Do you want to start a business in California? Not sure how to do that one?
Here in this article we will be providing you with a complete guide on all the nitty gritty you need to follow in order to start a business in California.
Before we head to the checklist for a startup company, let’s understanding California first.
What do we know about business environment in California? How favorable is it for a startup organization?
We all know that California is regarded as the wealthiest and largest state in the USA. This is hub of prime industries like that of technology in Silicon Valley and entertainment in Hollywood, Los Angeles. Apart from this farming, agriculture and million other business opportunities are booming over here.
The companies of this region with Global reputation are Apple, Google and similar.
Clearly, California hosts the topmost companies of the world. But that is not all. This place offers the perfect cradle for small startup companies. In fact, California has been honored by Forbes with their 30th rank for the “Best States for Business” title.
However, California is also known in the business field as the state where the operation is difficult. The tax system here is higher fir businesses as compared to other American States.
Leaving the last point apart, starting up a business in California looks promising. Doesn’t it?
Let’s us now focus on how to start a business in California.
Detailed checklist for starting a business in California:
Hopefully, you have deduced your ideas for the business by now. Got clarity on the funding part? If the plan is well developed by now, let’s focus on the checklist that you can follow to start a business in California.
1st Step: Deciding the structure of the Business
To start a business in California, you need to choose amongst the 3 basic structural options-
DBA or Doing Business as or Fictitious Business Name-
The structure of this is business not different from the general one. Only the business name differs over here.
This is a separate business entity that provides the owner with protection of liability. In a corporation structure there 3 different designation layers –
- Directors and
Structurally this is more complex as compared to DBA. One needs to choose this entity when they plan to setup a huge company and to raise fund for the business. If you want business in a particular profession, you need to choose “Professional Corporation”, like that of lawyers or doctors etc. as a business name.
Limited Liability Company or LLC-
A rather new form of business structure that involves separate business entity and indulges in smooth management. In this type of organization, you won’t need a shareholder or officer. In fact, the taxation system is also smooth.
This structure provides protection to the owner from liabilities. The process of liability protection and taxation is way simpler as compared to Corporation. Hence, this is slowly replacing Corporation and DBA from the business sectors.
2nd Step: Choose a name for your business
Choosing a name for your business sounds easy. But in reality, the process is complex. In case you have picked up a wrong business name, you are likely to face business and legal problems.
Of course, the name can be changed. But avoid doing that too many times. You can always search for registered names, but before that, below steps can help you decide a right name.
1. Coverage on the basics: Choose a name that is unique and easily pronounceable or understandable. The name should survive long. Try adding trademark and logos.
2. Website search: Take the first step to prevent conflict and search the name you have in mind in the website or search engines. This will help you identify conflicts that are potential, or you might face at your local or state jurisdiction. For international or national level business organizations, having a unique name is even more important. This will be covering cases where similar names are under use but not trademarked officially.
3. Search for trademarks: Search the website or enquire at the US Patent and Trademark Office for trademarks on names of your choice. This will clear your name off any conflict. One can obviously hire a professional specialist in trademark to look for conflicts. But, if you are accustomed to advanced form of search engines, you can yourself handle the issue. What are the parameters for searching?
- Variant spellings for same name
- Different version
This is will help you to identify if a name is already registered.
4. Availability of the name for your company: Refer to the California Secretory of State’s business entity database. This will help you to be assured that the name you chose is available for use. You need search here under same parameters as you would have done for search engines. If you come across similar names, reject your planned name and start afresh.
There are restrictions in choosing the purpose and name of a business in California. The guidelines that you need to adhere to while deciding on names are-
- Ensure te name of your company comes with proper identifier of the corporate example, “corporation” or any abbreviation.
- The name can’t contain any word like “trustee”, “bank”, “Trust” or “Insurer”. In short there shouldn’t be any term that suggests the company is into the issuance of policies for insurance or have a chance of assuming risks related to insurance.
- You need to form a “Professional Corporation” for businesses as-
- Clinical work for society
- Audiology and pathology for speech-language
- Counselling for child, marriage and family
- Reporters of short court
- Physical therapist
- Assistant to a physician
3rd Step: Business Registration
Each USA state come with their own set of requirements when it comes to registration of a business. Once you choose the name and structure of your business, you need to get your business registered with the state. The requirements you need to follow vary as per the structure and the same can be noted as below-
Forming an LLC in California
- File for “Articles of Organization” with form LLC 1 with the State Secretary of California under LLC Division.
- Hold LLC “Organization meeting” upon successful submission and approval of the Articles.
- Issue your members with proper “Members Certificate” upon their active contribution.
- Adopt the Agreement for company operations.
Forming Incorporation in California
- File Articles of Incorporation using ARTS-GS form with the State of Secretary of California under Corporation Division.
- Once the Article gets approval, host an “Organizational Meeting” for determination of ownership percentage amongst the shareholders.
- Resolves tasks as that of creating bank account for the company, expenses for pre-incorporation payback
- Elect the status of S-Corporation with IRS by filing the form of IRS 2553
Forming DBA in California
- You need to file for Dba with the Californian County.
- Connect with the local Recorder of the county to stay updated on the necessary forms that needs to be submitted and the process behind it.
- One can look for the name and register with the county online, but you will need notarization for the same.
- Based on instruction by the county, publish your registration notice with a newspaper approved by the county.
- Ensure there are 4 publication in 4 consecutive weeks.
- Ensure you have the “Proof of Publication” from the newspaper.
- The proof must have affidavit and the date when the publication happened.
- From the date of your 4th publication, you have 30 days to submit this “Proof of Publication” with the Clerk’s Office of the County. Remember submitting this is the owner’s responsibility.
Points to be noted: The paperwork for registration of a new company with the State Secretary might take up a time of several weeks. One can speed up the process by submitting the documents straight way at the office after paying some fees additionally.
Optional registration points to consider for business opening in California
In case you are not confident on the process of registration of companies in California, you can hire agents who are professional and registered by the state to do the work.
When you choose a professional, ensure that you don’t get confused with junk records. If you have chosen a professional, they are sure to provide you with document proof. Refer to such documentation before hiring. One doesn’t need to file any article or pay any fee at the state office when there is an agent in between. All you need to do here is provide them with your updated address.
4th Step: Obtain the Federal Employer Identification Number
FEIN is very similar to a company’s Social security Number. It is a mandate for LLC and Corporations. For DBA, this is an optional requirement. But if DBA is devoid of employees and is an individual business, you will be required to procure FEIN. In case you are not obtaining FEIN in a DBA, a social security number is a must.
This is will help in prevention of theft of identity.
One can apply for the FEIN through online portals with IRS or with the SS-4 form of IRS. If you want, you can hire a professional to obtain this for you.
5th Step: Company Account Opening and obtaining debit and credit cards
As soon as you start your business, you need to separate the personal and business expenses. The best way to achieve the same is by opening separate accounts for business and personal use.
To advance further with your credibility, you can obtain a business credit card too. This helps in building strong credibility of the company too. To get a credit card for the business, the structure needs to be either LLC or a corporation. Once you have a credit card for your business, you open a door to future qualification of obtaining huge business loans against your credit card.
To open an account and credit card, you need the below documentation-
- Proper paperwork on your business field
- FEIN proof
- Authority of the company with resolution to open an account
- Authority letters are to be signed by the company owners, directors, members or officers
6th Step: Obtain the Permits and Licenses for the Business
Once the name registration for your business done, its time for you to procure your permit or license of the company. Having a permit works like an authorization for the company to take forward the business in the specific County or State.
As a standard protocol, as you register for the permits, you also get involved in procuring your permit for State Taxation. Any City in California might require you to obtain these licenses. The best way to obtain your License in California is by logging on to the Californian government Portal for Licenses, known as CalGold. You can register for the taxation over here as well.
7th Step: Ongoing and Annual Requirements
Different structures of Companies will have different requirements. Below is the detailed requirement under each structure-
- DBA: The Fictitious name you choose for business gets a 5 years validity. You need to renew the name with the county after 5 years unless you have already changed the name prior.
- LLC: For LLC name, you need to keep the State updated with the current address of the business by filing the form of “Statement of Information”. Filing the form will require the LLC to pay a fee of $25.
- Corporation: Corporations need to file their “Statement of Information” on a yearly basis. This will keep the state updated on the current address and other items of your business. Filing the form will require the corporation to pay a fee of $25.
LLC and Corporations are likely to be subjected to Franchise Taxation under the Franchise Tax board of California.
A minimum tax amount of $800 in a year is imposed on these organizations. The amount increases with the increase in revenue of the business.
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When you start a business in California, all the above steps will pose vital for you.
Apart from the above, you also need to have clue on the important contact information in the State Sectary board of California and other offices.
Prepare documents after enquiring with these Government bodies and get ready to start a business.