Starting a Company in California

There are 4.1 million small businesses based in California today and stand among the top ten largest economies in the world. In 2019, the gross domestic product (GDP) was approximately $3.14 trillion with foreign direct investments controlling ownership in several businesses in the state. Entrepreneurs from several countries find it attractive to start a company in California as foreigners with Japanese entrepreneurs and firms leading the table with 3,880 firms followed by the UK at 2,303 and France at 1,888. You can also choose to register any type of business entity like LLC, professional corporations, limited partnerships, and other business entities and the California business environment will ensure your startup gets the initial positive thrust it requires.

California business or startup environment

The California business environment and startup ecosystem is different from that of any other state and this makes the state unique in terms of forming your first startup. As an entrepreneur in California, the business environment ensures strong economic growth but there are certain elements of the ecosystem that work together to aid in business growth. Some of the top elements are:

• It is an economy that grows constantly and consistently – One of the top reasons to start a business in California is the trillion Dollar economy, which is still growing at a steady pace. Today, California is considered as the Sixth Largest Economy in the world and accounts for almost 13 percent of the US output. The economy is extremely diversified and not dependent on any single industry. The single largest industry sector in this state is services and includes computer and software design, engineering, and motion picture production among others. Some of the other sectors driving the California economy include finance, export or trade, manufacturing, and tourism. The economic activity also differs from one region to another. For example, the key industries in the San Francisco Bay Area are High-tech manufacturing and Software development while key industries in Southern California are Motion pictures and tourism. These are some of the elements driving the strong economy and enabling the functioning of a robust California business environment.
• Foreign Trade and Trade Zones – One of the areas that attract entrepreneurs to start a company in California as a foreigner is foreign trade. California exported to approximately 227 foreign markets like Japan, Canada, Mexico, China, and South Korea in 2020. The exports from California in 2020 were $156.1 billion and that accounted for 10.9% of the total U.S. exports. Foreign direct investment (FDI) in the state was approximately $45.49 billion in 2019 and the top industry sectors for FDI are business services, industrial equipment, software & IT services, financial services, and communications. California is also home to the highest number of small and medium-sized enterprises (SME’s) in the trade sector including exports and imports. One of the salient aspects is the Foreign Trade Zone (FTZ), which is a key element in creating a high-end California business environment. The FTZ is responsible for providing exporters, importers, distributors, and manufacturers with opportunities that help in reducing U.S. Customs duties and for deferring payment until their product leaves the foreign trade zone. One of the top foreign trade zones is the City of Industry in Los Angeles County.
• California business or startup environment – California has been a leader where innovation and knowledge-based economy is concerned and it is home to several successful global companies that are globally renowned for entrepreneurship and creativity. The State launched the California Innovation Hubs (iHub) Program in 2010 with the primary objective of leveraging convergence between incubators, stakeholders, and investors for propelling startups towards growth and success. California Innovation Hubs (iHub) Program is one of the most advanced and forward thinking programs that ensure you can start a company in California as a foreigner and enjoy its many benefits. The iHub has helped in creating a robust innovation-based economic development support network across the state. There are 16 iHubs that have been responsible for making the California business environment highly creative and vibrant. Some of the top iHubs include the Sacramento iHub, iGATE iHub, CalValleyTech iHub, iHub San Joaquin, San Jose/Silicon Valley ET iHub, and Innovate North State iHub among others.

Steps to Form a California Company as a Foreigner

If you are an entrepreneur thinking if it is possible to start a company in California as a foreigner then the answer is yes. The second most important aspect is restrictions and California does not impose any kind of restrictions on entrepreneurs or startups registered in the state. It is important to note that the regulations and documents required to register a California business as a non-US resident would be quite similar to that of a foreign company. Let’s take a look at the various processes and steps that you need to take to successfully establish your business as a foreigner in California.

1. Prepare your California business plan

Every business needs a plan before they can actually start a business in California and this holds true for non-US resident entrepreneurs and business owners. A strong business plan can take a new business towards success and a weak business plan can lead to bottlenecks and problems. A business plan is essentially a business roadmap that contains the primary and secondary business objectives as well as strategies.

• Vision and Mission Statement
• Executive Summary
• Company Description
• Long-Term Goals
• SWOT Analysis
• Competition and Market Analysis
• Breakdown of Products and Services
• Marketing Plan and Sales Strategy
• Financial Projections and Funding

2. Secure business funding

If you are planning to start a company in California as a foreigner then there may be higher initial costs depending on the type of business activity like an IT firm will need investments in tech equipment. The thumb rule is that it will cost money to start any type of business and the expenses include cost of registration or incorporation in the state along with obtaining licenses and permits.

• Self-funding
• Small business grants in California
• Venture capital from investors
• Use crowdfunding
• Small business loans
• Small Business Administration investment programs
• Angel Investment
• Funding from Business Incubators & Accelerators
• Loans from Microfinance Providers
• California Small Business and Entrepreneurship Assistance Center Funding Opportunities

3. Choose a company name

A business name is as important to your business as are your customers because a customer can relate your business name to the product or services offered by your company. In a way, a business name can help in creating an excellent first impression hence it is important to choose the right name before you start a company in California as a foreigner. When choosing a business name, it is essential to ensure it is unique but not a tongue twister.

4. Choose a business entity

If you have decided to start a business in California as a non-resident or foreigner then the primary consideration should be the type of business entity you want to form. The different types of entity you can form in California include:

• Corporation
• Limited Liability Company
• Sole Proprietorship
• General Partnership
• Limited Partnership
• Limited Liability Partnership

• Cost of new business formation or start up costs
• Taxation
• Continuity and Transferability
• Liability and Asset protection
• Sharing of profits

5. Choose a Registered Agent

One of the primary requirements in the state of California for new businesses is hiring registered agent services. This is especially true if you plan to start a company in California as a foreigner. If you were to form a foreign corporation then it is mandatory to designate a registered agent for the service of process pursuant to CA Corp Code § 2102 and 2111 (2019). A California registered agent is also known as an agent for service of process and is appointed by a company mainly for the purpose of accepting all types of official correspondence and legal notices. A registered agent like IncParadise will not only handle service of process but can help you register a California business and also provide other business related services. IncParadise is one of the leading registered agent service providers in California today!

6. Register your company with California Secretary of State

There are several processes that you have to undergo in order to start a company in California as a foreigner. The first and foremost is registration of your business with the California Secretary of State. If you are a non-resident planning to register a California business then you will need to apply for foreign qualification. The type of registration will be dependent on the type of entity.

Planning to start your new business in California?

7. Get EIN

If you are a Non-U.S. citizen and are planning to start a company in California as a foreigner then you will need to apply for and obtain an Employer Identification Number (EIN) without the need to have a Social Security Number (SSN). The EIN is a 9-digit unique identification number and is also known as a Federal Tax Identification Number (FEIN). You have to apply for the EIN with the Internal Revenue Service (IRS) and have to obtain it before you register a California business as a non-US resident. Since you will be incorporating or forming your new business in the US; EIN can be applied for online.

8. Open a bank account for your business

It is always recommended to open a business bank account if you are planning to start a business in California as a non-resident. A business bank account also known as a Business Checking Account will keep your business income and expenditure separate from personal income and expenses. This will also help you to manage expenses and file taxes. You can refer to our bank account opening guide to understand how business banking works in California or the U.S.

• Certificate of qualification or registration
• Federal Tax ID Number (EIN)
• Proof of address
• Photo ID (such as a valid passport)
• Copy of the Business License

9. Obtain necessary business licenses and permits

You can start a company in California as a foreigner in a variety of sectors but you will need to obtain a business license or permit first. Applying for and obtaining a business license basically means that you have the permission to operate your business or transact in the state of California. There is no separate requirement for non-US residents when applying for a business license except that you may require a single or multiple licenses depending on your business activity and location. Once you register a California business, you can apply for any of the following licenses:

• A general business license
• Business license/permits for specific industries
• County business licenses

10. Know about the annual and ongoing state filing requirements

Once you start a business in California as a non-US resident, you will need to maintain it and ensure all annual requirements are met. This will help in keeping your business status active while helping you avoid any penalties or fines for non-compliance or late filings. Different types of business entities have different annual and ongoing requirements and some of them are:

• Name registration renewals
• California business license or permit renewals
• Statement of Information – Initial and Biennial
• Franchise tax
• State Business Tax
• State Employer Taxes

Looking to Start a Company in California?

If you are planning to start a business in California as a non-US resident, you will require California registered agent services to help you with the formation or incorporation of your new business. IncParadise is one of the top California registered agents and we have helped thousands of companies to register a California business.

Doing Business in California

The California economy is the largest in the US with the gross state product at $3.02 trillion. It is also considered as the 5th largest economy in the world with the San Francisco Bay Area recording a GDP of $535 billion. It is home to more than 4 million small businesses spanning a huge variety of industries including 69,387 small business exporters. These numbers are astounding but the fact is that there are many startups that have climbed to the high growth stage with the help of small business grants in California. It is one of the most competitive markets in the US and the world and as a small business; you may need extra funds in the early stages of the business operations. This is where the new small business grants in California can provide the much needed relief.

Why do startups and small businesses prefer doing business in California?

California has been one of the favorite destinations for startups and small businesses since the mid-1960s and in the 1990’s it became famous for Silicon Valley, which was the epicenter of innovation in software, internet, user interfaces, and computer operating systems. It is not just the California economy that attracts entrepreneurs but also some of the opportunities that enable the creation of a pro-business environment. Some of the factors are:

• Networking: California is the home to several business opportunities and this is made possible through hundreds of events, trade shows, and conferences that keep taking place in the state throughout the year. These events provide the perfect platform for new as well as existing businesses.
• Grants: Every business needs funding for their business operations but there are times when an entrepreneur may have a great idea but no funds. The small business grants in California programs provide funds to such businesses.
• Industries: There are several different sectors or industries in which you can start your new business. Some of the fastest-growing industries include construction, healthcare, services, technology, agriculture, hospitality, tourism and the film industry.
• Talent Pool: One of the most important aspects of a new business apart from startup grants in California is the talent pool. The talent hired by a business eventually helps the business to achieve its marketing, sales, or financial objectives and California has a deep talent pool. California is home to some of the top universities in the world including Stanford, Caltech and UCLA.

CA Business Portal State Incentives, Tax Credits and Funding

Although a CA small business relief grant can be a boon for any startup, there are several other options that can help a new business financially like federal, state and local incentives. California has a strong incentive program for small businesses and you can choose from incentive categories by industry, business operation, and type. The California relief grant program is also an integral part of the business incentive program.

Incentives by Industry

In California, you can start a new business in just about any industry with the help of a CA small business relief grant. Each industry markets a different product or service and hence the type of incentive required would be in accordance to the type of industry although there are some general incentives that are useful for businesses in any industry like California relief grant program and tax credit or exemption programs. The incentives for small businesses are categorized according to the following industries:

• Advanced Manufacturing
• Agricultural/Timber Industry
• Biotech/Health Care
• Energy and Environment
• Film and Television
• Food Processors
• Manufacturing
• Recyclers
• Transportation

Incentives by Business Operation

Business incentives like the small business grants in California have a two pronged benefit as they help startups with financial aid through tax exemptions and training programs among others. Simultaneously, the business incentive programs like Opportunity Zone program and Foreign Trade Zones help the state to attract small businesses and startups. In California, you can apply for an incentive program based on the type of business operation. For instance, you can apply for a California relief grant program for the purpose of Business Expansion or Facility Improvements. The incentives for small businesses categorized by business operation include:

• Workforce Development Programs
• Business Expansion or Facility Improvements
• Hiring & Training Programs
• Startup or Small Business Support Programs
• Export-Import Business Programs
• Utilities
• Recycling

Incentives by Type

The key objective of an incentive is to address the existing or future requirement of a small business . For example, the CA small business relief grant program has been designed to help businesses impacted by COVID-19 to provide financial aid varying between $5,000 and $25,000 to eligible small businesses and is granted by the Governor’s Office of Business and Economic Development. You can also choose to apply for an incentive program based on type of program category, which are:

• Bonds
• Loans
• Grants
• Tax Credits and Exemptions
• Utilities

Financing opportunities

If you are an entrepreneur or are planning to start a new business in California then you may require initial funding to help with your business growth and scaling plans. Business industry experts and insiders believe that one of the primary causes of startup failure is lack of capital in the starting phase or in the business development phase. This is where state based financing opportunities can be quite beneficial like the small business grants in California, which can provide your business the necessary thrust. Financing opportunities in the state can be classified under:

• Agriculture
• Business Expansion/Facility Improvements
• Green Business/Clean Tech
• Exporting/Importing
• Startup or Small Business Support

Start a California Business Today!

Other Recent Funding Opportunities Published in the Local State

Every year, the state of California as well as the Federal government creates and implements small business grants in California so that small businesses can benefit from it. A surprising fact is that the federal budget concerning government grants is in excess of $90,919 million with additional local government funding amounting to $61,971 million. Some of the recent opportunities that exist for small businesses in terms of state funding are from a variety of sectors like education and training to innovation and conservation. For example, the Conservation Innovative Grants Program for the agriculture, environment, and natural resources sector offers a funding of $150,000 for eligible applicants. There are several other startup grants in California available through the recent funding opportunities including:

• Cooperative Ecosystem Studies Unit, Californian CESU – Funding amount of $48,000 (G20AS00048)
• Cooperative Ecosystem Studies Unit, Californian CESU – Funding amount of $25,000 (G20AS00078)
• Cooperative Ecosystem Studies Unit, Californian CESU – Funding amount of $54,000 (G20AS00065)
• INRMP Support Ft Hunter Liggett & PRFTA, California – Funding amount of $89,987 (W9126G 20 2 SOI 4876)
• 2021 NOAA California Bay Watershed Education and Training (B-WET) Program – Funding amount of $100,000 (NOAA NOS ONMS 2021 2006749)
• Head Start/Early Head Start Grantee-Communities in the state of California – Funding amount of $59,527,092 (HHS 2021 ACF OHS CH R09 1860)

Ready to Start Business in California?

It is never an easy decision to start a new business as making a startup fully functional entails several processes right from creating a business plan to applying for small business grants in California and eventually filing of formation or incorporation documents. The process doesn’t end here as a business has annual maintenance requirements and should remain compliant with all California state laws and regulations. This is where IncParadise has its expertise and experience. We are an expert incorporation service provider in California and can help you to start your business in the state.

Doing Business As or DBA in California

This guide has been created specifically for entrepreneurs and business owners and its objective is to provide information on DBA in California, the need for a DBA, filing and managing a DBA.

What is DBA in California?

You have an idea and you want to make it operational by starting a business. One of the foremost requirements would be naming your business as the entire branding, marketing, and financial strategies will be carried forward using the business or legal name. DBA or ‘Doing Business As’ is a type of business name and is also known as fictitious business name in California, an assumed name, or even a trade name. So, if you are planning to conduct your business under a name other than your own name then filing a DBA in California is necessary.

For example: If an entrepreneur named Jason Hughe starts a business and the name of his business is Jason Hughe Landscaping Services then filing a DBA in California is not required. However, if the name of the business is “Hugh Landscaping Services” then he would be required to file a DBA online or offline as it is not his full name or a combination of his name and the products or services offered.

When do you need a DBA in California?

Every new business or startup has a true name or a legal name and this name has to be registered in the state of formation, which is California in this case. The filing of DBA in California will be driven by the form of business as well as other needs of the business. It is hence important to identify the reasons that would require you to file a DBA online or offline. Some of the common reasons or when startups require DBA includes:

• Type of business: The most common and easiest form of business is a sole proprietorship firm. If you are planning to form a sole proprietorship or partnership firm then filing a DBA in California is one of the simplest and least expensive ways for using and registering a business name. A DBA will help you to create a separate professional identity for the business.
• Multiple businesses: If you are planning to operate multiple businesses then it can be quite a complex and expensive affair especially filing of documents pertaining to each business. A DBA or fictitious business name in California will help you in operating multiple businesses without having to form separate companies.
• Banking: If you are starting a new business then having a business banking account can be quite helpful. Filing a DBA in California is required by sole proprietorship or partnership firms prior to opening a bank account. There are many banks that may want to see the DBA name or assumed name certificate as a proof of registration.
• Different product of service: If your company wants to offer a product or a service that is different from the existing registered name then you will need to file a DBA online or offline in California. For instance, if your business is selling shoes but now you want to expand the business into sports equipment but as a separate entity then a separate assumed name or DBA will be required for the new sports equipment business.

Filing DBA in California

You can form a sole proprietorship or partnership in California or any form of business for that matter but if you have chosen a business name that is different from your own name then you will have to file a DBA. There is a process that you have to follow for registering the fictitious business name in California including conducting a DBA California search. Let us look at the important steps towards filing a DBA successfully in California.

Do name search

One of the first steps towards registration of a fictitious name or ‘doing business as’ name is conducting a DBA California search. Once you ideate and identify a name for your business, it is important to make sure it is not similar to any other business name in the California SOS records. Conducting a business name search in the records will ensure your fictitious business name in California is unique and will also help you to find out if your chosen name is available or not.

File a Fictitious business name statement

The state of California requires businesses transacting in this state under any name other than the owners name to file a DBA pursuant to CA Bus & Prof Code § 17910 (through 2012 Leg Sess). We at IncParadise can help you to register your DBA in California and also provide information pertaining to various aspects of filing a DBA. However, it is important to note that after conducting a DBA California search, you will have to file the chosen name with the office of the county clerk and not the Secretary of State unlike in many other states. You have to file what is known as a “Fictitious business name (FBN) statement “. Some of the important aspects to consider when filing a fictitious business name in California are:

• Since it has to be filed at the county clerk’s office; you need to check with the county your business is operating from. The forms and fee may vary from one county to another.
• You can check with the clerk’s office or the county record office to determine the fee
• The Fictitious business name statement should contain information like your (business owners) name and address, your chosen DBA name or fictitious business name in California, business address, state business ID number, and type of business.
• The fictitious business name statement has to be notarized by partners, members, or an officer of the said company, or even by the owner himself if it is a sole proprietorship firm.
• One of the requirements for filing a DBA in California is that you will be required to submit the required documents or paperwork within 40 days of starting the new business. Once you have submitted the statement, it will expire after a period of 5 years from the filing date.
• Depending on the county where you are filing the fictitious business name (FBN) statement, you can submit the statement in person or by mail. In some counties you may be able to file DBA online. In San Diego County, the office of the County Clerk strongly recommends filing of the FBN in person. The filing fee is $42.00 for one DBA and one business owner on the statement. There will be an additional fee of $5 for each additional owner.

Publish a California fictitious business name statement

The final part of the process of filing a DBA in California is publishing a fictitious business name (FBN) statement. You will be required to publish this statement if:

• You are filing a DBA in California for the first time
• You have filed in the past but have made changes to the information provided the first time
• If your previous statement expired 40 days have passed beyond the expiration date
• If you are filing a Statement of Abandonment or a Withdrawal of Partnership

• Depending on the county of FBN filing, you will have to choose a legally adjudicated newspaper company. For example, if you file a DBA online in San Francisco County then the Bay Area Reporter or San Francisco Chronicle would be the newspapers you can publish in.
• Inform the chosen newspaper that you have recently filed a Fictitious Business Name (FBN) Statement and ensure you satisfy the requirements of the chosen publication.
• Provide the concerned publication with a copy of your FBN filing
• The first publication should be released within 30 calendar days from the date of filing a DBA in California. It is important to note that the FBN statement will automatically expire after the 30 day period. There are no extensions and you will have to file the FBN statement again with an applicable fee.
• You will have to ensure it is published once a week for four consecutive weeks
• Once it has been published 4 times, the newspaper company has to send you a “Proof of Publication” in the form of a signed affidavit indicating the dates of publishing.
• You will then be required to submit this “Proof of Publication” with the County Clerk’s Office within a period of 30 days from the date of the 4th publication.

Managing California DBA

A fictitious business name in California is required by different types of businesses and post filing a DBA in California you have to manage it according to the needs of the business. There are three options available concerning a DBA, which includes renewal post 5 years, changing the assumed name, and cancelling the DBA permanently. Let us take a look at each of these three options.

Renew California DBA

A fictitious business name in California once filed will expire after five years from the original filing date at the office of the County Clerk. At this point, you will have to apply for a renewal of a fictitious business name (FBN) statement and it has to be filed prior to the expiration date if you want to continue transacting business in the state under the same name and if there are no information changes since the filing of the original. The fee for filing a DBA in California or renewal will vary from one county to another.

An example: Initially, if your filing a DBA in California took place in Los Angeles County then your renewal will also take place in the same county. You can file DBA online for renewals by paying a fee of $26 along with a fee of $5 for each additional business owner or name.

Change California DBA

There are circumstances and scenarios where sometimes businesses want to change their existing name. If you have already filed a DBA and want to change it then you will have to start by conducting a DBA California search for availability of the new name. You will have to follow the same guidelines followed while choosing your first or initial fictitious business name in California. The following steps will help you through the process:

• The first step is to obtain the DBA name change form also known as the amendment to DBA name-registration form. The form is available at the office of the county clerk.
• Complete the filing a DBA in California amendment form and provide the new name along with the previous DBA name as well as the date it was registered
• Submit the amendment or DBA change form by mailing it, submitting in person or filing a DBA online if the option is available
• Submit it along with the fee as mentioned by the office of the county clerk
• Publish a notice in the local newspaper regarding the DBA name change

Cancel California DBA

Once your filing a DBA in California is submitted, you can cancel it if there is a need for such a step. The procedure for cancellation is different as you will be required to submit a statement of abandonment of the use of a fictitious business name in California. This statement will be executed in a similar manner as that of a fictitious business name (FBN) statement and has to be filed with the office of the County Clerk. Once filed, the statement of abandonment has to be published in a legally adjudicated newspaper in the county. You will have to ensure it is published once a week for four consecutive weeks. You will then have to submit an affidavit showing its publication with the respective county clerk office.

Still have any questions about Filing DBA?

The process for filing a DBA in California may be confusing owing to it being filed with the county clerk office and not the Secretary of State.

Conversion of California Business Entity to Delaware Corp

It is never easy to set up a new business and once it is operational in California; the very thought of conversion or reincorporation into another or same business entity in another state like Delaware may be unnerving. It can be quite an elaborate undertaking especially if you are planning to convert California LLC to Delaware Corp. The conversion will be governed by Delaware laws and not California laws and hence, documentation required for the conversion should be compliant to the Delaware business laws.

Why convert a California business entity to Delaware LLC or Corporation?

Each business has its own set of requirements and once a business achieves growth; the thought of expansion could be one of the reasons that may drive business owners and entrepreneurs to convert foreign LLC to Delaware LLC or corporations. Let’s take a look at the most common reason for conversion.

• Attract investors or VC’s: One of the primary reasons that drive this conversion is attracting investors and venture capitalists. Delaware has a strong startup ecosystem along with a pro-business regulatory and legal environment, and it’s no hidden fact that venture capital firms and other investors prefer Delaware business corporations. Entrepreneurs prefer to convert California LLC to Delaware Corp as it is difficult to transfer ownership in an LLC. Secondly, from a VC’s point of view, because an LLC is a pass through entity, the profit and losses of the business will reflect in the business owners tax return and this creates tax related problems or issues for VC’s and other investors.

Reincorporate a Business from a California Entity to a Delaware Entity

A business corporation formed in California may want to reincorporate in the state of Delaware owing to a number of business, economic, or financial reasons that properly address the growing needs of the company. Reincorporation is a term that is used for a variety of transactions that result in an entity’s movement or transfer to a state other than its home state or switching entity type. For instance, if you convert California LLC to Delaware Corp then it would be switching. The process of reincorporation normally involves a quick and simple statutory mechanism that involves filing of specific forms related to conversion. However, in order to convert foreign LLC to Delaware LLC or corporation, both states (the home state and the new state) should accept the process of conversion.

Merger

If you want to convert California Corp to Delaware Corp through reincorporation using a merger, then there are specific statutory requirements that you need to follow or be compliant with. This type of merger is also known as a reverse merger or even a downstairs merger where-in you want to reincorporate in another state or jurisdiction. A downstairs or reverse merger is a type of transaction where-in the desired entity type is formed in a new state and the existing entity in the home state is merged with this new entity. This is considered quite a complex transaction as compared to a conversion or asset transfer. Let’s look at an example to understand how a merger can help convert a California entity to a Delaware entity.

• As an existing California corporation, you will need to create a new subsidiary in Delaware. This subsidiary is considered to be a shell corporation as it does not have any assets or businesses. Now, in order to convert a California Corp to Delaware Corp, the California Corporation merges into the newly formed Delaware subsidiary while ensuring the Delaware Corporation remains as the surviving entity. Post this merger, the stock and other securities of the Delaware subsidiary corporation will have preferences, rights, restrictions, and privileges identical to that of the California Corporation.

Asset sale

An asset transfer is one of the ways to convert California LLC to Delaware Corp. It refers to the fact that the newly formed business entity (Delaware corp) purchases the assets belonging to the former entity (California LLC). The process of asset sale will involve a California entity selling off all its assets to the Delaware entity and then the California entity is dissolved. It is important to ensure that prior to the asset sale, a new Delaware entity or corporation is formed so that transfer of assets can take place. The Delaware entity has to be formed with all desired interests, securities as well as stockholder rights and privileges. If you convert a California entity to a Delaware entity through asset sale then the shareholders of the converting entity will receive stock in the newly formed Delaware Corporation as for the sold assets.

Stock-for-stock exchange

A stock-for-stock exchange is the third way to convert a California Corp to a Delaware Corp. This exchange takes place when the newly formed Delaware Corporation issues as well as exchanges the shares of its unissued and authorized common stock to the shareholders of the converting California Corporation in exchange for all the outstanding shares of the said entity’s stock. This method to convert a California entity to a Delaware entity can be employed only if the converting California Corporation is closely held and its shareholders accept or allow the exchange to take place.

Need Any Assistance in Converting Your California Business Entity to Delaware Corporation?

If you have formed a business in California and want to now convert California LLC to Delaware Corporation then the entire process can be quite difficult and frustrating. This is more so because California doesn’t support domestic companies opting for conversion to foreign entities. Hence, you would have to choose to go with a merger, asset sale, or stock-for-stock exchange.

California Business Tax

This guide provides you with information pertaining to different types of taxes in California, how different forms of businesses are taxed and California business tax rate for specific business entities or tax categories.

What taxes do businesses pay in California?

Business taxes vary from one state to another and California business tax comprises three types of taxes, which are corporate tax, franchise tax, and alternative minimum tax. If you form a new business in California then all or one of these taxes will be applicable for your business. Let’s try and understand what these taxes imply and what the California tax rate is for each of these taxes.

Corporate tax

A California corporate tax is a type of direct tax that is also known as company tax or corporation tax. This type of tax is imposed on the profits earned by a corporation. If you form a corporation in California then the corporate tax would be payable on the taxable income of your company. The taxable income includes revenue earned minus the cost of goods sold (COGS), research and development, depreciation, selling and marketing, general and administrative (G&A) expenses, and any other operational cost. Apart from corporations, this tax is also applicable to limited liability companies that have elected to be treated as corporations. The Corporate tax rates vary from one state to another and are levied in 44 states including California. The California corporation tax rate is 8.84%, which is higher than the US average. The rate of 8.84% is for corporations other than banks and financials and the rate is 10.84% for banks and financials. The due date for filing of the California corporate tax return is on the 15th day of the 4th month after your fiscal year ends but if you are not following a fiscal year then the due date will be March 15th each year.

Franchise tax

A franchise tax is a type of California business tax that is paid by certain forms of businesses just to conduct their business in a specific state. Some US States like Kansas and Missouri have eliminated franchise taxes while other states like Alabama and Georgia impose franchise taxes just like California. A franchise tax is also known as a privilege tax as it provides businesses with the right to operate with that state. California franchise taxes are applicable for a variety of business structures including limited liability companies (LLCs), S corporations, limited liability partnerships (LLPs), limited partnerships (LPs), and traditional corporations (C corporations). The California tax rate or franchise tax rate may vary from one form of business structure to another.

• The tax fee on income earned between $250,000 and $499,999 is $900
• The tax fee on income earned between $500,000 to $999,999 is $2,500
• The tax fee on income earned between $1,000,000 to $4,999,999 is $6,000
• The tax fee on income earned on $5,000,000 or more is $11,790

Alternative Minimum tax

The Alternative Minimum Tax (AMT) is a California income tax imposed by the federal government and is considered as an alternative minimum tax for businesses and individual taxpayers earning above a certain threshold. The AMT does not include any deductions or exemptions and the California business tax rate for AMT depends on where the income falls within the AMT threshold. It is also important to note that it will be mandatory to pay AMT taxes if the adjusted gross income tax is more than the exemption level. The Alternative Minimum Tax provisions have created an entirely parallel system of taxation, which normally targets corporations that show an Alternative Minimum Taxable Income (AMTI) of over $40,000.

How are California Businesses taxed?

If you start a new business in California, one of the primary considerations that you have to make is that of tax status. Different types of entities are taxed differently while some businesses are required to file California income tax as well as business tax. The California tax rate is dependent completely on the type of tax your company is required to file. Let’s look at the different types of entities and their taxations.

Taxes for California LLC

A standard LLC is similar to an S corporation as they are both pass-through entities and this simply means that they are not required to pay any federal income tax. Instead, the income earned from the business will get distributed amongst the members of the limited liability company and then each member would be required to file federal and state taxes based on the amount received from the business. In such a scenario, members would have to file California income tax returns.

Taxes for California C Corporations

C corporations are known as traditional corporations and will be subjected to California corporate tax of 8.84% or Alternative Minimum Tax (AMT) of 6.65%. The type of tax it will be subjected to depends on whether the entity claims net taxable income e.g., a business corporation that has a net taxable income of $2 million and it will be subjected to California corporation tax rate of 8.84% of the income, thus the tax to be paid will be $176,800.

Taxes for California S Corporation

An S corporation can be created only if you have a C or traditional corporation or an LLC. Once you have formed a corporation, you will need to fill and submit IRS form 2553 pursuant to section 1362 of the Internal Revenue Code. If you have an LLC then you will have to elect to be taxed as an S Corporation. S corporations are considered to be pass-through entities and hence it will not be subjected to a separate federal income tax. Instead, any taxable income generated by an S corporation will be passed through to the shareholders of the company and each shareholder will be subjected to federal tax on each shareholder’s share of the income. In California, an S Corporation is not treated as a pass-through entity for California business tax purposes. As a result, a California S corporation will be subjected to franchise tax. The franchise tax or California business tax rate will be 1.5% on income and the minimum tax will be $800. In addition to this, all S corporation shareholders will have to file an income tax on their share of the company’s income.

Taxes for California Sole Proprietorships

If you start a sole proprietorship in California then it will be treated as an individual for California income tax purposes. For Example: if the net income from your sole proprietorship is $100,000 then it will be distributed to you. As a result, you will have to report your business income and expenses on IRS Form 1040 Schedule C and file your estimated tax on the Form 540-ES: Estimated Tax for Individuals. The California tax rate will vary depending on the overall net income you have earned in a given tax year.

Taxes for California Partnerships

The California business tax treatment of a partnership firm will depend on the specific type of partnership. A Limited Liability Partnerships (LLP) and a Limited Partnership (LP) will be required to pay a minimum franchise tax of $800 while the business owners have to file personal income tax on any income that is passed through from the company to them. You will be required to file Partnership Return of Income (Form 565).

Ready to Incorporate your California Company?

Whether you are planning to form a traditional corporation or a limited liability company (LLC) in California, the incorporation or new business formation process can be quite difficult, extensive, and time consuming. You may be required to file multiple documents and provide information pertaining to the business and personal details and ensure everything is as per the requirements of the California Secretary of State. This is where IncParadise has its expertise! We are an expert incorporation service provider in California and can help to register your LLC or corporation in the state. IncParadise also offers Registered Agent Services in the state of California as LLC and corporate law require all types of business entities formed or incorporated in the state to designate and maintain a registered agent in this state. A top California registered agent like IncParadise plays the all important role of maintaining communication with the California Secretary of State (SOS) in matters related to the incorporation or formation of a domestic or foreign business entity.

Business License in California

This guide will not only provide you with information pertaining to licenses and permits that your business may require to become operational but also licensing requirements, cost of California business license, and renewal process among others.

What business license do I need in California?

As an entrepreneur or a business owner, you will need to obtain a license for California business. Prior to applying for a license or permit, you need to first determine the type of license or permit your business will require. The factor that defines the type of permit or license you may require is the business activity. A business activity may also highlight the need to apply for multiple licenses or permits and this is apart from the fact that certain counties or cities may require you to also fulfill zoning requirements. It is important to remember that once you obtain permits or licenses, you need to ensure timely or yearly California business license renewal. Business licenses in California can be divided into two categories, which are:

General business license

If you are planning to start a new business in California then it is important to obtain a license for California business first. The general business license is required by most entrepreneurs or business owners in the city the business is located and if your company is operating from unincorporated sections of the city or state then you will be required to obtain a license or tax certificate depending on the county. If you have or are planning to open branches of your business in several locations then you will have to apply for licenses or permits in all locations that you are and/ planning to operate from. The cost of a California business license will depend on the city, the number of locations, and the business activity. Let’s look at an example:

ABC Inc., has registered its business in the City of San Diego and will need to obtain a license for California business pursuant to City of San Diego Municipal Code Section 31.0121. In San Diego, ABC Inc. will have to register for a Business Tax Certificate instead of a business license. The issuance of this certificate confirms that ABC Inc. has paid all its business taxes. The cost of California business license applications is $38 and it includes $34 Business Tax and a State mandated fee of $4. The application can be submitted by mail, electronically, or in person.

Now if ABC Inc., wants to open a branch in another location like the City of San Jose then you will have to apply for a Business Tax Certificate in this city as well. Similarly, if the company plans to open another branch in Oakland then they will be required to obtain another Business Tax Certificate. It is also important to understand that if ABC Inc., is a seller of retail or wholesale goods, then they will be required to apply for a business license in California also known as a California Seller’s Permit.

Business license/permits for specific industries

Apart from a general business license in California, your new business will require additional licenses for specific industries or regulated industries. This type of license or permit is issued by different governing bodies. For example, the Department of Financial Protection and Innovation (DFPI) regulates and oversees the licensing by the Division of Financial Institutions. Let’s look at an example:

• A general business license in California or a Business Tax Certificate issued by the city where your restaurant will be located
• A California Seller’s Permit
• A business license or permit for specific industries or a liquor license issued by the California Department of Alcoholic Beverage Control

Do you want to know what business licenses your California company requires?

Obtaining Business License in California

If you are planning to operate your business in any city or county of California and unless your business is exempt from licensing; you will be required to apply and obtain a license for California business or a business tax certificate. If you have a business license or permit then you will be allowed to operate or transact business in the state legally. If you operate without a license then your business may be forced to close apart from the possibility of penalty fees or fines and can even lead to a loss of reputation. Once you have obtained a license or permit, you will have to ensure California business license renewal on time to avoid penalty.

How do I get a business license in California?

It is fairly easy to obtain a license for a California business although you need to first determine the type of license your business requires. For example, you may require a general license or a regulated license. Most of the licenses and permits are issued by the city offices, city hall, county clerk office, and civic departments like the fire or police department of the city or county your business is located in. A California business license renewal is also handled through the same offices that were responsible for issuing them. There are certain licenses or permits like the California Seller’s Permit that can be applied for from the California Department of Tax and Fee Administration (CDTFA).

General Business License

You can visit the CalGold database as it provides business-specific information regarding the license, permit, and registration requirements. There are certain state and local requirements that you need to fulfill prior to applying for a general business license in California. The cost of a California business license or permit will vary from one city to another although some cities charge a fixed amount as the fee for a business license while other cities have fees based on your annual sales. You can also opt for our “Business License Research Report” service, which is an extensive research report containing a list of filing instructions, supporting document requirements, and fees for all business licenses and permits for your company in California.

What do you need to provide when applying for a California business license?

A general business license in California or permit for regulated industries are governed by the Municipal Code of the city the business is located in. The municipal code also defines the various requirements a business has to furnish or fulfill in order to apply for a new license or for California business license renewal. Some of the important information you are required to provide in your license or permit application include:

• Name and address of the business establishment
• Names, addresses and phone numbers of all members or owners
• The mailing address of your company if it is different from the physical address
• A business phone number
• Driver license or state identification number and Social security number
• The type of business like an LLC, corporation, sole proprietorship etc
• Employer identification number (EIN)
• Seller’s permit number is required prior to applying for a business license in California.
  This permit is applicable only if you are selling goods or leasing tangible personal property anywhere in the state
• The business activity as it plays a key role in determining the type and number of licenses and permits required. It will also determine the cost of California business license
• Some businesses may be required to provide North American Industry Classification System (NAICS) code and Standard Industrial Classification (SIC)
• Bank Information and name as well as account number of the merchant credit card processor
• Estimated Payroll Expenses and Gross Receipts from the specific state the business is located in

Renewing California Business License

Once you have obtained your general business license in California, you can operate your business but at the same time, it is important to remember that a license needs to be renewed. You will need to apply for California business license renewal periodically or annually depending on the state or county requirements and this might involve an additional renewal fee. Most licenses have to be renewed 60 days prior to the expiration date. In the state of California, all active business licenses expire after a period of two years while inactive licenses expire after four years. Hence, it is important to ensure that the expiration date is marked on your calendar because if you miss the date, you may end up paying a late fee.

Need any Assistance in Obtaining Your California Business License?

In the state of California, there is a general business license and depending on the business activity, industry, and location of the company, you may also have to apply for regulated business licenses, and local permits. The process of searching for the right license and determining whether your business requires single or multiple licenses can be quite exhaustive and time consuming. We at IncParadise can help you in the process by guiding you to obtain a license for California business. You can also benefit from our Business License Research Report service, which will provide you with business license filing instructions, cost of California business license, and information pertaining to the list of documents required for submission.