The Starting a Business in California Checklist

In this Article:

• Trending ideas for small businesses in California
• Statistics about doing business in California
• Starting a small business in California checklist
• Protecting your California business
• Frequently asked questions 

Starting a business in California can be exciting. To hit the ground running, it is important for you to complete certain steps so that your business is set up legally and protected from the day you open your doors. If you are planning to move to the Golden State to open your small business, here is a checklist to help you make sure that you have taken care of everything.

Trending ideas for small businesses in California

As residents of the state are increasingly looking for greener choices to meet their transportation needs, hydrogen fuel cell cars have become increasingly popular. Since these vehicles need to find stations at which they can refuel with hydrogen, entrepreneurs might consider opening hydrogen fuel stations to meet the burgeoning need. A related business idea in California is to open repair shops that have hydrogen fuel cell service bays. Extra care is needed to repair and maintain hydrogen fuel cell cars, and offering a mechanic shop that has the capabilities to handle these cars can open you up to a new revenue stream. 

Another trending small business idea is to open a leasing company for real estate. According to the Public Policy Institute of California, the state's population is expected to reach 44.1 million people by 2030. To accommodate all of these people, an adequate supply of rental properties will be necessary. With a leasing company, you can take advantage of the expanding demand for rental housing in order to make strong profits.

Another idea for new small businesses in the state is to open a supplementary educational service such as a college preparation and tutoring company. With the Common Application being accepted by colleges and universities across the country and the University of California using its own application for admission to any of its universities, it has become easier for students to submit applications to multiple schools. This has led to an increasingly competitive landscape in college admissions and increased demand for help with admissions essays and ACT or SAT tutoring. 

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Statistics about doing business in California

The U.S. Small Business Administration reports that there are 4.2 million small businesses in the state, accounting for 99.8 percent of all the businesses in California. These small businesses employ 7.9 million people, comprising 47.9 percent of the working population. Small businesses are vital for the economy of California, and it can be profitable to open a small business as long as you set it up correctly. 

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Starting a small business in California checklist

If you are wondering how to start a small business in California, this checklist can provide you with an easy way to make certain you stay on track and take care of all of the necessary steps. Assuming that you have already fleshed out your business idea, you can work your way down this list to be ready to go.

1. Pick your entity structure

Choosing the right entity structure for your business is important. The right structure can protect your personal assets in the event that your business faces a lawsuit. You can choose from several business structures, including the following below.

• Limited liability company
• S-corporation
• C-corporation
• Sole proprietorship
• Partnership
• Limited liability partnership

Many small businesses start out as sole proprietorships, which are businesses that have a single owner. However, this type of structure does not offer you personal liability protection. For that reason, it might make more sense to start out with an LLC or an LLP. Both of these entities limit your personal liability from creditors, meaning that they won't be able to go after your assets. Corporations also offer protection from liability, but they are more difficult to set up and generally used by companies after they have grown. The California secretary of state's website has more information about business entities and the forms that you need to complete and file to establish your company's entity.

2. Choose your business name

Before you can register your business with the secretary of state, you will need to choose your business name. Your business name must be one that is not already registered in the state. You can search your potential business names on the secretary of state's website. You will also want to conduct a search of the internet to make certain that another similar business is not already using the same name. You can search the name with the U.S. Patent and Trademark Office to make certain that it is not already trademarked.

3. Register your business

After you have decided on the proper entity structure and chosen a name, you will then need to register your business. To register and form an LLC in the state, you will need to file Form LLC-1 with the LLC division of the California secretary of state. To incorporate, you will need to file Form ARTS-GS.

4. Apply for your federal employer identification number

If you will hire employees, you will need to apply for a Federal Employer Identification Number from the IRS. It is also required for all LLCs and corporations. You can apply for your FEIN online with the IRS.

5. Get your permits and licenses

The next step that you will need to complete is to get all of the necessary permits and licenses for your business. You will need to check with the city in which it will be located to find out about what local permits and licenses might be required. You should also check with the state to learn more.

6. Open your business bank accounts

After you have completed all of these steps, you will need to open your business banking accounts. You can do so with your company registration information and your FEIN, and the bank will take it from there.

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Protecting your California business

Once you've completed the legal setup of your California business, protecting it with proper business insurance is critical from day one. Many clients, contractors, and landlords require proof of insurance before engaging with your business, making coverage an essential part of your startup checklist. General liability insurance protects against bodily injury and property damage claims, while professional liability insurance covers errors, omissions, or negligence if you provide professional services or advice. If you have employees, you'll need workers compensation insurance (required by California law), and if you handle customer data or accept online payments, cyber security insurance protects against data breaches and ransomware.

The cost and type of business insurance varies by industry and business activities. A tutoring company faces different risks than a hydrogen fuel cell repair shop, and your insurance should reflect those specific risks. Many new business owners delay getting insurance until after they've had their first client or made their first sale, but waiting puts your personal assets at risk if a claim occurs before you have coverage. Getting insured during your startup phase demonstrates professionalism to potential clients and business partners. Get a quote today to add insurance to your California startup checklist and ensure your business is fully protected.

Opening a business in California can be exciting. By following the steps on this checklist, you can make certain that your business starts out on the right foot from day one.  

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Frequently asked questions

What is the best business entity structure for a California startup?

The best structure depends on your specific situation, but LLCs and S-corporations are popular choices because they provide personal liability protection while offering tax advantages. An LLC protects your personal assets from business debts and lawsuits while maintaining simpler administrative requirements than corporations. S-corporations offer similar protections but have more complex tax structures that may benefit larger businesses. Sole proprietorships are easiest to set up but offer no personal liability protection, meaning your personal assets can be seized if your business faces lawsuits or creditor claims. Consult with a California business attorney or accountant to determine which structure best protects your personal assets while meeting your business goals and tax situation.

Do I need a federal employer identification number before hiring employees?

You need to apply for a FEIN if you will hire employees, but the IRS also requires all LLCs and corporations to have a FEIN regardless of whether you have employees. Even solo entrepreneurs with an LLC should obtain a FEIN for tax purposes and to keep business finances separate from personal finances. Applying for a FEIN is free and can be done online through the IRS website; the process takes just a few minutes and your number is assigned immediately. Using your FEIN when opening business bank accounts helps maintain clear separation between personal and business finances, which is important for liability protection and accounting.

What permits and licenses do California businesses need?

The specific permits and licenses required vary significantly by industry and location. Most California businesses need a general business license from their city or county, but specialized businesses have additional requirements. For example, a hydrogen fuel cell repair shop would need specific certifications and safety permits related to hazardous materials handling. A tutoring company might need teaching certifications depending on the subjects offered. A real estate leasing company might need a real estate license. You should check with your local city/county government website and the California Department of Consumer Affairs to learn which permits and licenses apply to your specific business type. Starting this research early helps you understand costs and timelines for getting licensed and operating legally.

What California-specific business requirements should I know about?

California has specific requirements that differ from other states, including mandatory workers compensation insurance if you have employees, paid family leave insurance requirements, and strict labor laws regarding wages, breaks, and working conditions. The state also has specific regulations about data privacy (California Consumer Privacy Act) that affect any business collecting customer information. California requires maintaining accurate business records and filing annual statements with the secretary of state. Some industries have additional state-level licensing or certification requirements. It's important to research California-specific regulations for your industry to ensure compliance from day one. Consulting with a California business attorney or accountant familiar with your industry can help you understand all requirements.

Do I need insurance before opening my California business?

Yes, you should obtain business insurance before opening your doors or taking your first client. Many clients and business partners require proof of insurance through a certificate of insurance before engaging with your business, making coverage a practical necessity. California law requires workers compensation insurance if you have employees. Beyond legal and contractual requirements, insurance protects your personal assets if your business faces a claim or lawsuit before you've built substantial business assets. Getting insured as part of your startup process is cost-effective and demonstrates professionalism to potential clients, lenders, and investors. Don't wait until after your first incident to get insured; coverage protects you from day one.

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Learn more about starting your California business

Business insurance 101: Everything you need to know – Get comprehensive guidance on business insurance types, costs, and how to build a complete protection package for your California startup.

Why your LLC needs small business insurance – Discover why forming an LLC isn't enough and learn how the right insurance coverage protects your personal assets and business.

Small business grants you can qualify for – Explore funding opportunities and grants available for California small business owners to help with startup costs and growth.

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