How to start a business in California
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Updated 4:34 a.m. UTC Jan. 31, 2024
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You’ll need to go through a lengthy process when you start a business in California. Whether you’re an limited liability company (LLC), S corp or C corp, you’ll need to:
- Start with a business plan.
- Select a business entity.
- Choose a business name.
- Choose a registered agent.
- Register your business entity.
- Apply for an employer identification number (EIN).
- Apply for required licenses and permits.
- Open a business bank account and other financial accounts.
- Pay the annual fee.
- File a statement of information.
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10 steps to register your business in California
1. Start with a business plan
A business plan can help keep you organized. It serves as a roadmap for the future of your enterprise and can prove to investors that you have a good plan in place. In California, funding opportunities are abundant, so drafting a solid business plan is an invaluable asset for meeting your financial needs.
“There are clear advantages to being a California startup if you’re looking for institutional investors,” said Ju Park, managing partner and co-founder of Parsus Law. “There are over 200 venture capital firms in California competing with one another to invest [billions] in hopeful startups. Almost half of all startup capital investments [go] to companies located in California.”
As you craft your business plan, many businesses in this state use a lean startup plan, which often includes:
- Key partnerships and costs you’ll incur as you run your business, like suppliers, manufacturers, subcontractors and software like credit card processors and payroll systems.
- Key activities your business will use to gain an advantage in the current marketplace.
- Key resources, like your staff profiles, product or process patents and intellectual property.
- A value proposition that lays out your company’s unique value in a clear and concise way.
- A section outlining how your company will interact with its customer base, including communication channels and customer acquisition and retention strategies.
- An overview of your customer segments, which entails getting extremely specific with your target audience.
- An explanation of whether your company will manage its cost structure through austerity policies or by providing quality value to higher-paying customers.
- A list of all potential revenue streams for your business.
2. Select a business entity
In California, there are four main business types you may choose to pursue, including a C corp, S corp, LLC and sole proprietorship. Each comes with its own set of pros and cons.
| PROS | CONS | |
|---|---|---|
Sole proprietorship
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LLC
|
|
|
S corporation
|
|
|
C corporation
|
|
|
3. Choose a business name
As you name your business, you want to ensure it tells customers what you do. California offers business naming guidelines to help you choose a name that will be accepted by the state. For example, it states that you can’t make your name misleading by using words that would imply you’re affiliated with the government or by using words like “charitable foundation” when you’re not a charity.
You also need to make sure the name is not already in use in your state or protected against national infringement. You can use California’s business search tool to see if your name is available in California. Likewise, use the U.S. Patent and Trademark Office’s trademark search database to ensure the name isn’t nationally protected against use.
If your name appears in either of these databases, you will either need to change it to make it distinguishable or choose another one. Refer back to California’s business naming guidelines for more information on how to distinguish a name.
Once you’ve chosen an appropriate name, if you are not yet ready to file your formation paperwork with the state, you can reserve the name for 60 days using for a $10 filing fee California’s online business filings portal.
4. Choose a registered agent
If you have a business in the state of California, you are required to have a registered agent. Your registered agent has to have a physical address, not just a P.O. box, in California. The registered agent must be at least 18 years old and available during all regular business hours throughout the year at the listed address.
As long as you meet the state requirements, you can be your own registered agent. However, for many small businesses, this role is burdensome. As such, many choose to outsource the role to a registered agent service provider with offices in California.
5. Register your business entity
The California bizfile online platform allows you to register a California LLC or corporation, but each type of business formation comes with different fees. LLCs must pay $70 to file articles of organization. Meanwhile, corporations have to pay $100 to file articles of incorporation.
Park said that currently, the state is taking about two to three weeks to process initial filings, at which point you’ll receive a California entity number. You can then use your California entity number to secure an EIN.
For information on how to fill out your articles of organization form, read our guide.
6. Apply for an EIN
An employer identification number (EIN) is a number assigned to a business to identify it for tax administration purposes. It is also used to complete key business tasks, such as hiring employees, obtaining business licenses and funding and opening a business bank account.
You can get an EIN from the IRS website Monday through Friday, 7 a.m. to 10 p.m. EST. It’s a free and fairly painless process. Usually, the application takes 15 minutes or less. If you have a Social Security number, you’ll be issued your EIN immediately on the form’s submission confirmation page.
“Sometimes, we have foreign clients starting businesses in the U.S. without a Social Security number,” said Park. “In these cases, it currently takes about three weeks to a month to get assigned an EIN.”
7. Apply for required licenses and permits
In California, there’s no general state business license requirement. However, there are some industry-specific licenses required at the state level for certain professions, like those working in medical or legal fields. But for the most part, licensing and permitting is regulated at the county and city level.
For assistance, the CalGOLD site can help you identify the potential litany of permits and licenses that may be required of you depending on your industry and location. California also offers a professional licensure guide that can help you identify required licenses based on your industry. Finally, it offers a list of licenses you may need based on environmental activity within your operations.
For more information on how to identify the licenses and permits that may pertain to your business, read our business licensing guide.
8. Open a business bank account and other financial accounts
It’s imperative to keep your business finances entirely separate from your personal finances from day one. Otherwise, you risk losing your liability protection.
As such, your next course of action should be opening a business checking account. In addition to a checking account, you may also want to look into a business credit card to keep your credit purchases separate from your personal finances.
9. Pay the annual fee
Not typical in other states, every LLC in the state of California must pay an annual tax fee. That fee costs $800 per year. If you are running a corporation — whether it is incorporated, registered or doing business in the state — you will also have to pay a yearly fee. This fee also costs at least $800 per year.
LLCs must pay this fee on day 15 of the fourth month of its existence while corporations do not have to pay this tax during the first year of existence. This fee can be paid using the California pay by bank account web pay portal.
10. File a statement of information
If you own an LLC in the state of California, you will need to submit a statement of information along with a $20 filing fee. The first time this statement needs to be filed is within 90 days of filing your LLC registration. Then, you will have to submit it every two years.
If you own a corporation, you will also need to submit a statement of information along with a $25 filing fee. Not only is it due within 90 days of registration, you need to submit it once every year.
Find the best company formation services for California: Best LLC services of 2023
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Frequently asked questions (FAQs)
The cost of starting a business in California varies depending on your entity type. If you’re starting an LLC, you’ll pay a total of $70 to file your articles of organization form, while corporations pay $100 to file articles of incorporation.
In addition, LLCs pay a $20 fee to file updated statements of information every other year, while corporations pay $25 and file annually. All formal entities – whether they’re LLCs or corporations – have to pay an annual franchise board tax of at least $800.
Sole proprietorships are not required to register with the state, so you don’t have to pay anything as you’re not a formal entity. Sole proprietorships are also exempt from the annual franchise board tax, but they lack limited liability protection.
Other costs to start a business in California may include:
- Reserving a business name.
- Hiring a registered agent.
- An initial deposit to open a bank account.
- Legal consultation costs.
- Fees for acquiring required professional, local or activity-specific business licenses.
Currently, it takes about two to three weeks for your initial filing paperwork to process. You can opt to pay fees to expedite the process. Paying an extra $350 will get your forms processed within 24 hours, but if you want your forms processed the same day, it will run you $750.
The next step is to get an EIN, which is typically issued immediately, but if you do not have a Social Security number, it can take up to another three weeks to a month to get your EIN.
Other processes that may affect the timeline for forming your business include:
- Selecting and hiring a registered agent.
- Obtaining business licenses and permits.
- Consulting with business attorneys.
Yes, you do need a physical location in California to open a business. You’ll also need a registered agent located in California, and neither one of you can use a P.O. Box.
“Entrepreneurs on a shoestring budget may want to use their home address for either or both purposes, but this can be undesirable for reasons including privacy and zoning issues,” said Park. She notes that details like addresses are public, searchable record in California – even when you have the required registered agent.
“You can hire a third-party registered agent service for around $100 to $200 per year, and some co-working spaces may allow [their] use as a physical address for business purposes,” said Park.
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