How to Start a Business in California
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Starting a business in California can be daunting. But if you have a killer business idea, you’ve already done the hard part. We can help you navigate California’s unwieldy bureaucracy. Our local business experts do it every day.
Choosing a California Entity Type
Choosing a California business entity is a legal decision that affects how your business will be owned, managed, and taxed. It’s crucial to understand your options.
- A sole proprietorship is the simplest business structure. In a sole proprietorship, there’s no legal separation between you and your business. It’s inexpensive and low maintenance, but it also offers no liability protection. Sole proprietors are personally liable for the debts of their business.
- Limited Liability Companies are a popular choice among small business owners. Like in a sole proprietorship, profits are taxed on the owners’ personal tax returns. Like in a corporation, owners are not held personally liable for business debts. Forming and maintaining an LLC requires filing paperwork with the California Secretary of State and paying the annual California Franchise Tax (a minimum of $800).
- Corporations are less flexible—and in the eyes of potential investors, more accountable—than LLCs, thanks to statutes that dictate a rigid management structure and strict record-keeping rules. However, transferring ownership (stock) of a corporation is much easier than transferring ownership (membership) of an LLC. This makes the California corporation a popular choice for business owners hoping to raise capital. A potential drawback? Corporate profits are typically taxed twice—once at the corporate tax rate and again on shareholders’ personal tax returns. Corporations offer limited liability and are formed and maintained by filing paperwork the California Secretary of State.
Appointing a California Registered Agent
If deciding on an entity type is your most important business decision, choosing a California registered agent is a close second.
In California, LLCs and corporations are required to appoint a registered agent (called an “agent for service of process” in California) by law. Your registered agent must keep a physical street address in California (no PO boxes) and be available during regular business hours to accept legal mail on your behalf. Choosing a reliable California registered agent ensures you won’t be caught unawares if—fingers crossed it never happens—you get sued.
Protecting Your Personal Privacy
California requires LLCs and corporations to list a business address on formation documents. This business address becomes part of the pubic record, meaning it’s posted on the California Secretary of State website for anyone to find. If you don’t work out of a traditional office, you might be tempted to list your home address as your California business address. We don’t recommend it—click below to see why.
Filing Formation Documents
Your formation document is the official paperwork you file with the California Secretary of State to establish your business as a separate legal entity. It’s an exciting step! But filling out the paperwork can be tricky, and if you don’t get it right the first time, your filing will be rejected and you’ll have to get back in line.
Once your California business is officially established, there are some tasks you’ll need to do to keep it in good standing with the California Secretary of State, like filing your Initial Statement of Information and paying taxes.
Researching Local Requirements
Once you’ve taken care of the California Secretary of State requirements, think local. The county or city where you do business may require additional registrations or permits. For example, many municipalities require businesses to register for a Business Tax Certificate. If you’re doing business in a regulated industry, you might need additional licensing. Get in touch with your local government to find out more, or check out our city-specific California business guides below.