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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
California’s thriving economy and mild weather make the Golden State a popular place to open a small business. Start a business in California and you will enjoy the independence of being your own boss. Many who open a California business and opt for incorporation find the experience satisfying and exciting.
Start Operating in California: Key Points
California’s booming economy makes it a popular state for entrepreneurs.
Starting a business in California requires filing various formation documents.
Prepare to pay significantly higher taxes for your California startup than in some states.
Easily start your business and remain compliant with our all-in-one tools, guiding you well past the initial setup with the right support and documents.
Ready to Start a California Business?
When you’re ready to start your California small business, there are various steps you must take. No need to get overwhelmed, though. Starting a business in California doesn’t have to be difficult, even for new business owners. With the following direction regarding procedures such as incorporation, you can quickly and easily start operating in California.
1. Choose a Business Idea
Perhaps you already have a business idea that you’re passionate about. If you don’t, here are some tips for developing a spectacular concept for your new business.
If you stay alert, inspiration is everywhere. Some good ways to discover a theme for your California company include the following:
Listen and observe. Watch people and note ways in which they could use assistance. Look for gaps in the market that you would like to fill. For instance, say folks in your community often comment that your town could use a dry cleaner.
Do some daydreaming. Let your imagination wander. Without censoring yourself, answer the question as to what you’d like to do for a career. This exercise could reveal your ideal business.
Visit local businesses. When you are out and about, pay careful attention to the various companies in your community. Are there any types of businesses or industries that entice you? For instance, have you thought about working in the green industry?
Attend business networking events. You will likely become inspired by mixing and mingling with local entrepreneurs.
2. Draft a California Business Plan
Before you go through the business formation process and start operating in California, you must craft a business plan.[1] This is where you’ll describe the purpose of your business, the products or services you will carry, and operational specifics, such as leadership.
Creating a plan for the operation of your new business is vital to the success of your startup. A business plan helps ensure that all your business needs are met and that you head in the desired direction.
If you will be working with investors, they will require a plan. With a roadmap for your company, you can be more organized — poor planning results in oversights, which can be costly and hamper company growth.
A comprehensive business plan includes the following:
Executive Summary
Your business plan should start with an overview of your business concept and what you do.[2] Include information on your competition, potential customers, and how you will target them. Add pricing strategy, marketing plans for growth, and current and projected financial data. Also, list your leadership team.
Company Description
This section of your business plan details who you are and what you do. The company description should include concrete examples, as well as intangibles. For example, If your company provides cybersecurity, list your specific computer security services and the fact that you bring clients peace of mind.
Market Analysis
It’s important to show through data how there is a need for your business in your industry and your company’s potential to capture a healthy market share.
Management and Organization
List who is running your company, including names, titles, and responsibilities. Consider crafting an organizational chart for easy reference.
List Products and Services
Drill down on what you will be offering. Include detailed information about your products and services.
Target Market
Share information about your ideal customer. Do a market analysis and list where your desired customers live, their age range, education level, and buying habits.
Provide a Financial Plan
Detail how you intend to make and spend money. Include a present cash-flow statement and projected income.
3. Select a Business Name
Choosing a business name is an enjoyable and essential part of starting a business in California. You will need a business name before you can form your company.
When reviewing business ideas, the perfect name may present itself. If it doesn’t, do some brainstorming. Consider that the ideal name is memorable, easily understandable, and searchable. Remember that while clever names may be appealing, it’s even more critical that your moniker accurately describes your products and services.
You must do a California business search to verify that your chosen business name is available.[3] Swyft Filings’ free and easy business name search can also be used. If you discover that your chosen name is available, making a name reservation is a good idea. A name can be reserved for up to 60 days in California.[4]
4. Choose a Business Structure
One of your most crucial business formation decisions is choosing a business structure. The type of structure you choose for your startup depends on various factors.
Limited liability company
Known as an LLC, the limited liability business structure is a popular choice for small businesses. An LLC is a hybrid entity that combines the benefits of a sole proprietorship with the perks of a corporation. Owners of LLCs are protected from personal responsibility for company debts and liabilities.
This business structure also gives owners the benefit of pass-through taxation, resulting in lower taxes.
DBA
This acronym stands for doing business as and is not a legal business entity. You must apply for a DBA if you are running a for-profit company in California and your business name does not contain your name. To apply for a DBA, file a fictitious business name (FBN) statement with the Registrar-Recorder or County Clerk’s office where you will be doing business.[5]
C Corporation
C corps are legal entities separate from the company’s owners. C corporations can act as individuals, including conducting business, hiring employees, borrowing and loaning money, acquiring assets, and paying taxes. Corporations offer limited liability protection. Company shareholders are not personally liable for the company’s debts and liabilities.
Most large companies are corporations. This business entity tends to have more rules than an LLC and doesn’t offer pass-through taxation benefits.
Nonprofit
A not-for-profit business entity is tax-exempt by the IRS.[6] These business structures acquire this designation because they provide a public benefit or support a social cause. Any donations made to nonprofits are usually tax-deductible. The nonprofit pays no tax on the donations received or from money earned through fundraising efforts.
These organizations are often called 501(c)(3) or NPO.
S Corporation
An S corporation is an IRS tax designation, not a business entity.[7] Eligible LLCs and C corporations that file for S-corp status are taxed according to Subchapter S of the IRS code. This allows the company to avoid double taxation and save on self-employment taxes.
5. File Business Formation Documents
Becoming official requires filing various documents during business formation with the California Secretary of State and the IRS. Your business won’t be official without filing the appropriate formation documents, and you could face fines.
Articles of Organization
This document requires your LLC’s name, business address, management structure, and your California registered agent’s name and contact information. A registered agent is an individual or entity with a physical address in the state that receives tax and business documents for your LLC and forwards them to you.
Statement of Information
Also known as a certificate of formation and a certificate of incorporation, a statement of information includes vital information about your company, a description of your products or services, business address, names and addresses of all managers and members, registered agent address, and LLC identification number.
Operating Agreement
Although it isn’t required that you file an operating agreement, it is necessary to have one on hand. This document details important information about your company, including address, profit, loss, and equity division, ownership information and management structure, bylaws, and who owns the company’s intellectual property.
Articles of Incorporation
You must file Articles of Incorporation with the California Secretary of State to form a corporation in the state.
As a small business owner, you’re probably very busy. If you want to ensure that you correctly set up your LLC and complete the necessary paperwork, the business formation experts at Swyft Filings can help.
6. Apply for California Business Licenses and Permits
While not required at the state level, there are licenses and permits mandated by some cities and counties before you can start operating in California. What you need will depend on the location and type of business.
Business Licenses are required in many cities and counties, including Los Angeles, Los Gatos, and Sacramento County.[8], [9], [10] If your business is in Orange County, you need to apply with your city.[11] Some towns in San Diego County also require licenses.[12] Check with your local county clerk to see if you need a permit to operate your small business in your area.
Depending on your profession, you may require a specific license. For instance, real estate, construction, and education fields all require special California business licenses. Check the Department of Consumer Affairs (DCA) search tool to see if you need a professional license for your company.
Before you get your startup underway and once you’ve completed incorporation, ensure you have all the required licenses and permits. Failing to do so can result in stiff fines and even business closure. If you are uncertain about what licenses and permits you need or want to ensure you don’t miss any, Swyft Filing’s Business Licenses and Research service can help.
7. File and Report Business Taxes
California is one of the most taxed states in the nation. In addition to paying federal tax to the IRS, small businesses are also liable for state tax. Unlike some states, California businesses that choose a pass-through income structure are subject to double taxation. They pay both business and personal income tax on the same revenue.
All California LLCs must pay an $800 annual tax. This tax is due by the 15th day of the fourth month from the filing date and yearly after that.[13]
What income taxes you pay in California will depend on your business structure. C corporations and LLCs that elect to be treated as corporations in California are subject to a flat rate tax of 8.84% applied to all net taxable income derived from business activity in the state. Additionally, they must pay an alternative minimum tax (AMT) of 6.65%.
S corporations, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs) not subject to corporate tax that use pass-through accounting must pay franchise tax instead.
The State of California also requires all businesses that sell tangible personal property, retail or wholesale, to obtain a seller’s permit from the State Board of Equalization (SBOE).[14] As a seller, you must collect sales tax when you make a sale, report it, and pay through the SBOE.
Given the heavy tax burden in California, you must track tax deadlines, as penalties for not filing and paying on time can be stiff.
8. Open a Business Bank Account
An essential aspect of operating your small business professionally is having a business bank account. Opening a business bank account offers several benefits. Some business structures, such as LLCs and C corps, require it, and it's a requirement for accepting credit cards.
A bank account makes your company look more professional to customers and vendors and business-friendly. Bookkeeping is much easier when you separate business from personal finances. You’ll find that preparing taxes for the IRS is easier.
Before you open a business bank account, you must apply for an employer identification number (EIN). Like a social security number, an EIN enables the IRS to identify your company. If you want to avoid the hassle of signing up for a federal employer identification number, Swyft Filings offers an easy EIN service.
Take Your First Steps Toward Small Business Ownership
Opening a startup in California is an exciting endeavor. From coming up with a business idea and business name to filling out the necessary business formation paperwork and getting permits and licenses, the process can be exhilarating and liberating.
There are many things to remember when you start a business in California. If you want expert help to begin operating in California, Swyft Filings can assist with all your small business needs. Our team of business formation experts has helped countless new entrepreneurs like you start a business in California on the right foot.
Your Perfect Fit: Whether you're looking at a simple LLC or a dedicated nonprofit, we'll help you identify the best structure for your dream business.
Continued Support: Your entrepreneurial journey doesn’t stop at formation. Our key management services help ensure your business thrives.
Tailored Affordability: Get value-packed options suited to your business needs, starting at just $0 + state fees.
Frequently Asked Questions
Is California a good place to start a business?
With the state’s large, vibrant economy, diverse population, and pleasant weather, many entrepreneurs find California a land of opportunity for small businesses. However, California does have high taxes and an equally high cost of living, which can eat into company profits.
How much does it cost to start operating in California?
To start operating in California, it will cost you a minimum of $940 to open an LLC and $980 to form a corporation. This includes the $800 annual tax and fees to file articles of organization, a statement of information, and a city or county business license. Professional licensing will add to this cost.
Can I start a business in California without a business plan?
While you can start a business in California without a business plan, developing one is recommended to ensure success.
What does California require to start a business?
To start a business in California you must have a company name, an employer identification number (EIN), and a registered agent.
What is the process for starting a business in California?
To start a business in California you choose a business structure and file the corresponding business formation documents. You must also pay necessary fees and determine required taxes.[15]
Why are most LLCs in Delaware?
Many LLCs are formed in Delaware because there is no state sales tax. That means goods and services you purchase in Delaware to conduct business aren’t subject to tax. If you don’t live in Delaware, you pay no state income tax.
Delaware is also well known for its Court of Chancery, a special court that settles business matters. Having an LLC in Delaware also provides increased asset protection against creditors.
Bibliography
California Secretary of State. “Starting a Business.” Accessed July 15, 2023.
Score. “How Do I Write a Small Business Plan? 7 Business Plan Writing Tips.” Accessed July 15, 2023.
California Secretary of State. “Business Search.” Accessed July 15, 2023.
California Secretary of State. “Name Reservations.” Accessed July 15, 2023.
State of California Franchise Tax Board. “Guide to DBAs.” Accessed July 17, 2023.
IRS. “Charities and Nonprofits.” Accessed July 17, 2023.
IRS. “S Corporation.” Accessed July 17, 2023.
County of Los Angeles. “Business License General Information.” Accessed July 17, 2023.
Los Gatos. “Business Licenses.” Accessed July 19, 2023.
Sacramento County. “Starting a Business.” Accessed July 19, 2023.
Orange County. “Apply for a Business License.” Accessed July 19, 2023.
San Diego County. “Business Licenses.” Accessed July 20, 2023.
CA.gov. “Limited Liability Company.” Accessed July 20, 2023.
CA.gov. “Get a Seller’s Permit.” Accessed July 20, 2023.
CA.gov. “Starting a New Business Checklist.” Accessed July 20, 2023.
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