How to Start a Business in California: Your Complete 2025 Guide

Starting a business in California offers incredible opportunities—access to one of the world's largest economies, a diverse customer base, and a thriving entrepreneurial ecosystem. However, navigating California's business regulations can feel overwhelming for first-time entrepreneurs. This comprehensive guide walks you through every essential step to legally establish and launch your business in the Golden State.

Step 1: Develop Your Business Plan

Before diving into paperwork and registrations, take time to craft a solid business plan. This document serves as your roadmap and will prove invaluable when seeking funding, making strategic decisions, or bringing on partners.

Your business plan should include:

• Executive Summary: A concise overview of your business concept and goals
• Market Analysis: Research on your target customers, competitors, and industry trends
• Products or Services: Detailed descriptions of what you're offering
• Marketing Strategy: How you'll reach and retain customers
• Financial Projections: Revenue forecasts, startup costs, and funding requirements
• Operations Plan: Day-to-day business operations and organizational structure

A well-prepared business plan not only clarifies your vision but also demonstrates professionalism to potential investors and lenders. Consider revisiting and updating your plan annually as your business evolves.

Step 2: Select Your Business Structure

California recognizes several business entity types, each with distinct legal and tax implications. Choosing the right structure affects your liability protection, tax obligations, and operational flexibility.

Sole Proprietorship: The simplest form, where you and your business are legally one entity. Easy to establish but offers no liability protection for personal assets.

Partnership: Similar to a sole proprietorship but with two or more owners. General partnerships split liability among partners, while limited partnerships allow some partners to have limited liability.

Limited Liability Company (LLC): Combines liability protection with tax flexibility. LLCs protect personal assets from business debts and lawsuits while allowing pass-through taxation.

Corporation (C-Corp or S-Corp): Offers the strongest liability protection and is ideal for businesses seeking outside investment. C-Corps face double taxation, while S-Corps allow pass-through taxation with certain restrictions.

Limited Liability Partnership (LLP): Primarily for licensed professionals like attorneys, accountants, and architects. Recognized in California but not at the federal level.

For most small businesses, an LLC provides an ideal balance of protection and simplicity. However, corporations may be better suited for businesses planning to raise venture capital or go public eventually.

Step 3: Choose and Register Your Business Name

Your business name is more than branding—it's a legal requirement that must comply with California regulations.

For Sole Proprietorships and General Partnerships

If you operate under your legal name (or partners' surnames), no registration is required. However, if you want to use a different business name, you must file a Fictitious Business Name (FBN) Statement with your county clerk's office.

For LLCs, Corporations, and LLPs

These entities require more comprehensive name registration:

1. Search Existing Names: Use the California Secretary of State's business name database to ensure your chosen name isn't already taken. Your name must be distinguishable from existing registered businesses.

2. File a Name Reservation: Submit a Name Reservation Request to the Secretary of State, which reserves your chosen name for 60 days while you complete formation documents. The filing fee is $10, and you can renew the reservation if needed.

3. File Your FBN: Even after reserving your name with the state, you must file an FBN Statement with your county within 40 days of formation.

Publishing Your FBN

California law requires you to publish your FBN in a local newspaper within 30 days of filing. The notice must run once weekly for four consecutive weeks. After publication, submit a signed affidavit from the newspaper to your county clerk within 30 days.

Check with your county clerk for approved newspapers in your area—some counties maintain specific lists of acceptable publications.

Trademark Protection

Filing an FBN doesn't provide trademark protection. To legally protect your business name and logo from copycats, file Form TM-100 with the California Secretary of State. The minimum fee is $70, though costs vary based on the number of goods or services classes you're protecting.

Step 4: Register Your Business with the State

The registration process varies by entity type. All registrations go through the California Secretary of State.

Sole Proprietorships: No state registration required—you're automatically in business once you start operating. However, you may need local licenses and permits.

General Partnerships: No state registration required unless filing an FBN.

LLCs: File Articles of Organization (Form LLC-1) with the Secretary of State. The filing fee is $70, plus you'll pay an initial$800 franchise tax. You can file online or by mail.

Corporations: File Articles of Incorporation (Form ARTS-GS for general stock corporations) with the Secretary of State. The filing fee starts at $100. You'll also need to create corporate bylaws and hold an initial board meeting.

LLPs: File Form LLP-1 to register your limited liability partnership. The fee is $70 for the registration.

Most formations take 5-7 business days for standard processing, though expedited options are available for additional fees.

Step 5: Obtain an Employer Identification Number (EIN)

An EIN, also called a Federal Tax Identification Number, is required for most businesses. You'll need one if you:

• Have employees
• Operate as a corporation or partnership
• File certain tax returns
• Have a Keogh retirement plan

Sole proprietors without employees can use their Social Security Number instead, but obtaining an EIN is still recommended to protect your personal information and establish business credit.

Apply for an EIN free through the IRS website—the process takes just minutes, and you'll receive your number immediately. Beware of third-party services charging fees for this free service.

Step 6: Open a Business Bank Account

Separating your business and personal finances is crucial for accurate accounting, simplified tax preparation, and maintaining liability protection (especially for LLCs and corporations).

To open a business bank account, you'll typically need:

• Your EIN or Social Security Number
• Business formation documents (Articles of Organization/Incorporation)
• Business license (if already obtained)
• Personal identification

Shop around for banks that offer favorable terms for small businesses, including low fees, convenient branch locations, and features like mobile deposit and online accounting software integration.

Step 7: Select Your Business Location

Your business location matters for legal compliance, customer access, and operational efficiency.

Zoning Regulations

California cities and counties enforce zoning laws that dictate what types of businesses can operate in specific areas. Before signing a lease or establishing a home office, verify that your intended location allows your business type.

Research zoning requirements through your city or county planning department. Home-based businesses often require special permits, and some residential zones prohibit certain business activities entirely.

Commercial Leases

If leasing commercial space, carefully review the lease terms, including:

• Rent and common area maintenance (CAM) fees
• Lease duration and renewal options
• Permitted use clauses
• Who's responsible for repairs and improvements
• Sublease and assignment rights

Consider hiring an attorney to review commercial leases before signing—the investment often prevents costly problems later.

Step 8: Obtain Required Licenses and Permits

Beyond business formation, California requires various licenses and permits depending on your business type, location, and activities.

State-Level Requirements

Seller's Permit: If you sell tangible goods, you must register with the California Department of Tax and Fee Administration (CDTFA) to collect sales tax.

Professional Licenses: Many professions require state licenses, including contractors, cosmetologists, real estate agents, and healthcare providers. Check with the relevant California licensing board for your profession.

Resale Certificate: If you purchase goods for resale, obtain a resale certificate to avoid paying sales tax on wholesale purchases.

Local Business Licenses

Nearly all California cities and counties require general business licenses. Contact your city clerk's office or county clerk (if operating in an unincorporated area) to:

• Determine licensing requirements
• Understand applicable fees
• Learn about renewal procedures

Industry-Specific Permits

Depending on your business, you may need additional permits for:

• Food service and restaurant operations (health permits)
• Alcohol sales (liquor licenses through California ABC)
• Construction and contracting work (contractor's licenses)
• Signage (sign permits)
• Fire safety and building occupancy
• Environmental compliance

The CalGOLD database (California Government Online to Desktops) helps identify required permits based on your business type and location.

Employment-Related Registrations

If hiring employees, register with:

• California Employment Development Department (EDD): For payroll tax, unemployment insurance, and disability insurance
• Federal Tax Agency: For federal employment taxes

Step 9: Secure Appropriate Business Insurance

While California doesn't require most businesses to carry general liability insurance, proper coverage protects your assets and business continuity.

Required Insurance

Workers' Compensation: Mandatory for businesses with employees, even if you have just one part-time worker. California's workers' comp system provides wage replacement and medical benefits to employees injured on the job.

Commercial Auto Insurance: Required if your business owns or leases vehicles. Personal auto policies typically don't cover business use.

Recommended Insurance

General Liability Insurance: Protects against third-party claims of bodily injury, property damage, and advertising injury.

Professional Liability Insurance (Errors & Omissions): Essential for service-based businesses and protects against claims of negligence or inadequate work.

Property Insurance: Covers your business property, equipment, and inventory against theft, fire, and natural disasters.

Business Interruption Insurance: Replaces lost income if your business temporarily closes due to covered events.

Cyber Liability Insurance: Increasingly important as businesses face data breach risks and cyber attacks.

Many insurers offer Business Owner's Policies (BOPs) that bundle general liability and property insurance at discounted rates.

Step 10: Understand California's Franchise Tax Requirements

California imposes an annual minimum franchise tax that catches many new business owners by surprise.

The $800 Annual Minimum

LLCs, corporations, LLPs, and limited partnerships must pay at least $800 annually to the California Franchise Tax Board (FTB), or a percentage of net income—whichever is greater. This applies even if your business operates at a loss.

First-Year Exemption

New LLCs, corporations, LLPs, and limited partnerships are exempt from the $800 minimum franchise tax during their first tax year. However:

• You're still responsible for income tax at the standard corporate rate
• The exemption applies only to the first taxable year, which is often less than 12 months
• LLCs must have elected to be treated as corporations to qualify (not disregarded entities)

Additional LLC Fees

LLCs face an additional annual fee based on gross receipts:

• $0 -$250,000: $0
• $250,000 -$499,999: $900
• $500,000 -$999,999: $2,500
• $1,000,000 -$4,999,999: $6,000
• $5,000,000+:$11,790

Plan for these costs in your financial projections and set aside funds quarterly to avoid year-end surprises.

Additional Considerations for California Businesses

Sales and Use Tax

If selling tangible products, you must collect California sales tax from customers and remit it to the CDTFA. Rates vary by location, typically ranging from 7.25% to 10.25% when including district taxes.

Employment Laws

California has some of the nation's most protective employment laws:

• Minimum wage varies by location and employer size—check your city's requirements
• Meal and rest break requirements
• Overtime rules that differ from federal standards
• Paid sick leave mandates
• Anti-discrimination and harassment protections

Consult with an employment attorney or HR professional to ensure compliance.

Privacy Regulations

The California Consumer Privacy Act (CCPA) and California Privacy Rights Act (CPRA) impose strict requirements on businesses that collect personal information from California residents. If your business handles customer data, understand your obligations.

Business Contracts

Consider having standard contracts reviewed or drafted by an attorney, including:

• Client service agreements
• Vendor contracts
• Employment agreements
• Partnership or operating agreements
• Non-disclosure agreements

Accounting and Bookkeeping

Establish sound financial practices from day one:

• Choose an accounting method (cash vs. accrual)
• Set up a bookkeeping system or hire a professional
• Track all business expenses for tax deductions
• Maintain separate business credit cards
• Keep detailed records for at least seven years

Good financial records simplify tax filing, support business decisions, and prove invaluable if you're ever audited.

Your California Business Journey Begins

Starting a business in California requires navigating multiple registration processes, licenses, and regulatory requirements. While the steps may seem daunting, breaking them into manageable tasks makes the process achievable.

Take your time with formation decisions—particularly choosing your business structure—as these choices have long-term legal and tax implications. Don't hesitate to consult professionals like attorneys, accountants, and business advisors when facing complex decisions.

California's large market, diverse workforce, and innovation-friendly culture create tremendous opportunities for entrepreneurs willing to do the groundwork. By following this guide and staying compliant with state and local requirements, you're setting your business up for sustainable success in the Golden State.

Remember, business formation is just the beginning. Once established, focus on building great products or services, understanding your customers, and adapting to market feedback. The entrepreneurs who succeed in California are those who balance regulatory compliance with relentless focus on creating value for their customers.

Welcome to California entrepreneurship—now go build something remarkable.