Starting a business in California

There are a few steps to take before starting your business in California. Use this guide to ensure your business is legitimate and set up for success.

Downtown Los Angeles, CA

California has no shortage of sunny weather, emerging starlets, diverse natural landscapes, avocados, and of course, budding enterprises. With 4.1 million small businesses employing more than 7 million people,1 it’s a wonderful place to start a business of your own—and maybe deepen your tan while you’re at it.

If you want your Golden State business to earn the gold medal, you’re in the right place. We’ll be sure to hit all the landmarks as we cruise through the most important steps to starting a business in California.

Step 1: Take time to research, brainstorm, & nail down specifics

No matter where you’re starting your company, you won’t get too far without a solid plan. In California, however, you’ll be joining a market with expensive rent, higher standard wages, and plenty of existing competition.

Prepare yourself for everything California might entail:

Create a business plan – Write up a detailed outline with projected goals, marketing strategies, expansion plans, internal executive structure, and mission statements. Pay close attention to what’s trending—vegan restaurants, fitness centers, pop-up shops, art installations—to figure out how you can corner the market in your own unique way.

Decide on a location – California is one of the nation’s largest states, with very distinct cultures and markets in northern versus southern California, and high real estate prices across the board. Connect with the Governor’s Office of Business and Economic Development for location consultation and real estate assistance. And finally, check that your area is properly zoned for your business venture.

Choose a name & business structure – Be sure to pick an original, unregistered business name for your entity, and the right kind of business structure for you—sole proprietorship, partnership, limited liability company (LLC), or corporation. You can check the state registry for existing California business names. If you plan to make your business a sole proprietorship and use your name, check to see that your name isn’t already being used by another business entity.

Secure financing – Before you get too far down the rabbit hole, make sure you have the money to fund your vision. Use your comprehensive business plan to convince private investors or loan providers to back you. In 2018, California businesses received the second most private equity investments in the country, totaling over $86 billion—you’re definitely in the right place!2

If you can see the future of your business clearly, it’s time to make it happen.

Step 2: Meet all business registration requirements

Your first step as a new business is to make your presence known—first to the Secretary of State, then to the rest of the world.

Here’s what you’ll need to do to officially register your Californian enterprise:3

  • Submit paperwork with the California Secretary of State if you’re forming a California LLC or a partnership (not required for sole proprietorships).
  • File state income tax with the Franchise Tax Board.
  • Comply with all applicable workplace laws, as per the Department of Industrial Relations, including minimum wages, maximum hours, and acceptable conditions.
  • File Employment Development Department (EDD) registration within 15 days of paying employees $100 or more.
  • Register with Cal eProcure, a government database for contracting opportunities.

There are still a few state and federal business requirements to cover in more depth—let’s dive in.

Step 3: Check & follow all import & export laws

California has extensive departmental regulation regarding anything coming into or going out of the Golden State. Before you start buying, selling, packing, and shipping, be sure to check in with the appropriate departments, both regionally and federally, regarding:

  • Sales and Use Tax – California Department of Tax and Fee Administration for items delivered outside of California.
  • Food, drugs, and agriculture – California Department of Public Health for export certificates on food and drugs shipped outside the country; U.S. Department of Agriculture for importing and exporting animals, plants, grains; U.S. Food and Drug Administration for any food products.
  • General importing and exporting – U.S. Customs and Border Protection for basic permits; U.S. Department of Commerce for items on the Commerce Control List, including categories like electronics, chemicals and toxins, sensors and lasers, aerospace and propulsion, nuclear, and more.

Step 4: Register for business taxes

As an employer, you’ll need an Employer Identification Number (EIN) from the federal government. The Internal Revenue Service (IRS) uses this assigned number to remit payroll taxes and track your business’ income taxes.

While an EIN is required for federal tax filing purposes, it’s also useful for a number of other reasons:

  • Opening a business bank account
  • Securing financial capital
  • Hiring employees, regardless of business structure
  • Establishing a retirement plan as a self-employed individual

In California, there are several Special Tax and Fee programs, which may or may not apply to your business—they range from cannabis and alcoholic beverage taxes to occupational lead poisoning and hazardous waste disposal fees, so double check to see if your unique business venture is anywhere on the list.

Step 5: Apply for requisite licenses & permits

Depending on the nature of your business, you may need several permits and licenses or none at all. Many small enterprises don’t require a business license to operate. But something like a restaurant, on the other hand, may need a business license, health permit, liquor license, food handler’s permit, and more.

Here’s some important information on securing the right licenses and permits:

  • Apply for a Seller’s Permit with the California Department of Tax and Fee Administration if your business sells tangible goods, rather than services.
  • Use CalGold for business permit assistance and information by searching for your city or county and specific business type.
  • Contact the Department of Consumer Affairs for license administration.

Step 6: Secure liability insurance

In some cases, insurance is a prerequisite for starting a business—in other cases, it’s just the smart thing to do if you want to protect yourself and your assets.

These insurance types are the most important, either by law or basic business sense:

Workers’ compensation (mandatory) – California businesses (that have one or more employees) are required to have a workers’ comp insurance plan to protect their business in the event of a workplace illness or injury.

General liability insurance (recommended)General liability insurance is the most basic type of business coverage, as it covers common mishaps and accidents, including non-employee third-party claims of bodily injury, property damage, and personal and advertising injury.

Professional liability insurance (recommended) – Generally intended for white-collar professionals and experts, professional liability insurance provides investigation and defense for claims, and pays damages where a client claims your advice led to their financial loss.

Commercial property insurance (recommended, but the type will vary) – For a business operating out of a physical location, commercial property insurance is recommended to cover theft, fire, and other physical loss or damage. To specifically protect the equipment that is regularly taken to job sites or third party locations, you’ll want to consider Business Equipment Protection.

Auto liability insurance (recommended, but whether you need a commercial policy will vary) – If you drive your personal vehicle to and from the office or job site, your personal auto policy may well be adequate for your needs. However, if your Californian company owns or leases its vehicles, or you transport equipment, products, or people for business purposes, you’ll probably need a commercial auto policy.

Here at Thimble, we provide easy-to-access California business insurance at competitive prices, including on-demand and monthly general liability and professional liability insurance. You can also purchase Business Equipment Protection for up to $2500 in coverage.

All in all, you can be up and running in 60 seconds or less with an insurance policy that works for your business.

Livin’ it up at the business California

No matter what industry you enter, you’re doing it in one of the best places in the country. With a little preparation, a lot of hard work, and careful attention to all the permits, applications, and insurance policies you need, you can do anything—including starting a successful business in the Land of Milk and Honey.

Sources:

  1. U.S. Small Business Administration. 2020 Small Business Profile, California.
  2. American Investment Council. 2018 Top States and Districts.
  3. California Business Portal. Register a Business

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.

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