California is home to the stars — not the ones up in the sky, but the ones on our TV screens and in our magazines. Though Hollywood and their penchant for In-N-Out Burger may be one of the major takeaways for people out of town, the Golden State has so much more to offer, particularly for business owners. 

California seemingly has everything. There are major cities (think: Los Angeles, San Francisco, and Sacramento), gorgeous beaches, land fertile enough for vineyards, and land dry enough to contain some of the United States’ largest deserts. It’s also home to some of the most successful tech companies in the world. While the Bay Area, and more specifically Silicon Valley, has skyrocketing rent costs, it’s become a worldwide hub for the tech industry.

If you’re wondering how to start a business in California, this guide can help put you on the right path.

Benefits of Opening a Business in California

California is one of the best places in the United States to start a small business because it’s home to a number of booming industries, from music and film to professional services and agriculture. The state boasts 25 million acres of farmland, and it’s the country’s leading producer of grapes, lemons, plums, avocados, strawberries, and peaches (yup, it even tops Georgia for that last one).

Beyond that, California boasts an astounding GDP. According to The Guardian, if Silicon Valley was its own country, it’d be one of the richest in the world with $128,308 per capita in annual gross domestic product. In other words: salaries are high. Overall, the area’s output is $275 billion, or more than the entirety of Finland.

How to Start a Business in California Checklist 

Registering a business in California is similar to starting a business in any other state, with some variations. You’ll deal with the California Secretary of State to get a business license, and you’ll need to have all your paperwork tidy, though you can some assistance through California’s business portal. If you have trouble deciding on your location (California is huge) or understanding the legal business licensing regulations and zoning, you can also contact the Governor’s Office of Business and Economic Development, which offers free business consultations.

1. Create a business plan 

Business plans are helpful because they keep you on track. They can help you land investor funding or business loans because you’re laying out exactly what you intend to do.

When crafting a business plan, small business owners may want to include:

• A clarification of your business idea
• A market analysis: Most businesses fail because there is no market need, so you must fully understand what your target market actually wants.
• A competitive analysis: How will you improve what your competitors are doing, and what else do you bring to the table?
• A pricing scheme for your products and/or services
• A financial outline: Where are you getting revenue, how are you getting startup capital, and when do you expect to be profitable?

You can check out our complete guide to writing a business plan for more information.

2. Choose a business structure 

When you’re starting your own business, you need to choose a business entity structure. The business entity type has a great impact on how well your personal assets are protected, what you’ll pay in taxes, and how much paperwork you’ll need to contend with.

Corporations

In California, corporations are popular for tech companies that want to issue stocks eventually, but they’re subject to “double taxation,” meaning that profits are taxed twice, at the business level and the individual owner (shareholder) level. Corporations also help keep the personal assets of their shareholders safe from the liabilities and debts of the company. Other small businesses may wish to form nonprofits, general partnerships, limited partnerships, or S corporations.

Sole Proprietorships in California

Two of the most popular business entities are limited liability companies (LLCs) and sole proprietorships. Sole proprietorships don’t have any personal liability protection, making them a riskier endeavor than LLCs or corporations, but they avoid the double taxation of corporations and enjoy a speedier formation process and less paperwork.

A general partnership works like a sole proprietorship, but has multiple owners who split the profits, debts, and liabilities.

California Limited Liability Companies

A limited liability company is great for partnerships or solo endeavors. An LLC is often viewed as the best of both sole proprietorships and corporations, avoiding double taxation while also providing liability protection for the owners. LLCs also have fewer legal requirements than a corporation and more flexibility to create their own rules and ownership structure with an operating agreement.

A California LLC does require a bit of paperwork, more than an unregistered business like a sole proprietorship or general partnership. You’ll have to file Articles of Organization and name a California agent for service of process. You can file for your California LLC online, but if you need it rushed, it will cost you extra.

California S Corporations

An S corporation isn’t a legal business entity type, but a tax classification available to LLCs and corporations, provided they meet the qualifications. S corporations are gaining popularity because, for C corporations, they’re a way to avoid double taxation. For LLCs, they’re a way to save on self-employment taxes.

You can also choose to skip the paperwork of forming an LLC, corporation, or S corporation with our business formation services.

3. Determine your business costs 

California, and particularly the Bay Area, isn’t exactly a cheap place to start a business, so you need to make sure you have enough capital before you get started. In order to determine your business costs, you’ll need to add up fixed expenses (like insurance premiums and rent) with variable expenses (like inventory costs and taxes) and one-time costs (like equipment purchases and supplies). It’s a good idea to keep at least a six-month cushion in the business bank account for emergencies.

Funding Your California Company

Next, you’ll need to fund your California business. One-time costs can be put on a business credit card, but that’s not a long-term solution. Most tech startups look for investors, whether it’s family and friends who can pitch in for seed funding or angel investors.

Small business owners often opt for small business loans or small business grants. Both the Small Business Administration (SBA) and California’s Employment Development Department have funding resources available online. Alternatively, check out California’s business portal.

4. Create a business name for your California company 

The best business names are easy to understand and can help you form a solid online presence, including domain registration. You can make sure your business name isn’t taken by looking at California’s business name search engine and other local registration services.

If your new business is a sole proprietorship or partnership using a name that’s different than the legal name of the business owners or surnames of the partners, you’ll need to file a Fictitious Business Name Statement with the county clerk. This is commonly known as a doing business as (DBA) name and is a requirement for all California businesses that fall in this category.

5. Register your business in California, open bank accounts, and get business insurance

You can’t launch your business without the proper administrative work. This means you’ll need to register your LLC, corporation, or other business entity, open up a business bank account (to keep your personal and business accounts separate), obtain the proper insurance, and get the required permits and licensing. 

Obtain Business Licenses & Permits

Most businesses in California require licenses or permits in order to operate. Business licenses and permits can be needed on the federal, state, and local levels. Because there’s no central place to confirm whether your business has every license and permit needed to operate legally, you’ll have to do some research. Our business license report can do the work for you.

Apply for an Employer Identification Number (EIN)

In addition to the paperwork an LLC or corporation must file to register with the state of California, many businesses are required to get a federal employer identification number (EIN), which is your federal tax ID that you also use to hire employees. Note: If you’re a sole proprietor with no employees, you may be able to use your Social Security number as your tax ID, though many experts recommend obtaining an EIN to help avoid identity theft.

Those collecting sales and use taxes will need a permit from the California Department of Tax and Fee Administration.

In addition to obtaining a business license, you may also need to submit a statement of information to the California Secretary of State, which is typically required every one or two years.

Business Insurance

As far as business insurance, most businesses could benefit from general liability insurance. If you plan to hire employees, some business insurance policies, such as workers’ compensation, are mandatory. Other specialized insurances, like commercial auto plans or liquor liability insurance, depend on your business idea.

6. Market your California company

Conduct market research. A great marketing plan can help a new business soar. This includes crafting a comprehensive, cross-platform social media plan on outlets like Twitter, Facebook, Instagram, and YouTube. You can even look at specialized communities within Facebook and LinkedIn while developing an SEO campaign for your business website.

Word of mouth is important, but that has a more local focus. Give it a boost by signing up for Yelp, Google My Business, and local business registrations as well as advertising in local papers and bulletins. Connect with a California marketing partner for help.

Examples of Good Businesses to Start in California

California is a leader when it comes to agriculture and tech, so those are great places to start. Overall, the state has 4 million small businesses that employ half of the workforce, which lends itself to more business-to-business (B2B) operations and those that help professional workers, like finance, software, and education.

Manufacturing is also a large industry, and this sector already employs 9.4% of the state’s workforce. Mostly, it’s focused on software development, computers, and electronics or aerospace (notably Lockheed Martin Corp and Hewlett Packard Enterprises). Companies that serve that sector can carve out a niche.

Check out our research on the best businesses to start in California for more ideas.

Bottom Line

If you’re looking to start a business, California is large and diverse enough that there are a wealth of business opportunities across the state, particularly in the world of tech, agriculture, and professional services. Though starting a business takes careful planning, our business experts and services can point you in the right direction.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.