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Starting a Business in California

One of the most important factors driving business growth and the economy is the business environment. California with a GDP of $3,133 billion and a Silicon Valley startup ecosystem is still considered amongst the top states for new businesses. California is home to 20 or more top publicly traded companies including Apple, Chevron, Wells Fargo, Facebook, Intel, Oracle, Tesla, and Visa among others.

Entrepreneur’s guide to starting a business in California

The state of California has a pro business economic landscape with more than 3 million small businesses currently operational in the state. The state is known to frequently revise or even create new regulatory requirements and has a competitive labor market; the latter being considered advantageous by entrepreneurs as this provides an opportunity for improving internal processes of each business. The state has its own pros and cons but is still considered as an entrepreneur’s dream to start a business in California. Hence, we have created this detailed guide that will provide an insight into how you can incorporate in California and get your business licenses to make the startup operational.

It is never an easy task to start a small business or a startup but if you are planning to register a business in California then there are several aspects of your new business that need to be considered. Our guide takes into account any and all requirements focusing on how best you can incorporate in California. This guide provides a comprehensive outline of the various advantages of starting a business in this state, creation of a business plan that will include financing, sales and marketing; how new businesses can benefit from existing entrepreneurial training or development programs, choosing a business structure that will be beneficial towards achieving your business objectives, and various requirements prior to and post registration of your business.

This guide is focused on providing information to entrepreneurs and small business owners planning to start a business in California. It provides information on not only how you can start and make your business operational like obtaining a business license but also on hiring a reputable registered agent and obtaining a business tax ID or EIN.

Why do companies prefer to incorporate and register in California?

There are several drivers that play a key role in making California one of the most favored destinations for new businesses and startups including the existence of a robust Silicon Valley startup ecosystem, which is highly beneficial to those planning to start a business in the California IT industry. The state of California is a trillion dollar economy and if it were a nation then it would have been ranked as the world’s fifth largest economy. California’s economy is currently the largest in the United States and is home to businesses like Apple, Nvidia, and Intel. There are several advantages for registering a new business in this state and some of them are:

  • A Trillion Dollar Economy: California also known as the Golden State is considered as the largest sub-national economy in the world. The Real Gross Domestic Product (GDP) of this state in 2019 was $2.7 trillion, which is quite the jump from $2,058.14 billion in 2010. Today, it is home to four of the 10 largest companies in the world based on market capitalization. You can register a business in California in any sector including the four largest sectors, which are trade and transportation, financial services, manufacturing, education and health services. A quarter of the state’s economy is dependent on trade and international commerce while professional and business services have added a real value of $391 billion to the gross domestic product (GDP) of California in 2019 followed by information and technology at $326.81 billion. One of the popular sectors to incorporate in California is the manufacturing industry. The total output from the manufacturing industry was $316.76 billion in 2018 and this sector accounts for 10.67% of the output in the state. The future outlook of the state’s economy looks positive in recent times with an increase in distribution of technology, goods, and higher home sales.
  • Small Business Networking Opportunities: When you start a business in California; one of the important factors determining the overall growth of your small business will be the networking opportunities that you can leverage or benefit from. Building relationships is one of the key factors critical to business success and California provides just the right platform as it hosts large trade shows as well as conferences like Oracle OpenWorld and Dreamforce.
  • Investors and VC: One of the important reasons for entrepreneurs to start a business in California is the availability of investors and venture capital firms. Every startup or small business has a startup cost and requires funds not only for enabling growth but also for achieving long-term sustainability. If you are applying for a California business license in the IT industry or in any other industry then innovators as well as entrepreneurs will have access to mentors, investors, and education. Startups and seed or growth stage businesses can benefit from seed funding provided by investors and ranging from $1 million to $100 million or even more.

As a new business; California definitely provides an advantageous edge to potential startups and small business owners. The state also offers several business incentives including tax credits and financial incentives that will help entrepreneurs to start a business in California.

Steps to start a business in California

Entrepreneurs and small business owners prefer to register a business in California as the state offers a multitude of benefits and advantages. The California Office of the Small Business Advocate (CalOSBA) also provides strong support to entrepreneurs through their economic growth and innovation programs. The “Golden State” is home to publicly traded companies and billion dollar organizations including Concentrix, Intel, GAP, Apple, Taco Bell, The Walt Disney Company, PORAC, Cisco Systems, Hewlett Packard Enterprise, Chevron, HP, Seagate Technology, Qualcomm, and Mattel among others. The Silicon Valley startup ecosystem is home to some of the largest IT companies and is considered one of its kind in the world. If you are planning to hire a California registered agent and incorporate your new business or startup in the state then the following steps would help you to identify all your important business requirements.

1. Prepare a California Business Plan

One of the important aspects to consider before you start a business in California is creating a good business plan that takes into account your financial, sales, marketing, advertising, competition, business cost, targeted customer base, and long-term business objectives. It is an important strategic tool that every entrepreneur needs to work on as a good business plan will help you understand your market and create strategies based on the existing market conditions while ensuring your business ideas are launched successfully. According to Benjamin Franklin, “If you fail to plan, you are planning to fail”, and this also stands true for business plans. Some of the reasons why a business plan is important for entrepreneurs are as follows:

  • A business plan will provide you with an insight into the business itself by helping you focus on each area of the business right from applying for a loan to fulfilling state requirements like hiring a California registered agent or helping you identify your customer demographics, target market, distribution methods, and competition.
  • A good business plan will help you identify potential weaknesses and even address various issues, problems or bottlenecks that you may face while trying to incorporate in California or operate the business in any jurisdiction of California
  • A business plan will force you to be more realistic and enable you to communicate your startup idea with stakeholders. It can also be used to secure investment capital from lenders or various financial institutions.

So, what does a good business plan include? In order to start a business in California, your business plan should ideally include the following components:

  • Executive Summary/Company Description
  • Market Analysis and Competitive Analysis
  • Business Structure, Management and Organization
  • Products and Services
  • Marketing Plan and Sales Strategy
  • Financial Plan
  • Future Projections

2. Attend Entrepreneurial Training or Development Programs in California

One of the areas to focus on prior to or after you register a business in California is to enroll for Entrepreneurial Training or Development Programs in the state. Entrepreneurial Training or Development Programs are primarily targeted at mostly first time entrepreneurs who don’t have any form of previous entrepreneurship or business training. Such programs cover three important variables, which are location of the business, target group or audience and the enterprise. They help in development of entrepreneurial abilities and key skill sets required for running a business right from the incorporation stage to the operational stage. These training programs are also available as a part of the Silicon Valley startup ecosystem and impart knowledge on:

  • Entrepreneurial Skills and Mindset
  • Assessment of Business Ideas
  • Financial Planning and Forecasting
  • Accounting and Financial Management
  • Legal and Personnel
  • Business Planning, Finance and Exit Strategy
  • Operations Planning
  • Market Research

If you register a business in California then there are several entrepreneur support programs to choose from in the state like the following:

  • The iHub Program: If you incorporate in California then you can leverage the iHub program. The program consists of 16 Innovation Hubs or iHubs stretching from Redding to San Diego and they feature a variety of assets like technology incubators, research parks, and universities for providing a strong innovative platform for first time entrepreneurs and startups.
  • Entrepreneurial Training Programs: A variety of programs offered in different counties, cities, and universities. Programs are being offered by the city of Los Angeles Community Development Department, Vermont Slauson Economic Development Corporation, Lloyd Greif Center for Entrepreneurial Studies etc.
  • Small Business Development Centers: After you incorporate in California, you can benefit from the programs offered by the Small Business Development Centers. These centers are located across the state and focus on providing comprehensive business assistance through one-on-one consulting as well as low-cost entrepreneurship workshops.

3. Choose a Business Structure for California Business

If you want to start a business in California, you will need to first choose a proper business structure. According to the California secretary of state, there are different business structures that you can choose from and they are:

One of the important aspects of forming a new business in the state is the business structure. Each business structure has its own pros and cons but the three important aspects that every business owner should consider before they incorporate in California are:

  • Risk factor: Each type of business structure has its own level of risk and as a new business owner; you should always focus on ensuring the risk is minimal. You can form a business corporation or a limited liability company (LLC) as they provide protection to personal property of the owner from a business creditor.
  • Tax Structure: The tax structure is one of the most important aspects that an entrepreneur has to consider before they register a business in California. Most often than not, new business owners opt to go with a business structure that is considered a “pass through entity” like sole partnerships, proprietorships, and LLCs.
  • Complexity of a structure: If you ask any California registered agent they will say that almost 75% of small businesses in the state and the nation operate as sole proprietorships because there is less paperwork and annual maintenance cost is also lower compared to other states.

These are some of the considerations you have to make so that you are able to make an informed choice regarding a business structure.

4. Naming Your California Business

If you are planning to start a business in California then one of the important prerequisites as mentioned by the office of the California secretary of state is a business name. A business name is integral to each and every business as your company can be distinguished from any other company on the basis of the name. The business name can also be related to the brand message as well as the product or services you are planning to offer. The right business name is the key to making a successful business or breaking a business from a marketing or advertising point of view. A business name can be related to the product or service you are offering, it can be emotional, or it can be abstract but it is important to remember that the name will also create first impressions with prospective customers.

The California secretary of state specifies that a business name should be distinguishable in their records from any other business name and it should not mislead the public. Depending on the type of business structure, you can use words or abbreviations. For example if you plan to start a business in California as a limited-liability company then you can use words like Limited Liability Company or abbreviations like LLC or L.L.C. The California Business Code will be applicable depending on the type of business structure. For instance, the business name for a corporation is governed by CA Corp Code § 201 (2016).

Once you have identified a business name, you will have to check for availability or conduct a business name search with the California secretary of state. If it is available, you can reserve it for a period of 60 days.

5. Choose Your Location for California Business

If you are planning to start a business in California, you have to identify or choose a location? First time entrepreneurs often wonder if location is really important and the truth is that location can play a decisive role in determining the long-term success and sustainability of your business. A location is considered to be an integral part of the strategic plan. It is important to note that certain locations in the state have been projected as the best places for specific business activities. For example, Southern California is home to the film industry while Napa Valley is considered a wine country. Some of the top locations where you can incorporate in California are:

  • Palo Alto: The city is associated with startups and entrepreneurship and is situated in the heart of the Silicon Valley startup ecosystem hugging the southern San Francisco Bay Area. It is home to big companies like Nest, Ideo, HP, Tesla, Palantir, and VMWare.
  • Los Angeles: Los Angeles County is known to have one of the most dynamic economies in the world and hence is popular among entrepreneurs who want to start a business in California. LA County is home to a rapidly growing, fast-paced high-tech industry, a strong advanced transportation and aerospace industry, and the largest manufacturing base and international trade industry in the nation.
  • Orange County: It is the 6th largest county in the nation and is considered as one of the top economic locations in the world thanks to its proximity to San Diego County, Los Angeles County, San Bernardino County, and Riverside County. It has the lowest unemployment rate in Southern California and is a highly diverse tech-county with 16 high-tech industries based out of this county making it popular for first time business owners to register a business in California.

Some of the other top cities and counties where you can register businesses in California include San Jose, San Francisco, Chula Vista, San Diego, Irvine, Long Beach, Bakersfield, and Sacramento. You can incorporate in California in any of these locations but you need to consider the following to ensure you choose the right location for your business.

  • Real estate cost and availability of office space
  • Overall business environment
  • Availability of business or startup resources
  • Attracting talent and retention
  • Transportation and logistics
  • Accessibility to your target audience or consumers
  • Ease of obtaining California business license

If you would like help deciding on a location for your business, contact the California Business Investment Services unit of the Governor’s Office of Economic Development (GO-Biz). The California Business Investment Services unit provides tailored site selection services for businesses, real–estate executives, and site selection consultants.

6. Register Your Business with California Secretary of State

You have an innovation or an idea but how do you ensure it reaches the targeted audience in California? The option is to start a business in California. The process of new business formation or incorporation can vary from one state to another and from one business entity type to another. If you were to form a professional corporation in California then you will be required to file the Articles of Incorporation of a Professional Corporation pursuant to CA Corp Code § 200.5 (2018). If you were to form a limited-liability company then filing of Articles of Organization pursuant to CA Corp Code § 17702.01 (2017) is necessary. The new business formation documents have to be filed along with a Submission Cover Sheet and the prescribed fee with the office of the California secretary of state.

One of the most reliable California registered agents like IncParadise can help you register a business in California or help you with incorporation. We have a team of experienced and professional business formation experts who can provide you with the required guidance. The benefit of using experts like us is that it will help entrepreneurs save time and valuable resources.

Do you want to start a new business in California?

7. Get Your EIN

An Employer Identification Number (EIN) is one of the initial requirements if you intend to start a business in California. It is a nine-digit unique identification number that is issued by the IRS to specific business entities like a limited liability company with multiple members or business corporations. The purpose of an Employer Identification Number is to enable tax administration and businesses can use this number to file their annual tax returns. Your business may or may not require an EIN. If you want to know if your business requires an EIN or not then IncParadise as a professional California registered agent will not only provide relevant information but also guide you through the application process for an EIN. The Employer Identification Number for your California business can also be used for opening a business bank account, filing taxes, getting financing or applying for loans, and also for handling employee payroll wherever applicable.

8. Open a Business Bank Account for California Business

Entrepreneurs planning to register businesses in California may feel that there is probably no need for a business bank account especially if it is a single owner business. As a matter of fact, having a business bank account can be quite beneficial. Some of the benefits include:

  • Your business account and business assets will remain separate from your personal assets
  • Your business records will be much more organized
  • Your business bank account will ensure you are able to file taxes accurately, which would be difficult and confusing if your business and personal transactions were connected to a single account
  • You will be able to set up a credit acceptance system and a merchant account using your business bank account to accept cash and credit card transactions
  • A business account helps in improving the image of your company and makes it look professional.

You can apply for a business bank account before or after you incorporate in California.

9. Obtain the Necessary California General Business License and Permits

You can start a business in California but to make it operational, you will need a business license. Most businesses operating in the state will need to apply for and obtain a license or a permit to conduct their business. It is important to first understand that a California business license can be categorized under:

  • General Business Licenses: A general California business license is required by most business owners planning to conduct their business in a city where the business is located. A business license is also known as a business tax certificate in certain cities and if you start a business in California in an unincorporated section of the state then you will be required to obtain your business license or tax certificate according to the county. It is also important to note that if you are planning to operate your business in multiple locations then you may be required to obtain a business license in each of those locations.
  • Licensing for Regulated Industries: When you register a business in California, depending on the location and the business activity; your company may be required to apply for additional licensing that is covered under “Licensing for Regulated Industries”.

The Department of Consumers Affairs (DCA) is responsible for administering California business licenses in almost 280 different license categories and these include registrations, certificates, and permits.

The entire process of identifying the right California business license or business tax certificate may look complex and you may even require multiple licenses. We at IncParadise have a “Business License Research Report” service that can benefit you immensely as it provides comprehensive filing instructions, filing fee, list of supporting documents for all business licenses and permits in California.

10. Register for Taxes

If you start a business in California as a corporation or as a limited-liability company then it will be subject to a state income tax and hence it is important to register for taxes. California has both state level taxes and local taxes. There are 4 agencies that govern state taxes and they are:

  • California Franchise Tax Board (FTB): FTB is responsible for handling state income and business taxes if you incorporate in California
  • California Department of Tax and Fee Administration (CDTFA): CDTFA is responsible for handling sales and use tax
  • California Employment Development Department (EDD): EDD is responsible for handling payroll taxes
  • California State Board of Equalization: They are responsible for handling alcoholic beverage tax, property tax etc.

The type of taxes you have to pay will depend on several factors. Some of these factors are the business structure, the location of your company, the industry or business activity, and the mode of revenue generation.

11. Annual and Ongoing Requirements

Once you register a business in California, there are certain annual and ongoing maintenance requirements that you will be required to fulfill. Some of the annual requirements after you incorporate in California are:

  • Statement of Information: One of the most important annual requirements for most business types is the “Statement of Information”. This statement has to be filed with the California Secretary of State and has to be filed within 90 days after filing the documents for new business formation or incorporation. Once filed, additional statements of information will be due every 2 years pursuant to Section 17702.09 for LLC’s and Section 1502 for corporations.
  • Minimum Tax Requirement: Business entities like corporations, limited-liability companies, and partners or a member in a pass-through entity will be required to pay a minimum tax of $800 to the California Franchise Tax Board (FTB) each year in accordance with FTB Publication 1060.
  • DBA: If you register a business in California using a fictitious business name or DBA then it will be valid for a period of 5 years unless you change it. In such a scenario, you will need to register a new name. If you keep the DBA, then it has to be renewed

Form a new business in California to enjoy the many advantages!

Some Important Quick Resources for California Business

The good news is that you can start a business in California but the most important aspect is to find the right resources and guidance that will enable you to achieve growth and success. Each business is unique in its own way and hence the need for resources may also vary depending on their primary business activity. At the same time, you need to be also equipped with skills and knowledge to help you operate the business smoothly. The question is where do you find relevant resources and meaningful guidance if you incorporate in California? To help you answer this, we have created a list of resources relevant to new businesses, entrepreneurs, and startups.

California Secretary of State

The office of the California Secretary of State handles several aspects of governance including formation of new businesses in the state. The Secretary of State has a website that provides comprehensive information and business related resources that will help you determine the documents you need to file to register a business in California. They also provide online and offline filing of business related documents like reservation of a business name, statement of information and business entity search. You will also find information pertaining to fees for filing different documents and guidance towards business document submission in the filing tips section. The contact information for California Secretary of State is:

  • California Secretary of State
    1500 11th Street, Sacramento, CA 95814
    P.O. Box 944260, Sacramento, CA 94244-2600
    Phone: (916) 657–5448
    Website – https://www.sos.ca.gov/

State of California Franchise Tax Board

The California Franchise Tax Board (FTB) is a division of the California Government Operations Agency and is responsible for collection of state personal income tax. FTB also levies a franchise tax on any business operating in the state and hence if you incorporate in California, the franchise tax will be filed with this department. You can make a payment, check your refund status, and download relevant tax forms from the website. You can also benefit from their Taxpayer Advocate Services, Executive Services, and Small Business Liaison. The contact information for California Franchise Tax Board is:

California Tax Service Centre

The California Tax Service Centre is sponsored by the California Fed State Partnership and they have partnerships with tax agencies like Franchise Tax Board, California Department of Tax and Fee Administration, Board of Equalization, Internal Revenue Service, and Employment Development Department. If you start a business in California then you can file Payroll Taxes and Sales and Use Tax with this department. You can also download information pertaining to different types of taxes including Income Tax, Payroll Tax, Sales and Use Tax, Property Taxes, and other Special Taxes and Fees. The contact information is:

  • California Tax Service Centre
    PO Box 942840
    Sacramento, CA 94240-0040
    Phone: 1-800-338-0505
    Website: https://www.taxes.ca.gov/

Governor’s Office of Business and Economic Development

The Governor’s Office of Business and Economic Development (GO-Biz) has several job responsibilities including promotion of job growth, business assistance efforts, and economic development. GO-Biz also offers individuals and businesses a no cost consultation in a variety of areas like regulatory or permitting compliance, exports and foreign direct investment, and regulatory or permitting compliance assistance among others. When you incorporate in California you can benefit from different types of programs they offer for entrepreneurs like the California Small Business COVID-19 Relief Grant Program, Get Digital CA!, and Entrepreneurship Task Force. The contact information is:

  • Governor’s Office of Business and Economic Development (GO-Biz)
    1325 J Street, Suite 1800
    Sacramento, CA 95814
    Phone: 1-877-345-4633
    Website: https://business.ca.gov/

Labor and Workforce Development Agency

The California Labor & Workforce Development Agency (LWDA) is responsible for coordinating workforce programs. The California LWDA also oversees the working of major departments, panels, and boards that are driven towards serving California businesses and workers by improving their access to training programs and employment. If you register a business in California, you can benefit from the comprehensive information they provide related to various aspects of labor and business like Workplace Safety and Health, Labor Laws, Workers’ Compensation, Payroll Tax Obligations, and other additional resources. The contact information is:

Department of Consumer Affairs

The California Department of Consumer Affairs (DCA) is an integral part of the California Business, Consumer Services, and Housing Agency. DCA is responsible for licensing or certifying practitioners in over 255 professions. The department also plays the role of a licensing regulator and an educator. They also provide comprehensive information related to several aspects of business and consumer requirements like Regulation Procedures, California business license for professionals, Consumer Assistance Booklet, Certified Arbitration Program, and Consumer guides to various businesses etc. The contact information is:

  • Department of Consumer Affairs
    Consumer Information Center
    1625 North Market Blvd., Suite N 112
    Sacramento, CA 95834
    Phone: (800) 952-5210
    Email: dca@dca.ca.gov
    Website: https://www.dca.ca.gov/

CalGOLD (The Gold Standard For Permit Assistance)

CalGOLD is an initiative as a part of the Governor’s Office of Business and Economic Development (GO-Biz) to help businesses and entrepreneurs find appropriate permit information. If you are unsure regarding the California business license or permit your business requires then the CalGOLD Business Permit System will be able to address your queries. If you are planning to start a business in California then you can check the FAQs section and conduct a search based on permits and licenses or forms and fees on their website. The contact information is:

California State Treasurer’s Office

The California State Treasurer’s Office is primarily responsible for finance and investment in the state. If you start a business in California then you can find information on their website pertaining to Treasurer’s Office Programs. Some of the top programs include the Local Agency Investment Fund (LAIF) program, California Hub for Energy Efficiency Financing Pilot Programs, Small Business Energy Efficiency Financing Program, Sales and Use Tax Exclusion (STE) Program, California Tax Credit Allocation Committee (CTCAC) programs, California Educational Facilities Authority’s (CEFA’s) Bond Financing Program, and Time Deposit Program among others. The contact information is:

Ready to start business in California?

California is favored by entrepreneurs, startups, and small businesses as the state provides a robust infrastructure and business incentive programs that will help you to start a business in California.

Of course, the formation or incorporation process for different types of businesses will be different and that is where IncParadise can provide you with guidance and support. We are an expert registered agent and incorporation service provider in California. We have already helped thousands of individuals and entrepreneurs to start their limited liability company or professional corporation.

We will not only provide assistance towards helping you register a business in California but as one of the reputable California registered agents, we also provide a plethora of additional services like EIN assistance, foreign qualification, California certificate of good standing, and EDGAR filing among others.

IncParadise can assist you with new business formation in California!