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.
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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!