note that while it’s possible to enter into an agreement verbally, it’s still much more reliable to have it on paper.
There are two options for preparing the document:
By hiring ZenBusiness or another similar service, you will receive a high-quality and elaborate agreement adapted specifically for your business. Plus, it will cost you less than attorney services.
The agreement does not need to be approved by the Secretary of State. You should simply store it with the rest of the documentation.
The vast majority of California companies are required to have certain licenses. Their type and cost depend on your business specifics:
Licenses can be provided at the following levels:
If you’re not sure about which permits you need or you want to learn more about licensing, check out CalGold, which has a lot of helpful information.
Every business has risks. Of course, an LLC or corporation provides owners with protection for their personal assets, but what about the company’s assets? You can take care of that with General Business Insurance or a Business Owner’s Policy. For as little as $300 a year, this will give you comprehensive protection, from liability insurance to vehicles.
If you’re not sure what form of insurance your business needs, visit SBA.gov and use a hands-on guide provided there.
Today, almost every company or organization has its own website, and if you want to keep up with the times, you need to take care of your business’ online presence. Not only will it raise your profile but will also attract new customers.
Fortunately, you don’t need to be fluent in HTML or have special web design skills to create a website. Services like WordPress and Squarespace allow even a beginner to design an attractive and functional website.
If you, for whatever reason, do not want to do it yourself, you can consider other options. For example, hire a professional designer or an online service (e.g. ZenBusiness or IncFile) that offers business customization services.
Having a website is an important part of building a business’s image and reputation, however, that alone is not enough. Various social media sites such as Facebook, Twitter, and Instagram are also great places to find and attract potential customers. Don’t miss out on them.
Launching a business is a much-anticipated and joyful event. The long preparation, company formation, and registration hassles, obtaining licenses and permits are all over. Now you can finally breathe freely and focus on what you have been working on all this time – your own business.
Yet, to make sure that your efforts were not in vain, to make your business thrive, you need to act within the law at all times. Thus, you need to keep an eye on your taxes, i.e. pay them on time and file your Statements of Information.
If you’re looking for new ways to grow, check free resources intended to help you as an entrepreneur.
The SBA.gov website offers a wealth of information and advice for small business owners. For your convenience, the site also has separate pages on interesting business events, advice, and loans in select California counties: