How to start a business in California: a step-by-step guide

From business plan to insurance, learn what you need to start your service business in California

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If you’re planning to start a business in California, you’re in good company. With 4.1 million small businesses in California representing 99.8% of all businesses in the state, California is quite possibly one of the most entrepreneurial states in the US. In fact, small business owners provide employment for 7.2 million people, or 48.5% of the state’s total workforce.

Thankfully, starting a California-based business is relatively straightforward. Here are the steps you’ll need to take to start a business in California.

Checklist: starting a business in California

  1. Check local zoning regulations
  2. Create business plan
  3. Choose a business structure
  4. Register your business name
  5. Register your business
  6. Hire employees
  7. Get business license and permits
  8. Get insurance

1. Check local zoning regulations

Before registering your business, make sure that your business is allowed to operate in the location you want. Why? Because California has over 39.5 million residents, 58 counties, and 482 incorporated cities and towns, and business requirements and regulations are not uniform across the entire state. For example, some counties and cities don’t allow specific home-based businesses. For example, Fortune telling is not allowed as a home-based business in the City of Dublin.

You can find zoning regulations for your town or city by reviewing your local ordinances and contacting your local zoning or planning department.

If you do plan to operate a home-based business, we also recommend reviewing your lease or HOA rules, some of which may ban home-based businesses.

2. Create a business plan

Now that you’ve confirmed that local zoning regulations are on your side, it’s time to hop onto the next step: writing a business plan. Done right, a business plan can help you map out the feasibility and long-term growth of your business.

Make sure that your business plan also includes a clear strategy for achieving short- and long-term goals. It’ll help you stay on track and maximize your business’ overall profitability.

3. Choose a business structure

Every business needs to choose a legal business structure (aka “a business entity”). Each of the available options offers a unique set of pros and cons that will impact your business’ formation, ownership, control, funding options, size, taxation, and more. The trick is to choose a business structure that’s advantageous for your business.

In California, you have the following options for business entities:

Sole Proprietorship

  • General Partnerships
  • Corporations (S corporations and C Corporations)
  • Limited Liability Companies (LLC)
  • Limited Partnerships (LP)
  • Limited Liability Partnerships (LLP)

Ask an attorney to advise you on the best business structure for your business. And check out our guide to business structure types to compare your options.

4. Register your business name

If you plan to operate with a business name that doesn’t include the owner’s last name, you’ll need to follow these steps to name your business in California.

Check business name availability

Naming a business in California is a little bit more complicated than naming your child.

Once you’ve decided on a business name that complies with California’s business entity name rules, check the California Secretary of State’s office database, your local county database, and federal and/or state trademarks, to make sure it’s available.

Get a Fictitious Business Name (FBN)

Also known as a Doing Business As (DBA), a Fictitious Business Name (FBN) is a registered business name that you want to use in business operations instead of your legal name or anything other than the registered business name.

How do you file for a FBN in California?

  1. Conduct a name search. You'll need to check your business name availability on the California Secretary of State's and county database. You'll also want to check if the business name has a federal or state trademark.
  2. File your FBN form with your country clerk in the county of primary business operations
  3. Publish your FBN In California, it's required that you publish your FBN/DBA statement within 30 days of registration. This statement should appear in a newspaper of general circulation in the county where you are registering and appear at least once a week for four consecutive weeks. You will then file an affidavit of publication with your county to verify completion.

Why do you need an FBN in California?

You need an FBN (aka DBA) in California if the name of the business does not include the owner’s last name. According to the Franchise Tax Board’s Guide to DBAs, “an individual or a business entity must file a fictitious business name (FBN) statement with the Registrar-Recorder/County Clerk's office in the county where the business will be located when the name of the business does not include the owner's last name.”

The purpose of registering your FBN/DBA is to ensure that consumers have access to the true name and address of the owner of the business. An FBN is filed at a county level and you will need to file your FBN in the county in which you primarily operate.

5. Register your business

Now it’s time to register your business in California. Registration requirements differ according to your business type.

Sole proprietorships

To operate as a sole proprietorship in California, you’re not required to file any documents with the state. However, if you would like to operate under a Fictitious Business Name (FBN) or Doing Business As (DBA), you need to register your business with your county of primary business operations.

General partnerships

To create a general partnership in California, you don't need to file any organizational documents with the state. The first thing you should do is draft a California General Partnership Agreement (General Partnership Template) between everyone involved in the partnership. This will avoid complicated legal disputes in the future.

It is optional to register your business at a state level, but if you want to, you will need to complete a Statement of Partnership Authority (Form GP–1) and file it with the California Secretary of State’s Office.

Corporations

For both S corporations and C corporations, you must file Articles of Incorporation with the California Secretary of State (SOS). You will also need to appoint an individual agent or corporate agent for service of process in California (in other states, this is known as a registered agent).

How do you register a C corporation in California?

A Registered Agent is an official position of someone who receives official legal and tax correspondence on behalf of the corporation. The agent also has the responsibility of filing reports with the California Secretary of State.

How do you turn a C corporation into an S corporation in California?

In addition to the process above, the shareholders only need to do two things. First, all shareholders should give their consent to turn the C-corp into an S-corp. Second, file IRS Form 2553. The biggest benefit of an S-corp is that, unlike a C-corp, it's only taxed once, at the level of the business owners or shareholders.

Limited liability companies (LLCs)

Like a corporation, an LLC must file Articles of Organization with the California Secretary of State (SOS). You will also need to appoint an individual agent or corporate agent for service of process in California.

How do you form an LLC in California?

  1. Choose a name for your LLC
  2. Assign a Registered Agent
  3. File Articles of Organization (form LLC-1)
  4. Decide on member vs. manager management
  5. File a biennial report

Every LLC, foreign or local, that’s registered in California must file a Statement of Information form, Form LLC-12, with the California Secretary of State within 90 days of filing their articles of organization. This LLC-12 must be filed every two years.

Limited partnerships (LPs)

To register a limited partnership in California, you will need at least one general partner that acts as the controlling partner and one limited partner.  

How do you form an LP in California?

  1. Choose an LP name
  2. Assign a Registered Agent
  3. File the Certificate of Limited Partnership with the California Secretary of State's Office
  4. Create a Limited Partnership Agreement

         This agreement is not legally required in the state of California, but it is           nonetheless important to have to keep your partnership agreement in writing to           avoid legal disputes in the future

  1. File and pay Partnership Return of Income (form 565).

Limited liability partnerships (LLPs)

A limited liability partnership is a kind of partnership that offers partners limited personal liability, similar to limited partnerships. In California, all the partners in an LLP must be a licensed professional– accountant, lawyer, or architect.

How do you form an LLP in California?

To register an LLP in California, you will need to file an Application to Register a Limited Liability Partnership with the California Secretary of State. After your application is approved by the SOS, Attorney run LLPs will need to register with the California State Bar.

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

Sole proprietorship: $26

First-time filing fee one business name and one registrant.

General Partnership: $31 and up

First-time filing fee one business name and one registrant $26 + $5 per additional registrant.

Corporation (C-corp and S-Corp): $226 + $800 annual franchise fee

First-time filing fee one business name and one registrant $26, plus:

  • $100 (file articles of incorporation)
  • $25 (file statement of information)
  • $75 (average business license cost)
  • $800 (annual California Franchise Fee)

Limited Liability Company (LLC): $160 + $800 annual franchise fee

California LLC Fee of $85, plus:

  • $25 (Statement of Information Filing Fee)
  • $50 (Small business license average price)
  • $800 (annual California Franchise Fee)

Limited Partnership (LP): $151 + $800 annual franchise fee

First-time filing fee one business name and one registrant $26, plus:

  • $5  (per additional registrant)
  • $70 (Certificate of Limited Partnership)
  • $50 (Small business license average price)
  • $800 (annual California Franchise Fee)

Limited Liability Partnership (LLP)

First-time filing fee one business name and one registrant $26, plus:

  • $5  (per additional registrant)
  • $70 (LLP Filing fee)
  • $50 (Small business license average price)
  • $800 (annual California Franchise Fee)

6. Hire employees

When you’re ready to scale your business, and you need to hire a few more hands to help run your operations, there are a number of steps you need to take before you can hire your first employee.

  1. Register for your Employer Identification Number (EIN) In California, your EIN is the equivalent of the federal tax identification number. After you apply and receive your EIN, you will receive all the state tax and employment requirements.
  2. Get your Worker’s Compensation Insurance Coverage. All employers are required to have workers’ compensation insurance or state-approved self-insurance with required benefits. You can contact several insurance companies or the State Insurance Fund to make these benefits available to your employees. Employers who fail to have workers’ compensation insurance may be subject to hefty fines, criminal, and civil penalties.
  3. Make sure to provide a Notice of Rights of Victims of Domestic Violence, Sexual Assault, and Stalking to your employees Employers are required to provide a Notice of Rights of Victims of Domestic Violence, Sexual Assault, and Stalking  to new or existing employees when they request it.
  1. Check your businesses’ Required Registration, Certification, or Licensing for Certain Industries Certain businesses that offer specific products or services may need to be registered, certified, or licensed before starting business operations

Familiarize yourself with the state’s hiring requirements before you hire employees in California.

7. Get business licenses and permits

Not all businesses are required to file for a state-wide business license in California. The licenses and permits you need will generally depend on your business type, professional service, and zoning.

There are three main jurisdictions for permits and licenses: local, state, and federal.

Local

At the local level, you will need to check with your county if your industry is required to file for a business license to operate. Of the 58 counties in California, 26 of them require you to file for a business license.

  1. Alameda
  2. Alpine
  3. Butte
  4. Calaveras
  5. Colusa
  6. Contra Costa
  7. El Dorado
  8. Humboldt
  9. Kern
  10. Los Angeles
  11. Madera
  12. Marin
  13. Mendocino
  14. Merced
  15. Mono
  16. Placer
  17. Riverside
  18. Sacramento
  19. San Francisco
  20. San Joaquin
  21. San Luis Obispo
  22. San Mateo
  23. Santa Barbara
  24. Siskiyou
  25. Tulare
  26. Yolo

However, even if your business is located outside of these counties, you may still be required to obtain licenses at a state or federal level.

State

At the state level, service businesses that require extensive training will likely need to file for licenses and permits in the state of California.

Here are some examples of services that require state licenses and permits in California:

  • Lawyers
  • Medical professionals
  • Real estate brokers and salespersons
  • Building contractors and other construction-related occupations
  • Barbers and cosmetologists
  • Architects and engineers
  • Private investigators and other security services
  • Accountants

Please check CalGold and The California Department of Consumer Affairs for permits and licenses you need for your specific business and profession.

Federal

At the federal level, most small businesses won’t need licenses and permits unless their business operates in any of the following industries:

  • Agriculture
  • Alcoholic beverages
  • Fishing and wildlife
  • Mining and drilling
  • Aviation
  • Commercial fisheries
  • Nuclear energy
  • Firearms, ammunition, and explosives
  • Radio and television
  • Transportation and logistics

For a complete list of necessary permits at a federal level, visit the SBA.gov website.

8. Get business insurance

You may be required to get certain types of business insurance depending on the nature of your business.

Here’s a list of the small business insurance that is required or highly recommended in California:

California Workers’ Compensation Insurance

If you have one or more employees, you’re legally required to get workers comp in the state of California. Failing to purchase workers comp could see you facing a misdemeanor offense, up to a year imprisonment, or a $10,000 fine.

California Auto Liability Insurance

If your business operations make use of a car, van, or truck, you will be required to have this insurance. Auto liability insurance will protect you and your business from claims resulting from accidents involving your vehicle.

General Liability Insurance

This will protect your business from claims of bodily injury or property damage.

Commercial Property Insurance.

This insurance will protect the owned or rented property that you operate out of.

Professional Liability Insurance

This insurance can protect you from damages caused by professional services rendered that caused financial harm.

Remember, although California does not typically require General, Commercial, or Professional insurance for business to operate, the state also doesn’t put a cap on liability lawsuits.

For more comprehensive advice on small business insurance, check out What type of small business insurance do I need?

Starting a business in California is easier than you think

Remember: rules, regulations, licenses, and permits can differ greatly between businesses types, industries, and locations. That’s why it’s best to get the help of a licensed pro when you start a business in California.

Work with an attorney or CPA to make sure your new business complies with all state, local, and federal requirements.

This guide is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Durable assumes no liability for actions taken in reliance upon the information contained herein.
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