How to Start a Business in California: Simple Guide for Entrepreneurs

California earned its nickname as the Golden State for more than just its famously sunny weather. It also offers a rich economic foundation for entrepreneurs looking to build their own businesses. From tech titans to farmers to manufacturers, California's diverse economy is primed to support a wide range of new businesses. 

Why should you start a business in California?

California’s thriving economy, diverse market, and innovation-friendly environment have made the Golden State not only the top area for business and economic development in the U.S., but also one of the top in the world. 

California's gross domestic product (GDP) is 6.12% higher than New York's, particularly booming in industries such as finance, trade, manufacturing, and information.

Small business owners make up 99.8% of business owners in the Golden State. While California offers a flourishing environment for new entrepreneurs, having a viable business idea is key to driving long-term success.

How to come up with a business idea in California

So how does one come up with a successful business idea? The trick is understanding your target audience, value proposition, and the scalability of your potential business. Start by asking yourself what skills and interests you already have and align your industry with those traits. It's equally important for your business to be personally sustainable as it is for it to be economically sustainable.

Explore your circles for market trends, gaps, and compatible demographics. Look for problems within that community and your daily life that you could solve through a new business. Is there something that you wish you had that doesn't exist yet? This doesn't have to be an entirely new idea. It could be a needed improvement on a current service or product.

Get creative and brainstorm ideas. Then, consult your community to see what resonates. Test your business ideas by asking yourself if it is a scalable business plan that can outlive a current trend or circumstance? If not, go back to the drawing board.

Don't be afraid to ask for help. The U.S. Small Business Administration offers helpful resources to conduct market research and create a successful business plan. 

Step-by-step guide to California business registration

To officially register your new business in California, file formation articles with the Secretary of State (SOS). To file this document, you need to determine your business structure, business name, registered agent, and a few other fundamental details.

Step 1. Choose a business structure

First, choose a legal structure for your business. Each structure offers various perks that may be more or less beneficial depending on your unique needs. There are four main business structures.

• Corporation: Fully separates the business entity from its owners, offering liability protection. Filing as a corporation allows your business to generate additional income by selling stocks or bonds. However, corporations generally have a more rigid management and must pay business taxes.
• Limited liability company (LLC): Also distinguishes between individual and entity, protecting your personal assets. LLCs offer a more flexible management structure and allows you to choose whether you want to file taxes as a business or "pass-through" to your individual income tax.
• Sole proprietorship: Supports individuals who want to own and operate their own business. Owners of sole proprietorships receive all management control and business profits and therefore are personally responsible for taxes and any liabilities.
• Partnership: Supports two or more individuals who want to jointly own and operate a business. Owners of partnerships also file their share of business gains and losses on their individual income taxes and are jointly liable for any business debts. Register your business name

Step 2: Register your business name

Sole proprietorships and partnerships that don't include their last name in their business name need to file a fictitious business name (FBN) or doing business as (DBA) statement. This process makes their role as the owner(s) of the company available to the public.

File this statement with the local Registrar-Recorder or County Clerk's office where your business will be located. Limited liability companies and corporations report their business name in their formation articles.

Every state has its own rules for registering a business name. To protect both consumers and companies from confusion, all California businesses must have a distinct name that differs from every other business in the state. Before filing your formation articles, conduct a California business search to ensure your desired business name is unique.

If you're struggling to come up with a unique business name that you love, use LegalZoom's free business name generator. Use this tool by inputting your business idea, desired tone, and location and generate an unlimited amount of business names until you find one that resonates.

If you're not immediately ready to file formation articles, California's SOS allows you to reserve a business name for up to 60 days.

Step 3: Choose a registered agent

California law requires most business structures to designate an agent for service of process, also called a registered agent, who'll receive legal documents on their behalf. Your registered agent can be an individual who resides in California or a business entity that's received a 1505 service of process certificate.

While your business can't be its own registered agent, a member of your organization can. That said, you may prefer to hire a registered agent service, such as LegalZoom's, to perform this role for you. Not only does your registered agent need to be available during regular business hours to receive important legal documents, but also their address becomes available to the public.

Step 4: File formation paperwork

Now that you have a name and registered agent, it's time to officially register your business with the state. Find formation documents for your business structure on the CA Secretary of State website. Select the form that applies to you and complete your application either online through the Bizfile portal or by filling out a paper form, which you can download from the SOS website. 

Mail paper forms to the following address:

Secretary of State

Business Programs Division

Business Entities

1500 11th St., Sacramento, CA 95814

The filing fee is $100 whether you register online or with a paper form. If you file by mail, include a check or money order payable to the Secretary of State with your application. 

What are the costs of starting a business in California?

Common costs—such as registration fees, business insurance, and initial operational expenses—will all vary depending on the location, nature, and structure of your business. 

Basic startup costs for a California LLC

• Articles of organization: $70
• Fictitious business name statement: Generally $40 to $55
• Registered agent service: anywhere from $100 to $300 annually
• Statement of information: $20
• Franchise tax (due March 15): $800
• Total: $1,030 (not including licenses, permits, and insurance)

Basic startup costs for a California corporation

• Articles of incorporation: $100
• Fictitious business name statement: Generally $40 to $55
• Registered agent service: anywhere from $100 to $300 annually
• Statement of information: $35
• Franchise tax (due March 15): $800 minimum
• Total: $1,075 (not including licenses, permits, and insurance)

Basic startup costs for a California partnership

• Certificate of partnership: $70
• Fictitious business name statement: Generally $40 to $55
• Registered agent service: anywhere from $100 to $300 annually
• Franchise tax (due March 15): $800 (general partnerships excluded)
• Total: $1,010 (not including licenses, permits, and insurance)

Sole proprietorships don't file articles with the Secretary of State but may have to file with their local county recorder, depending on the county. If you plan to form your sole proprietorship under a different name from your legal last name, you'll also need to pay the filing fee for a fictitious business name statement. 

California’s permits and licenses: What you need to know

Most California business entities need to apply for California permits and licenses to legally operate in the Golden State. Licenses are permits are industry-specific and unless you work with an outside service, you'll need to obtain them from the relevant institutions.

For example, the Department of Consumer Affairs issues licenses for many consumer-facing industries, such as dentists, teachers, and real estate agents. Similarly, the Department of Alcoholic Beverage Control issues alcoholic beverage licenses. Check CalGold's search tool for specific permit information based on the city or county where you plan to run your business.

The Department of Industrial Relations (DIR) also offers a helpful list of state licenses and permits based on your business activities. It's very important to obtain and renew these licenses to avoid fines or shutdowns.

Taxes and regulations for businesses in California

Another important step to get your business legally up and running is to register for state and local taxes. Sales tax, franchise tax, and payroll tax are the three main taxes that California businesses need to know. However, there are other taxes specific to certain industries.

Franchise tax

All California corporations and limited liability companies must pay an $800 franchise tax annually to legally operate in the Golden State. Pay to the State of California Franchise Tax Board by April 15 if your business is an LLC. For corporations, pay by the first quarter of each accounting period.

Seller's permit

Retail businesses need to obtain a seller's permit to charge sales tax on goods sold. Apply for this permit through the California Department of Tax and Fee Administration. California businesses also need to report income taxes.

Income tax

Business income tax is generally 8.84% for corporations and LLCs that file as corporations but differs by entity type. Businesses that file as sole proprietorships pay taxes on their individual returns, which vary by income. Use the Form 540 tax table for a general idea of how much your business might pay as an individual filer.

Payroll tax

If you plan to hire employees, register with the State of California Employment Development Department. They'll help you manage the following four state payroll taxes:

• Unemployment Insurance (UI): Employer pays from 1.5% to 6.2% per $7,000 of an employee's wages
• Employment Training Tax (ETT): Employer pays 0.1% per $7,000 of an employee's wages
• State Disability Insurance (SDI): Withheld from employee's wages at 1.2%
• Personal Income Tax (PIT): Withheld from employee's wages based on the Employee’s Withholding Allowance Certificate (DE 4)

Register with federal institutions

Once you've registered with California agencies, file the necessary paperwork with federal institutions.

Apply for an employer identification number (EIN)

The EIN is a nine-digit identification code that the Internal Revenue Service (IRS) assigns to companies for federal tax purposes. Having this number also allows you to open a business bank account, which is crucial for business structures that want to protect their limited liability status. Apply for an EIN directly through the IRS website or use LegalZoom's EIN application service.

File a Beneficial Ownership Information Report (BOIR)

Most business owners, regardless of where their organization is located, must file a Beneficial Ownership Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN). This is a federal requirement that isn't specific to California. Businesses formed in 2025 or later must file within 30 days unless exempt. LegalZoom also has a BOIR report filing service to help you facilitate the process.

Tips for marketing your new business in California

Starting a small business in a thriving economic hub poses its own challenges. Often, the biggest hurdle is getting your business to stand out. While you may want to reach as many people as possible, it’s best to start small by building a loyal customer base.

Start by engaging with your local community. Look for your competition and what they're doing successfully. Then, consider where the holes are in the market. Once you have a feel for what your unique business proposition is, leverage online tools such as social media and Google search engines. Use search engine optimization (SEO), targeted ads, and location tags to reach your target community.

Build local buzz by engaging with your community through local events. This could mean setting up a booth at fairs, partnering with other local businesses, or participating in charity events. If you have a green business, join local green movements and incorporate eco-conscious key words into your messaging. As you spread the word, make sure you have a user-friendly website to help guide customers to your business.    

FAQs

How much does it cost to start a business in California?

The cost of starting a business in California will vary depending on your business structure, industry, location, and operating costs. That said, the basic registration costs are as follows.

• LLC: around $1,030
• Corporation: around $1,075
• Limited partnership: around $1,010

Do I need a business license to start a business in California?

While there is no general business license that all California businesses need to get started, there are many industry-specific licenses and permits that will also vary depending on the location of your business.

How do I register my business with the California Secretary of State?

To register with the California Secretary of State, you first need to choose a business structure, name, and registered agent. Then, you can file formation articles through the CA SOS's bizfile online portal or use LegalZoom's formation service to handle multiple startup steps at once.

What taxes do I need to pay as a business owner in California?

Most California businesses need to pay an $800 annual franchise tax, income tax, and payroll taxes. Payroll taxes include Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI), and Personal Income Tax (PIT).

How long does it take to start a business in California?

That depends on a number of factors including how you choose to file your registration documents and what licenses or permits you need to begin operating your business. The California SOS updates their page on Current Processing Dates regularly. You can check that page for an idea of when they'll confirm your registration.