The start of a new business is an exciting time. Your mind is filled with dreams of your new endeavor, the happiness you’ll bring to yourself and others, freedom from the traditional nine-to-five, and the seemingly boundless possibilities in front of you.
But in the midst of all these visions of success and fulfillment comes a more down-to-earth necessity: the need to get your business legally set up in your state.
Thankfully, setting up a business in California need not be a painful process.
7 Steps To Registering A Business in California
We’ll cover all the 7 steps that you need to follow on how to register a business in California, to get it running as quickly as possible.
Step 1: Decide How You Want to Structure Your Business
Before you register your business in California, you’ll need to decide what exactly you’re registering. Businesses come in all sorts of shapes and sizes, and you’ll need to choose a legal structure that fits your business and its goals.
Two of the most popular options are registering an LLC or as an S Corporation (commonly referred to as an S corp). When it comes to small business, people often refer to a decision between forming an LLC and an S corp, but these are actually two separate classifications: an LLC is a type of business entity, and an S corp is a type of tax classification. To register as an S Corporation, you would first need to form a corporation and then classify it as an S corp.
LLCs are advantageous because they separate your personal finances and liabilities from your business. That means that if someone sues your business into bankruptcy, only your business will go bankrupt, and your personal finances and belongings will be unaffected. Profits are taxed on a pass-through basis, meaning that they are passed on to the owners, who then pay personal income tax on them — the business itself doesn’t pay any taxes.
Some businesses will prefer to register as a corporation because it can provide tax advantages. In an S corp, the same limited liability and pass-through advantages apply, but owners don’t have to pay the 15.3% self-employment tax like an LLC owner would need to. On the other hand, to run an S Corporation you will need to run your business like a corporation, which means electing officers, holding board meetings, etc., even if you’re the only person on the board.
Other options you may want to consider are:
- DBA (Doing Business As)
- Sole Proprietorship
- Limited Liability Partnership (LLP)
- Limited Partnership (LP)
- General Partnership (GP)
Step 2: Choose a Name
Next, you’ll need to decide what you want to name your business. However, keep in mind that your original registered name and the name you advertise your business as don’t necessarily need to be the same — if you ever look at a business’s terms of service, you’ll see that many have legal names that are completely different from what you know them as. That’s often because they register a separate DBA for their business.
So, don’t spend too long on this. Plus, you can always change your business name later if you need to.
Step 3: Register With the IRS
In some cases, you’ll need to ensure you have your business registered federally before you register it with the state. This applies only if you plan to hire employees other than yourself.
If you don’t have plans to hire employees, then you can skip this step and move on to the next one. However, if you do want to bring on employees, you’ll need to get a FEIN (Federal Employer Identification Number).
Step 4: Register With the Secretary of State
If you are going to be operating an LLC, Corporation, LP, LLP, or GP in California, you will need to register with the Secretary of State. You can do this online or by mail.
If you decided to set up a sole proprietorship and are operating using your own name, then you do not need to register your business with the Secretary of State. You will need to do so in all other cases, however.
Step 5: Apply for the Relevant Permits and Licenses
After you’ve registered with the Secretary of State, there is still more work to be done. Many businesses require specific licenses to operate within the state of California, so you’ll need to apply for those as well.
If you plan to sell any physical goods in California, you’ll need to register with the California Department of Tax and Fee Administration (CDTFA). In the past, this was handled by the California Board of Equalization (BOE). You can do this online.
Businesses that plan to hire employees must also register with the California Employee Development Department (EDD). You can do this online as well.
In addition to these statewide registrations, you’ll also need to obtain a general business license that is specific to the city you’re operating in. You’ll have to research your own city to find out how to apply for this.
You will also have to make sure you have the relevant regulatory and health and safety licenses. Luckily, California has set up the CalGold website, which helps you figure out what permits you need. This website can also help you figure out what occupational licenses you need.
Step 6: Check Zoning Restrictions
If you plan to have a physical storefront or office, you will need to make sure that the location you’re operating out of is zoned for commercial usage. Zoning laws exist to keep residential, commercial, and industrial areas separated so that you don’t buy a new house in a quiet neighborhood only to find that your next-door neighbors decided to convert their house into a 24-hour fast-food restaurant or a nuclear power plant.
Zoning is done locally, so you can usually find out more about the zoning in your area by checking your city or town’s local ordinances or contacting the town planning department.
Step 7: Run Your Business
At this point, your business should be legally established. However, you’ll still need to keep tabs on it to make sure it continues running legally. That means you need to ensure that you pay taxes properly and that you continue complying with all relevant local, state, and federal laws.
You may also want to consider obtaining insurance and opening up a business bank account. Beyond that, you’ll want to invest in equipment and technology, like ZoomShift, that can help you keep track of everything. However, these aren’t necessarily legal matters.
Registering a business in California is a bit of a headache, but it’s overall a fairly straightforward process. Generally, it’s a good idea to get in touch with a lawyer to make sure that you fully understand California’s registration requirements as this guide does not constitute legal or business advice.