California Business Checklist Download:
Download this business checklist in PDF format to stay on track when starting your business in California.
Download NowHow to Start a Business in California:
California has the second-highest number of Fortune 500 companies and it is a state that encourages long-term business growth through numerous incentives and financing opportunities.
Even though the Golden State enjoys low property taxes, at 7.25%, California's sales tax is the highest in the country. All business entities except sole proprietorships and general partnerships must pay an $800.00 franchise tax each year, although exemptions are made under certain circumstances.
Form your business.
Review California formation options.
California offers 6 ways of forming your business, which we'll discuss in detail below. Review these closely and pick the one that fits your business best.
Name your business.
To conduct business in California, you'll need to file a unique name with the Secretary of State's office.
Before registering your business name you'll need to do a California business search to see if your desired name is available.
If the name is available, you'll need to file a Name Reservation Request Form to reserve the name for 60 days.
You can mail the name reservation request form or drop it off at the Sacramento office. Be sure to include a $10.00 check or money order in the envelope.
If you opt for the in-person drop off, you'll need to include a nonrefundable $10.00 handling fee.
24-Hour Expedite/Preclearance: For this service, drop your documents with checks or money orders for the fee and expedite/preclearance service in the "Business Entities Drop Box" in the first-floor lobby at the Sacramento office. Be sure to mark the envelope "24-Hour Expedite." The 24-Hour Expedite fee is $350.00 plus filing fee and the 24-Hour Preclearance fee is $500.00. Expedite/Preclearance Pickups are available in the Sacramento lobby between 3:30 p.m. and 4:00 p.m. each day.
Consult the business entity guidelines to make sure that your name adheres to California's standards.
If you need help finding a business name, be sure to check out NameSnack's free business name generator.
Before committing to a name for your business, do some industry research and analyze the names of competitors. Try to identify patterns in how these businesses are named and write down any useful keywords you find.
Get an employer identification number.
Nearly all businesses will need to register for federal taxes by applying for an employer identification number. You can apply online for an EIN.
Register your business in California.
All businesses operating in California, besides sole proprietors and general partnerships (which are optional), must file formation documents with the California Secretary of State.
You can complete this application via the bizfile California portal or download the required forms and mail or deliver them in person. In-person drop-offs are subject to a $15.00 fee as counter drop-offs receive priority service over mailed documents.
It is highly recommended to register online, as the process is faster, and online registration is designed to ensure that all details are correct before advancing to the next screen, greatly lowering the need for corrections.
Download the Business Entities Fee Schedule for detailed information on filing fees.
You can use Form LLC-1 as an alternative to online filing. Simply fill out the form and mail it or deliver it in person to the Sacramento office.
The bizfile portal will double-check that your desired name is not in use and that it does not include any prohibited words.
To register online it costs $100.00 and for an additional $5.00 you will be emailed a certified copy of your document.
To form a business entity online, visit bizfile.
Click on the "File Online" button.
Select "LLC Formation" or "CORP Formation."
Read through the terms, check the box to proceed with filing, and click "Next."
Enter the details on each screen and click "Next."
To have a certified copy of the document emailed to you, check the box to add a certified copy for an additional $5.00.
File a DBA statement.
If your business is not named after yourself, you will have to file a DBA or "doing business as" statement to declare the name of your business.
Also known as a fictitious business name (FBN), the filing for this statement is valid for five years and the fees to file vary by county.
Contact your Registrar-Recorder/County Clerk's office to make an inquiry.
File for your DBA within 40 days of starting your business.
Within 30 days after filing the DBA, publish a statement in a local newspaper/general circulation near your business. Ensure the notice appears once a week for 4 successive weeks.
File an affidavit of publication with the city or county office within 30 days of the last notice's publication date.
For information on DBAs, visit the California Business Portal.
Obtain necessary permits and licenses.
You can use CalGold to find the licenses and permits you need for your business based on its location and type.
Obtain local permits.
Depending on your location, you may be required to obtain certain permits and licenses. Get in touch with your local municipality to learn more about its regulations.
Some common licenses and permits you may need include:
- Zoning Permit.
- Signage Permit.
- Occupational Permit.
- Health Permit.
- Business License/Tax Permit.
- Building Permit.
- Alarm Permit.
Register your business for taxes.
Pay Franchise Tax.
The California Franchise Tax Board requires all business entities except sole proprietorships and general partnerships to pay a minimum of $800.00 franchise tax each year.
You can be exempted from franchise tax in the first year if you meet one of the following requirements:
Your company was incorporated on or after January 1, 2000 and it falls into one of the following categories: S Corporation, C Corporation, LPs, LLPs, LLCs (that have opted to be taxed as corporations).
Your company has a short accounting period. This means you have a first taxable year that is 15 days or fewer.
Your company has been granted tax-exempt status by the California Franchise Board. If your company is a non-profit, has S Corporation status, or is owned by a deployed US Armed Forces member, tax can be waived.
If the franchise tax is waived for the first year, corporations will have to pay the applicable percentage of tax calculated on their net income. The tax rates are: 8.84% for Professional Corporations, 8.84% for C Corporations, and 1.5% for S Corporations.
You can pay franchise tax by visiting the Franchise Tax Board's website.
Pay income tax.
If you're operating as a sole proprietor or a general partnership, the owner(s) will be taxed on income earned and have to fill out the U.S. Individual Income Tax Return (IRS Form 1040).
Check if you qualify for a credit for prior year alternative minimum tax.
Register for small business payroll taxes.
Your business needs to pay state payroll taxes in addition to federal taxes. To register, you will need an EIN, a business type, a legal name, a DBA, and a Secretary of State account number.
Register with the Employment Development Department (EDD) online.
Hire employees and report them to the state.
Visit the Employment Development Department's website.
All employers must report their newly hired workers to the New Employee Registry in California within 20 days of their date of employment. Any employee rehired after a period of 60 consecutive days should also be reported. Reporting may be done online or by submitting a form via mail or fax.
The following information must be provided when reporting new hires:
For Employers:
- California employer payroll tax account number.
- Branch Code (complete only if the employer was assigned a Branch Code number).
- Federal employer identification number.
- Business name and address.
- Contact person and phone number.
For Employees:
- First name, middle initial, and last name.
- Social Security number.
- Home address.
- Start-of-work date.
For more detailed information, visit the Employment Development Department's Reporting Requirements page.
Use e-services for Businesses to submit an online Report for new Employee using Form DE 34. Alternatively, print the form and mail, fax, or deliver it to the office.
The Electronic Filing Guide for the New Employee Registry Program will help you report new employees online.
Obtain Workers' Compensation Insurance.
All employers in California are required to take out workers' compensation insurance. Insurance can be obtained through a broker or by contacting an insurance company directly.
Display the mandatory posters in your workplace.
The State of California Department of Industrial Relations requires a number of posters to be printed and displayed in your place of work. Ensure the posters are highly visible and available in Spanish where required.
All employers must display posters related to the following according to the Department of Industrial Relations:
- Minimum wage.
- Paid sick leave.
- Payday notice.
- Safety and health protection on the job.
- Emergency phone numbers.
- Notice to employees — injuries caused at work.
- Notice of workers' compensation carrier and coverage.
- Whistleblower protections.
- No smoking signage.
Posters required by other state and federal agencies include:
- California law prohibits workplace discrimination and harassment.
- Transgender rights in the workplace.
- Pregnancy disability leave.
- Notice to employees.
- Notice to employees: unemployment insurance benefits.
- Notice to employees: time off to vote.
- Equal employment opportunity is the law.
- Notice: Employee Polygraph Protection Act.
Employers who do not display the mandatory posters at all worksites may face penalties of up to $7,000.
Visit the website of the Department of Industrial Relations to download all your required posters. Some employers may need additional posters, so be sure to double-check the list.
California Business Types:
1. Corporation:
California corporations are legal entities existing separately from their owners. In California, both the shareholders and the corporation are subject to taxes. Selling stocks and bonds is a good way to generate extra capital and increase the corporation's longevity. Legal counsel should be sought before incorporating.
Articles of Incorporation must be filed with the Secretary of State's office and the required forms can be found on the website, too. Corporations are subject to the minimum $800.00 annual franchise tax.
2. Limited Liability Company (LLC):
Limited liability companies are similar to corporations in terms of liability protection but they are taxed differently. LLCs are typically controlled by one or more managers or members. These companies need to file formation documents with the Secretary of State, in addition to drawing up an operating agreement.
LLCs are subject to the $800.00 annual franchise tax.
3. Limited Partnership (LP):
Limited partnerships have at least one general partner who makes decisions and has unlimited personal liability. Taxes are filed as a separate entity and LPs are subject to the $800.00 annual franchise tax.
Formation documents must be filed with the Secretary of State for LPs.
4. General Partnership (GP):
California General Partnerships have two or more people running a business for profit. Partners have unlimited liability and share control of the GP. Tax is calculated on each partners' share of the income.
A Statement of Partnership may be filed with the Secretary of State, but it is optional. The $800.00 franchise tax is not applicable to GPs.
5. Limited Liability Partnership (LLP):
In California, LLPs are used by licensed lawyers, architects, engineers, land surveyors, and accountants. LLPs require formal written agreements that describe how the business will be managed. Partners must file an Application to Register a Limited Liability Partnership with the Secretary of State.
Attorneys also need to register the LLP with the California State Bar once approval has been received from the Secretary of State. The annual $800.00 franchise tax applies to LLPs.
6. Sole Proprietorship:
This is the simplest business entity and is typically run by one owner who makes all the decisions, and is responsible for all debts and taxes. If the sole proprietorship operates under a different name than the owner's, a Fictitious Business Name Statement should be filed with the county where the business is located.
No formation documents are filed with the Secretary of State, and the $800.00 annual franchise tax does not apply.
California Business Formation & Other Fees:
Fee Type | Cost |
|---|---|
Articles of Incorporation (California Corporations) | $100.00 |
Foreign Corporations | $100.00 |
Limited Liability Companies (LLCs) | $70.00 |
Foreign Limited Liability Companies (LLCs) | $70.00 |
Certificate of Limited Partnerships (LPs) | $70.00 |
Foreign Limited Partnerships (LPs) | $70.00 |
General Partnerships (GPs) | $70.00 |
Limited Liability Partnership (LLPs) | $70.00 |
Sole Proprietorship | $26.00 |
Unincorporated Non-profit Association | $10.00 |
Name Reservation | $10.00 |
Annual Franchise Tax | $800.00 |
