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How to Start a Business in California


As the nation’s most populous state, with a $3 trillion economy, California is an appealing place to start a business. But while the massive economy presents plenty of opportunities for business owners, there are also plenty of regulations that they’ll need to know about. If you’re thinking of starting a business in California, there’s a lot you should know going in, including business licenses, taxation and other rules and requirements. There are also best practices that any business owner should keep in mind before they get started. Here’s what you need to know. A financial advisor can offer valuable insights and guidance for starting a business and help you protect your personal finances.

Make a Business Plan

Starting a business begins with a business plan. And deciding on a product or service to sell is the first step in planning. Entrepreneurs generally select an offering that plays to their personal strengths and individual objectives as well as the demands of available markets.

California is known for its technology, entertainment, manufacturing, agricultural and recreation industries. However, with a diverse economy and population, that state is hospitable to many new business ideas.

Creating an effective sales and marketing strategy is the next part of business planning. Basic steps include identifying the most likely prospects and figuring out the best ways to attract them and turn them into customers.

Unless a business is envisioned as a one-person enterprise, a plan for staffing is next. Businesses with employees can grow larger and offer more services and products. The planner’s tasks include determining how many workers will be required, what skills they’ll need and whether to use independent contractors or full-time employees.

Going into business requires money for fees, stationery, rent, salaries and other costs. The planning stage is the time to decide where to get this money. A founder’s savings capitalize most businesses. Other sources may include bank loans, selling shares to the public, issuing debt or crowdfunding.

In California, a wide array of state and local government and non-profit organizations also provide financial incentives to business owners. The California Business Incentives Gateway can help direct business owners to loans, grants, credits, rebates and other financial assistance.

Choose a Business Structure

Like other states, California requires businesses organized in certain ways to register, file forms and pay fees to the secretary of state. In California, this covers the following types of business entities:

Partnership: This structure is for a business that combines the talents and resources of two or more owners. California recognizes limited partnerships, general partnerships and limited liability partnerships.

Limited partnerships: These partnerships have two kinds of partners, general and limited and offer some protection from liability to limited partners. Ohio limited partnerships have to register and pay fees to the state.

Limited liability partnerships: To protect general partners from liability, a partnership can be registered as a limited liability partnership. This also requires paying a fee to the state.

Corporation: This is the most flexible and complex business structure. A corporation can more easily attract investors and potentially grow to a large size while protecting owners from personal liability. There are two types of corporations, C corporations and S corporations. The latter type lets profits pass directly to the owner(s), who therefore avoid double taxation.

Limited liability company: These combine some of the protective elements of corporations as well as tax advantages.

Sole proprietorship: This is the simplest business entity. A sole proprietorship is essentially indivisible from its owner. This has important implications for taxes and liability. Sole proprietorships generally don’t have to file with the secretary of state.

Register the Business Name

A small business owner stands outside her shop with an "Open" signTo register a corporation, partnership or LLC with the state, the new business owner has to choose the business name. The name must be one no similar entity in the state is using. To check a name’s availability before registering, entrepreneurs can write to the secretary of state’s office.

Sole proprietors don’t have to register names with the state. However, if the business operates under a name other than the owner’s, the business must file a fictitious business name statement with the county where it operates. Here are links to county websites in California.

Get Tax ID Numbers and Register With State Authorities

New businesses also must register with federal and state taxing authorities.

To get a federal Employer Identification Number, businesses can apply with the Internal Revenue Service. The EIN is needed to facilitate withholding taxes on wages and salaries and to file the business’s federal tax return.

In California, businesses must also register with state tax authorities, including:

How Businesses Are Taxed in California

California’s corporate tax rate is 8.84% of gross income. It is levied on C corporations and other entities that are not flow-through businesses under federal tax law.

New corporations incorporated, registered, or doing business in California must also pay a franchise tax. That comes to either $800 or 8.84% of net income, whichever is larger, each year.

California’s sales tax rate is 7.25%. This includes 6 percent going to the state rate and an additional 1.25% levied by local taxing authorities.

Obtain Licenses and Permits 

California requires licenses or permits for most kinds of businesses. Check both of these sources to learn more:

CalGOLD. If you provide the city or county where you will operate and the type of business, this all-in-one site will serve up information about necessary permits and contact information for regulation.

California Department of Consumer Affairs. The DCA oversees 280 licenses, certificates, registrations and permits for businesses ranging from architects to veterinarians.

The Bottom Line

The owner of a small winery, standing in front of a row of oak barrelsCalifornia has some of the most extensive regulations for new businesses in the country. However, countless new businesses have successfully navigated these regulations to start and prosper in the Golden State. The opportunity is great, though, for businesses in all industries so you’ll want to weigh the pros and cons of starting your business in California and see what works for you.

Resources for Starting a Small Business

  • Many financial advisors specialize in helping small business owners with their financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Some parts of starting a small business are the same no matter where you plan to operate. Here are some of the basic requirements for beginning a new enterprise.

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