5 Easy Steps To Start A Business In California

Business In California

Would you believe one of the best things you can do for yourself as a businessman or woman in the US is to start a business in California? With California’s economic value, anything is possible if you put your mind to it.

It would interest you to know that California as a state has maintained the status of the largest and fourth-best economy in the United States of America and the fifth-largest economy in the world.

In this article, we will gladly show you five easy steps on how to start a business in California. The moment you read through, you will know that your decision to start a business in California, irrespective of the industry you would like to venture into, is very valid. The money you wish to make is very achievable in California.

Join us on this journey to learn all you need to know about starting a business in California.

Key Takeaways

When you’re done reading this article, you will understand:

  • From a business standpoint, the economic value serves as encouragement to any individual who wishes to start a business in California.
  • Small businesses in California are easy to set up as the process is very easy and affordable for both citizens and non-citizens.
  • Top brands like Silicon Valley, Hollywood, Google, Apple, etc., have also been known to have their offices based in California.

What Is Business In California Like?

California is the largest and wealthiest state in the United States of America. Like California is called the Golden State, it holds a position at the top of the list in many areas, especially in the business world.

Top brands like Silicon Valley, Hollywood, Google, Apple, etc., have also been known to have their offices based in California.

This has helped to boost the economy of the state in which California qualified and ranked 31st on the “Forbes Best States for Business” list.

Aside from the presence of the top brands in California, with a population of 39 million people, there’s an approximate number of 4 million businesses in California with almost $3.4 trillion coming in from various brands scattered across the different industries.

With this, we can boldly say that starting a business in California is lucrative and favorable for both the business owners and customers respectively.

5 Easy Steps To Start A Business In California

Business In California

To start a business in California, here are easy steps you should take to set everything up for your business:

  • #1-Business Plan
  • #2-Finance
  • #3-Register
  • #4-Entity
  • #5-License & Permit

#1-Business Plan

Your business plan guides you in outlining the strategies for initiating and running your business. Typically, your business plan comprises the following components:

  • Executive Summary
  • Company Overview
  • Business Objectives
  • Results from Market Research
  • Projected Expenses
  • Financial Plan

These components help with securing and sustaining the business. The business plan is the first step you should take to start a business in California.

#2-Finance

It is important to maintain a clear distinction between your personal and business finances, which means every new business must establish a dedicated checking account. However, not all bank accounts are identical, emphasizing the importance of careful consideration when selecting the best business account for your new company.

In contrast to personal accounts, business accounts are commonly used to take care of monthly maintenance fees with a required minimum balance or monthly direct deposit. Additionally, banks may impose restrictions on the number of transactions allowed per billing cycle.

Business owners should consider securing a loan with a bank to ensure adequate coverage for expenses. A well-chosen startup business loan can prove to be very important when financing operational costs during the growth phase. Depending on your credit history, securing a loan within the range of $1,000 to $500,000 is feasible. Most lenders typically stipulate a business tenure of six months to a year before extending a loan for your company.”

#3-Register

All newly established businesses, except for sole proprietorships, must complete registration with the California Secretary of State. When registering your company, be prepared to pay a nominal filing fee ranging between $30 and $150.

It’s important to note that the registration process for corporations, LLCs, and LPs in California varies based on whether you are a domestic or foreign registrant. Domestic applicants plan to both reside and operate their business within the state of California, while foreign applicants intend to operate in California but reside outside the state or country.

  • For Limited Liability Companies (LLCs): the registration involves filing Articles of Organization with the California Secretary of State (CSOS). Online registration is recommended, although filing can also be done by mail, in-person, or electronically. The filing fee for LLCs is $70.
  • General partnerships: the formation requires filing a Statement of Partnership Authority (Form GP-1) with the CSOS, with a filing fee of $70.
  • Limited Liability Partnerships (LLPs): they necessitate applying to register a domestic Limited Liability Partnership (Form LLP-1) with the CSOS. Foreign registrants must file Form LP-5. The registration fee for both types of LLPs is $70. Attorneys must additionally register their LLPs with the California State Bar after CSOS approval.
  • Limited partnerships (LPs): they are formed by registering a Certificate of Limited Partnership (Form LP-1) with the CSOS, incurring a registration fee of $70.
  • For corporations: the process involves filing Articles of Incorporation with the CSOS. The filing fee is $100 for corporations providing shares, or $150 if the filing includes a statement of conversion. If there are no shares, the fee is $30.

#4-Entity

In the state of California, you have the option to initiate six distinct types of business entities. For small businesses, the entity types that are commonly used are:

  • Sole Proprietorships
  • Limited Liability Companies (LLCs)

For other specific types of startups, the entity types that work are:

  • General Partnerships
  • Limited Partnerships
  • Limited Liability Partnerships (LLPs)
  • Corporations

We would take a look at these entities individually so you can have a proper understanding when choosing the type you would like when thinking of starting a business in California.

a. Sole Proprietorships

A sole proprietorship is established to enable an individual to own and run a business. The sole proprietor retains complete control, receives all business profits, and is accountable for taxes and liabilities.

If the sole proprietorship operates under a name different from the individual’s name, a “Fictitious Business Name Statement” must be submitted to the county where the main business location is situated.

No official formation documents need to be submitted to the California Secretary of State’s office. Additional state filings may be necessary based on the nature of the business.

b. Limited Liability Companies (LLCs)

A California LLC often provides liability protection comparable to that of a corporation, even though the taxes they pay are different. One or more managers or members may oversee a domestic LLC.

The members must have an operating agreement regarding the LLC’s activities and business conduct, in addition to filing the necessary paperwork with the Secretary of State. The operating agreement is held at the LLC’s record-keeping office rather than being filed with the Secretary of State.

To register your business as an LLC in California, take the following steps:

  • Visit here and log in
  • Click on the Business Entities Tile
  • Click on Forms
  • Choose ‘Articles of Organization – CA LLC’, follow the instructions, fill out the form, and submit.

c. General Partnerships

For a business in California, a general partnership must consist of two or more individuals, and unless otherwise specified in a separate written agreement, each partner is responsible for all general partnership debts. The partners’ income is taxed on partnership profits.

Each partner reports their portion of partnership profits or losses on their tax returns because a general partnership is a pass-through entity, meaning revenue flows directly to the owners. There is no tax on the partnership per se.

d. Limited Partnerships

A Limited Partnership (LP) can offer limited liability protection for certain partners in California. The LP must have at least one general partner who takes on the role of the controlling partner and one limited partner whose liability is usually limited to their level of control or involvement.

General partners in an LP bear unrestricted personal responsibility for the LP’s debts and obligations. To establish an LP in California, take the following steps:

  • Visit here and log in
  • Click on Business Entities
  • Click on Register a Business
  • Select “Certificate of Limited Partnership – CA LP”, follow the instructions, and complete and apply.

e. Limited Liability Partnerships (LLPs)

A Limited Liability Partnership (LLP) is a business partnership specifically involved in activities such as public accountancy, law, architecture, engineering, or land surveying.

Additionally, an LLP may offer services or facilities to a registered LLP practicing public accountancy or law in California, or to a foreign LLP. As mandated by law, an LLP is obligated to maintain specific levels of insurance.

To establish and formalize the existence of an LLP for a business in California, you must complete the registration process. This involves applying to register a Limited Liability Partnership, known as Form LLP–1, to the California Secretary of State’s office. This essential step ensures compliance with legal requirements and establishes the LLP as a recognized entity within the state.

f. Corporations

In California, a corporation is a separate legal entity from its owners. The corporation and the shareholders are subject to taxes, even though the owners are often shielded from personal responsibility.

When choosing entities like corporations, it is possible to raise additional funds by selling bonds or stocks, and the company has a high chance of surviving after the owners pass away.

When considering the range of possibilities available, legal counsel should be engaged.

Documents such as “Articles of Incorporation” must be submitted to the California Secretary of State’s office to establish a corporation in that state.

#5-License & Permits

After registering your business name, the next step is to get your company a business license, which allows you to start a business in California.

Usually, as part of the business licensing procedure, the city may request the registration of state taxes and permits.

Every business must adhere to specific legal prerequisites when setting up a small enterprise. These prerequisites can differ based on the industry, location, and type of business.

For instance, to operate legally in most counties and cities in California, a business license is mandatory.

The Go-Biz website, hosted by the California Governor’s Office of Business Development, provides a convenient search tool.

This tool assists in identifying the permits and licenses necessary before commencing business operations.

To use the search function, input the city or county where you intend to operate and specify the type of business.

Subsequently, you will be provided with a comprehensive list of required permits and licenses, along with guidance on how to acquire them.

Process Of Registering A Business In California

You must register with the California Secretary of State if you selected a Limited Liability Company (LLC), Corporation (Corp), Limited Partnership (LP), or Limited Liability Partnership (LLP) as your business structure.

1. Verify Name Availability:

Ensure that the desired name is not already in use for any business in California or elsewhere. You can easily confirm the availability of your chosen name.

You can get valuable information on how to check the availability of your preferred business name, offering insights and tips to help you make an informed decision about your business identity.

2. Submission Process:

Once you’ve confirmed that your desired business name is available, the next step involves submitting the relevant forms for your chosen business structure to the California Secretary of State.

This filing process is crucial in establishing the legal foundation for your business entity.

Following the confirmation of name availability, proceed to initiate the submission of the necessary forms. These forms are specific to your chosen business structure and play a vital role in registering your business with the California Secretary of State.

Completing this filing procedure ensures that your business is formally recognized and adheres to the legal requirements mandated by the state.

Familiarize yourself with the specific forms applicable to your business type, and navigate through the filing process to pave the way for the legitimate establishment of your enterprise.

3. Submission of Information Statement:

After the California Secretary of State has successfully processed and finalized your filing, the subsequent step involves submitting a Statement of Information within a 90-day timeframe from your filing date.

To initiate this process, log in to your account and locate your entity name. On the right-hand side, you will find a ‘Statement of Information’ button, which you should select for filing.

This statement is crucial for providing updated information about your business and is a mandatory requirement to ensure compliance with state regulations.

If you prefer a paper-based submission, the necessary forms can be accessed here. Familiarize yourself with the required details and ensure timely submission of the Statement of Information to uphold the accurate and current representation of your business with the California Secretary of State.

Businesses You Can Start Up In California

Building and sustaining a prosperous small business in California requires navigating a challenging journey.

Among the myriad decisions you’ll face, choosing the right business model stands out as an important step that significantly contributes to ensuring you succeed.

Crafting an effective business model serves as a cornerstone for your entrepreneurial venture. It involves a strategic alignment of key elements, encompassing your products or services, target market, revenue streams, and operational processes.

This thoughtful selection lays the groundwork for streamlined operations, customer satisfaction, and financial sustainability.

Moreover, the business model you choose influences how you adapt to market dynamics, technological advancements, and evolving consumer preferences.

It acts as a roadmap that guides your business through various stages of growth and change.

By dedicating time and effort to carefully assess and select the most fitting business model, you position your small business for long-term viability and success.

It becomes a dynamic framework that not only propels your initial establishment but also provides the flexibility needed to navigate challenges and seize opportunities in the ever-improving business landscape.

Therefore, being meticulous while considering and adopting an appropriate business model serves as a crucial factor in securing the longevity and prosperity of your small business endeavor.

1. Restaurants

As the most populous state in the country with approximately 39 million residents, California is also one of the best states to open a restaurant.

While operating a restaurant requires obtaining some food and alcohol-related business licenses, you may be able to earn substantial profits.

Additionally, you have the option of opening a single business or operating a franchise.

Also, California’s diverse cuisine and food culture make it an ideal state for restaurant enterprises. Restaurants can provide distinctive and superior dining experiences when they have access to fresh produce and a range of cuisines.

Choosing the ideal site for a restaurant too, is crucial to its success since it guarantees both foot traffic and great exposure. Developing connections with nearby vendors of fresh produce might improve the appeal of your cuisine.

2. Health & Fitness

For years, California has been a focal point for the fitness and diet sectors. Numerous iconic fitness figures, such as Arnold Schwarzenegger, Jack LaLanne, and Joe Gold, have made California their home. If you have a passion for aiding individuals in achieving physical fitness goals or enhancing their dietary habits, consider channeling that enthusiasm into establishing a gym or fitness center.

Alternatively, you can embark on launching your personal training or nutrition consulting venture. For those with a medical degree, the option to establish a private medical practice is also available.

California’s rich history in the fitness and health industries makes it an ideal location to turn your passion into a thriving business.

3. E-Commerce

E-commerce, formally referred to as electronic shopping and mail-order houses encompasses retail businesses utilizing either print-only or a combination of print and online catalogs to facilitate the sale of merchandise.

Establishing an online shopping business is a more streamlined, rapid, and cost-effective endeavor compared to its brick-and-mortar counterpart.

In California, there are approximately 5,000 companies with a workforce of 55,000 individuals within this industry.

The financial landscape of e-commerce in California is robust, with significant revenue generation. On average, each employee contributes around $958,300, resulting in a total industry revenue of $52.66 billion in 2012.

Over the five years from 2007 to 2012, the workforce size experienced a notable 27% increase. The burgeoning technology sector in Silicon Valley and the broader San Francisco Bay Area has played a pivotal role in expanding the influence of e-commerce companies through the introduction of new platforms, apps, and software.

Notably, the California Retailers Association, a key trade organization representing all facets of the retail industry, serves as a significant advocate for owners of businesses in California involved in e-commerce. This points to the sector’s importance and its strong ties to the broader business landscape in the state.

4. Shoe

The shoe market is a very lucrative business in California because of its fashion-forward populace and heavy foot traffic from tourists.

Due to the diverse population of the state, a large range of shoe brands and designs are available to suit a range of demands and likes.

Finding fashionable, high-quality footwear is essential for a successful business endeavor since it keeps you competitive in the marketplace.

Choosing a prominent site, ideally in a bustling mall or shopping area, can greatly increase foot traffic and revenue.

California is a shoe lover. The state is home to several of the most prosperous shoe brands in the world, such as Toms, Vans, and DC Shoes.

Retailers offering a wide variety of footwear, such as pumps, boots, sandals, and sneakers, in addition to shoe care items, fall under the category of shoe stores.

In California, there are more than 3,000 shoe stores that employ 25,400 people. Furthermore, the shoe industry in the Golden State is rather large, with a $3.7 billion market.

5. Barbing

The population of California is fashion-conscious and diversified, which guarantees a consistent need for grooming services and makes opening a barbershop a feasible business venture.

In particular, the state’s metropolitan districts have a sizable client base and chances to serve specialized sectors or provide high-end services.

Securing a prime location in a busy neighborhood is essential for opening a barbershop, and investing in high-quality tools and knowledgeable barbers is essential to developing a respectable company. Make sure all licensing and health and safety requirements, which are state-specific, are followed.

Read also: How to Start a Car Detailing Business in 2024: Earn $200k Monthly

Tax Credits & Incentives For California Employers

If you intend to hire employees for your new business, it’s important to investigate potential tax incentives available for California employers. You have the opportunity to lower costs if you meet the criteria for the following programs:

  1. Work Opportunity Tax Credit (WOTC): Qualifying for this credit can reduce your tax liability by up to $9,600 per new hire.
  2. Disabled Access Credit: If you meet the eligibility requirements, you can receive a credit of up to $5,000.
  3. Architectural and Transportation Tax Deduction: Qualifying businesses can benefit from an annual tax deduction of up to $15,000.

Conclusion

Initiating a business in California necessitates careful preparation and strategic consideration. Several websites are available online from the State of California that facilitate business registration and the acquisition of required licenses and permits.

But make sure you have a solid business strategy in place before starting any kind of venture. A startup funding and financing plan, as well as a successful market competition strategy, should be part of that plan.

Frequently Asked Questions

Can you start a business in California?

Yes, you can start a business in California, anywhere in the state you would love to set up your business.

What is the best business to start in California?

1. Restaurant
2. Health/Fitness
3. E-Commerce
4. Shoe
5. Barber

Can a foreigner start a business in California?

You must submit a Statement and Designation by Foreign Corporation if you are a foreign corporation. The filing fee is $100 as of 2023.
Should you be a foreign limited company, you must apply to Register. The filing fee is $70 as of 2023.

How much does it cost to start a business in California?

The cost of starting a business in California can vary depending on several factors, but in most cases, it can be less than $100 to get started.

How much is a California seller’s permit?

There is no fee to obtain a California seller’s permit itself. However, there are a few potential costs to be aware of:

Security Deposit: If you already owe back taxes to the state, they may request a security deposit when you apply for your permit. This deposit would cover any potential future outstanding taxes if your business closes. The amount of the deposit is determined by the state individually.

Third-Party Services: While obtaining the permit itself is free, some third-party services can help you with the application process for a fee. These services can be helpful if you find the process complex or time-consuming.

Sales Tax: Once you have your permit, you are responsible for collecting and remitting sales tax on your taxable sales in California. This is not a fee for the permit itself, but rather a tax obligation associated with running a business that sells taxable goods.

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