Are you ready to start a business in California? Well, we have some wonderful news for you: there’s never been a better time than right now to be your own boss!
We get it, though, forming a new business is pretty daunting. But, with the right strategy, and the right professionals at your side to help you at every step, it isn’t all that difficult after all.
Below, we cover the steps involved in starting a business of your own. This guide will help take the mystery out of what you should expect when establishing your company, and it can also provide you with a much-needed roadmap so you won’t feel lost along the way.
Just keep in mind that, while we’ve made every effort to ensure that this information is up-to-date and accurate, it doesn’t constitute legal or financial advice, nor should it be considered a substitute for legal or financial advice. Consulting with your attorney or CPA is always recommended for personalized guidance.
- Step 1: Choose a Legal Structure for Your Business
- Step 2: Choose a Business Name
- Step 3: Establish Your Business Entity
- Step 4: Obtain Business Licenses and Permits
- Step 5: Open a Business Bank Account
- Step 6: Get Business Insurance
- Feeling Overwhelmed? Hyke Can Help!
The first thing that you need to do when establishing a business is choose its legal structure (a.k.a. its form).
When it comes to the structure of your company, you’re in control, so you get to choose the option that you feel is right for you and your goals.
Keep in mind that there is no single legal structure that’s best for every business owner. Every form comes with its own set of pros and cons that should be considered.There is no single legal structure that’s best for every business owner Click To Tweet
Smart business owners opt to go with the structure that will provide them with the ideal mix of low cost, liability protection, and tax and financial benefits.
Here are your options:
- Sole Proprietorship
- Limited Liability Company (LLC)
Want to dive into the details surrounding each of these business structures? Head over to Smartest Business Entities for Freelancers to learn more.
Okay, so you’ve decided what legal structure you want to use for your business. Next up is choosing your business name. This can be fun, but it does involve a bit of work to ensure you make the right choice.
Here are a few of the main things that should be considered when drafting up business name ideas:
When forming an LLC or a corporation, your business name must be approved by the California Secretary of State.
Your business name must comply with certain legal requirements. For example, if you’re setting up an LLC, you’ll need to include LLC in the name.
The business name you choose must not be too similar to an existing California LLC or corporation already on file at the Secretary of State’s office. Click here for tips on how to perform a search to see if your preferred business name is available.
If you’re planning on forming a sole proprietorship, you have the option of simply using your personal name as your business name. How easy is that?! And when forming a partnership, you can use the surnames of the partners if you can’t think of any other ideas. Easy peasy!
If you want to go by a name other than your own when working as a sole proprietor or partnership, you can file a Fictitious Business Name Statement in the county clerk’s office for the county where your business is located. County websiteswill provide additional information.
Pro tip #1: Check if your preferred business name is available by visiting the Secretary of State’s website and performing a business entity name search.
Pro tip #2: If the name you want is available, you can reserve it for 60 days so someone else doesn’t come along and snatch it up before you have the chance to register. Simply file a Name Reservation Request Form(note: there is a small fee).
Pro tip #3: Want to use all or part of your business name as your website’s domain name? Smart move. But first, check that it’s available! Searching through a domain registration website, such as Register or Network Solutions is a great way to start.
Need some help with choosing the best name for your LLC? Check out our Ultimate Guide to Naming an LLC in California.
The next step on your journey towards business ownership involves legally establishing your entity. And what you’ll need to do will depend upon the type of business that you chose to create. Don’t worry, we’ll break it all down for you to keep things simple:
Sole Proprietorship: Great news! If you’re forming a sole proprietorship, you don’t need to file any documents with the California Secretary of State, or any other agency, in order to establish your business. All you have to do is start working. You’ll also need to take personal ownership of all of your business assets because, in contrast with an LLC or corporation, your business isn’t a separate legal entity with its own assets (learn more here and here.
As discussed above, if you wish to use a name other than your personal name to identify your business, be sure to file a Fictitious Business Name Statement in the county where your principal place of business is located.
Partnership: Whenever two or more people start running a business together, and they don’t form another legal entity like an LLC or a corporation, they automatically start a partnership. Translation: no need to file anything with the government in order to establish your partnership!
As is the case with sole proprietorships, if you wish to use a business name that doesn’t include the surnames of all of the partners in the company, simply file a Fictitious Business Name Statement.
Also, when working in a partnership, it’s a great idea to draft and sign a written partnership agreement. This isn’t required, though.
LLC: To form an LLC, you’ll have to file articles of organization with the California Secretary of State, as well as pay a filing fee. Within 90 days of filing, you have to also file a Statement of Information with the Secretary of State. Learn more by reading Filing an LLC in California: A Step-by-Step Guide.
When filing your articles of organization, you must appoint an individual or a corporation that will serve as your registered agent (also known as an agent for service of process). This person or corporation will be responsible for accepting legal papers on behalf of your LLC. To learn more about registered agents and how to choose the right one for the job, check out the Freelancer’s Guide to Registered Agents.
One more thing: you aren’t legally required to draft a written LLC operating agreement, but it’s a good idea to do so anyway, even if you’re operating as a single-member LLC. This agreement will establish your LLC’s internal operating rules, but you don’t have to file it with the Secretary of State. To discover more, you can see our Freelancer’s Guide to LLC Operating Agreements.
Corporation: As is the case with an LLC, there are a few steps involved with setting up your corporation. First, you’ll need to file articles of incorporation with the California Secretary of State and pay the appropriate filing fee. Then, you’ll need to appoint a registered agent, and you also have to file a Statement of Information within 90 days of filing your articles of incorporation.
If you choose to have your corporation taxed as an S corporation, you’ll need to file Form 2553 Election by a Small Business Corporation with the IRS.
Shareholders of your corporation must elect the company’s directors. If there’s only one shareholder, there will only be a single director. Shareholders also need to hold a director’s meeting, during which the directors will adopt bylaws, designate the corporate officers, authorize issuance of stock, and take care of other important matters. A stock certificate should be issued to every shareholder by the corporation, and everything that the directors do should be written down in corporate minutes.
Finally, while you aren’t legally required to draft corporate bylaws, it’s smart to do so anyway. These bylaws basically serve the same function as an LLC’s operating agreement.
Wow, you’ve come really far to establish your business entity in California. But your work isn’t quite done just yet. There are still a couple more steps to take before you can focus entirely on running your new company.
The next step is to check if you need to obtain any business licenses or permits, as well as an EIN, to operate legally as a business. Once again, we’ll break it all down for you:
EIN: Short for Employer Identification Number, your EIN will be a 9-digit number that the IRS will assign to your business. You’ll use this number for tax filing and reporting purposes, both with the IRS and the state of California.
Do you need to get an EIN? If you form a partnership, corporation, or LLC with multiple members, the answer is yes. If you’re operating as a sole proprietor or single-member LLC (SMLLC), you can use your personal Social Security number instead, provided that you don’t have any employees.
How do you get your free EIN? Directly from the IRS website.
Want to know more about EINs? We’ve got you covered with our Freelancer’s Guide to EIN.
Local Business License: Every business in California must obtain a general business license from the city where the company is located. If your business is located in an unincorporated area (meaning, it doesn’t have its own municipal government), the license will be issued by your county instead.
This is usually an easy license to get, and you can probably get it all done online. All you have to do is fill out an application and pay the filing fee, which will vary. For example, fees could range from just $15 to a few hundred dollars.
For details, check your city or county government website. Get a link to the local website you need by clicking here.
Professional and Occupational Licenses, Permits, Certificates: Whether or not you need these types of licenses from a California state agency will depend on the type of work that you do.
To get these licenses or permits, you might even need to meet specific educational or experience requirements, or you might even need to pass a written exam.
California regulates more than 250 professions and occupations, from barbers to funeral directors. How can you find out if you need a license, permit, or certificate? Head to CalGold for more information.
Tax Registration: Are you going to sell tangible goods that are subject to sales tax? Then you’ll need to register with the California Department of Tax and Fee Administration to get your seller’s permit. Then, you must display this permit at your place of business. Visit the DTFA website to register online.
Will your business have employees? Then you’ll need to register with the California Employment Development Department (EDD) for employer withholding taxes. Use the EDD’s e-Services for Business to register online.
Ah, so close to the final step! Once everything else is in place, it’s time to open a business bank account.
But do you really need a separate bank account for your business?
If you formed a multi-member LLC, a corporation, or a partnership, you must establish a separate bank account in the business’s name.
If you formed a single-member LLC that’s going to be taxed like a sole proprietorship, you aren’t strictly required to have a separate business bank account, but it’s highly advisable to have one.
You should also know that:
Failure to set up a bank account for your LLC or corporation might make it appear like your entity is a sham. This means that your limited liability protection might be undermined, and you certainly don’t want that!
It’s a great idea to make an adequate initial investment into your new LLC or corporation by depositing money into your business’s bank account. This doesn’t have to be a large sum, but it should be an appropriate amount based on your particular business. Then, you should keep enough money in the account to cover expenses by making ongoing deposits. Failing to do so can also put your limited liability protection at risk.
Want to learn more about business bank accounts? See our Freelancer’s Guide to Banking.
Woohoo! You’ve made it to the last step! This is the perfect time to get some business insurance that will provide much-needed coverage and peace of mind.
Depending on the type of business that you’ll operate, California might require that you have a minimum amount of insurance.
There are insurance policies available for every type of business, so shop around to find the right one at the right price.
Not sure what type of insurance you should get for your business? We recommend consulting with an insurance broker who deals with companies in your niche.
Are you looking over all of this information and thinking, “How am I possibly going to get all of this done?” We don’t blame you for feeling overwhelmed!
Luckily for you, there’s a solution that can help you establish a business without the headache of visiting a bunch of websites, filling out countless forms, and worrying about missing important deadlines.
At Hyke, we specialize in helping new business owners establish themselves so they can focus more on doing what they love and less on paperwork. We’ll help you form your business entity, as well as set up every aspect of your company, from your registered agent and licenses, to your EIN, bank account, and everything in between.
And once you’re up and running, we won’t leave you hanging. Instead, we’ll stay with you by giving you a handy dashboard to track things like expenses, income, and taxes. Never miss a deadline for filing your taxes, and never worry about forgetting the renewal deadlines for licenses and important state documents.
Bottom line: it’s exciting to think about the possibilities that come with starting a new business, but don’t forget that there are a lot of steps that you need to take to do it right. With services like Hyke, you can rest assured that you won’t miss a beat. Before you know it, you’ll have a business to call your very own!
Stephen has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for small businesses, entrepreneurs, independent contractors, and freelancers. He is the author of over 20 books and hundreds of articles and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Among his books are Deduct It! Lower Your Small Business Taxes, Working with Independent Contractors, and Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants.