Choose your business entity
The first step in starting a business is to choose your legal structure. In California, the two most common types of business entities are corporations and limited liability companies (LLCs).
Corporations: Corporations are separate legal entities from their owners, which means that the owners are not personally liable for the corporation’s debts or legal liabilities. This structure is often preferred by businesses that plan to raise capital through investors or go public in the future.
LLCs: LLCs offer similar liability protection as corporations, but with more flexibility in management and taxation. LLCs are often preferred by small businesses and startups that don’t plan to raise capital through investors or go public.
Anecdotal example: In 2015, a startup called Grammarly chose to incorporate as a Delaware C-corporation, but its headquarters and operations were located in San Francisco. This allowed the company to take advantage of Delaware’s business-friendly laws and also operate in California’s vibrant tech ecosystem.
Register Your Business
Once you’ve chosen your business entity, you’ll need to register your business with the state of California. This involves filing the necessary paperwork and paying the required fees.
Corporations: Corporations must file Articles of Incorporation with the California Secretary of State and pay a $100 filing fee.
LLCs: LLCs must file Articles of Organization with the California Secretary of State and pay a $70 filing fee.
Anecdotal example: In 2020, a small business called Luna Vida LLC decided to start selling handmade candles online. The owner registered the business as an LLC and was able to complete the registration process online within a few days.
Obtain Necessary Permits & Licences
Depending on the type of business you’re starting, you may need to obtain additional permits and licenses from the state of California, as well as from your local city or county.
Corporations and LLCs: Some common permits and licenses include a business license, seller’s permit, and zoning permit.
Anecdotal example: In 2019, a restaurant called Lion Dance Cafe opened in Oakland, California. The owners had to obtain a variety of permits and licenses from the city, including a food service permit and an alcohol permit. Despite the bureaucratic hurdles, the restaurant has become a popular destination for locals and tourists alike.
Obtain Insurance
It’s important to obtain insurance to protect your business from unexpected events such as accidents, natural disasters, and lawsuits.
Corporations and LLCs: Common types of insurance for businesses include general liability insurance, workers’ compensation insurance, and professional liability insurance.
Anecdotal example: In 2018, a brewery called Russian River Brewing Company was hit with a lawsuit from a customer who claimed that the brewery’s online sales system violated California law. The brewery had insurance to cover legal expenses, which helped to mitigate the financial impact of the lawsuit.
Comply With Tax Requirements
Finally, it’s important to comply with tax requirements to avoid penalties and legal issues.
Corporations and LLCs: California businesses must register for a state tax identification number and obtain any necessary federal tax identification numbers. Businesses are also responsible for filing regular tax returns and paying any required taxes.
