Starting a business in California involves choosing a legal structure, registering with the Secretary of State, handling tax obligations, and securing any required permits or licenses. The process can be completed in a few days if you file online, though some steps take longer depending on your business type and whether you plan to hire employees.
Choose Your Business Structure
Your legal structure determines how you pay taxes, how much personal liability you carry, and what paperwork you file. The most common options for new California businesses are sole proprietorships, limited liability companies (LLCs), and corporations.
A sole proprietorship is the simplest path. You don’t file formation documents with the state, and your business income flows directly onto your personal tax return. The tradeoff is that your personal assets are on the line if the business gets sued or can’t pay its debts.
An LLC gives you liability protection, separating your personal finances from the business, while still allowing profits to pass through to your personal tax return. A corporation offers similar liability protection and is better suited if you plan to raise investment capital or eventually go public. California also allows S corporation elections for qualifying businesses, which can reduce self-employment taxes in some situations. Pick the structure that fits your growth plans and risk tolerance before you file anything.
Register With the Secretary of State
If you’re forming an LLC or corporation, you need to file formation documents with the California Secretary of State. For an LLC, this means filing Articles of Organization. For a corporation, you file Articles of Incorporation.
The fastest way to file is online through the Secretary of State’s bizfile platform at bizfileonline.sos.ca.gov. The system supports over 140 business filings, including LLCs and corporations, and online submissions are processed much faster than paper. You can also submit forms by mail or in person if you prefer.
Sole proprietors and general partnerships skip this step entirely since they don’t register a formal entity with the state. However, if you operate under any name other than your legal name, you’ll need to file a fictitious business name statement (often called a “DBA”) with your county clerk’s office.
Get a Federal EIN
An Employer Identification Number (EIN) is a tax ID for your business, similar to a Social Security number but for the company itself. You need one if you form an LLC or corporation, hire employees, or open a business bank account. The IRS issues EINs for free, and applying online at irs.gov takes about 10 minutes. You’ll receive your number immediately after completing the application.
Understand California’s Annual Franchise Tax
California imposes an annual franchise tax of $800 on every LLC doing business in or organized in the state. Corporations face a similar minimum tax. This is due every year regardless of whether the business earns a profit.
There was a first-year exemption for LLCs that organized or registered between January 1, 2021, and January 1, 2024, but that exemption has expired. New LLCs forming now should expect to owe the $800 in their first tax year. One exception still applies: if you cancel your LLC within one year of organizing by filing the short form cancellation (Form LLC-4/8) with the Secretary of State, you won’t owe the annual tax for that first year.
LLCs with gross revenue above $250,000 also pay an additional annual fee that scales with income. The Franchise Tax Board administers these taxes, and payments are typically due by the 15th day of the fourth month after your tax year begins.
Secure Permits and Licenses
The permits you need depend on your industry, your business activities, and where you’re located. A home-based consulting firm has very different requirements than a restaurant or a construction company. California doesn’t have a single universal business license at the state level, so you’ll likely deal with multiple agencies.
California’s CalGold permit assistance tool at calgold.ca.gov is the best starting point. You enter your business location and business type, and the system returns a list of the local, state, and federal permits that may apply, along with contact information for each issuing agency. If you’re unsure of your business type, you can search “General Business Information” for your city or county to see a general list. CalGold doesn’t issue permits itself, but it tells you exactly which agencies to contact.
Most cities and counties in California require a local business license or tax certificate, even for home-based businesses. Contact your city clerk or county office to find out the cost and application process for your area. Some industries, like food service, childcare, construction contracting, and cosmetology, require state-level professional licenses as well.
Register as an Employer
If you plan to hire employees, you must register with the California Employment Development Department (EDD) within 15 days of paying more than $100 in wages in a calendar quarter. Household employers trigger the requirement at $750 or more in cash wages per quarter.
Once registered, you’re responsible for California’s four state payroll taxes: Unemployment Insurance, Employment Training Tax, State Disability Insurance, and Personal Income Tax withholding. You’ll report wages and pay these taxes through the EDD’s online system.
California also requires every employer with one or more employees to carry workers’ compensation insurance. This is mandatory with no exceptions. You can purchase a policy through a private insurance carrier or, for qualifying businesses, through the State Compensation Insurance Fund.
Open a Business Bank Account
Keeping your personal and business finances in separate accounts is essential, especially for LLCs and corporations. Mixing funds can weaken the liability protection your business structure provides, because a court could decide the business isn’t truly separate from you personally. You’ll typically need your EIN, formation documents, and a government-issued ID to open an account. Some banks also ask for your operating agreement (for LLCs) or corporate bylaws.
File Your Statement of Information
After forming your LLC or corporation, California requires you to file a Statement of Information with the Secretary of State. This document lists your business address, the names of managers or officers, and your registered agent. LLCs must file within 90 days of formation and then every two years. Corporations file within 90 days and then annually.
Subsequent filings are due within a six-month window based on the month your business was formed. For example, a business formed in March would file its next Statement of Information between October and the following March. You can file online through bizfile. Failing to file on time can result in penalties from the Franchise Tax Board and may lead to your business being suspended or forfeited by the state.
Any time your business information changes between filing periods (a new address, a change in management), you should file an updated statement right away rather than waiting for your next scheduled window.
Set Up Your Books and Tax Calendar
California businesses file state taxes with the Franchise Tax Board in addition to federal taxes with the IRS. LLCs taxed as pass-through entities file Form 568 with the state. Corporations file Form 100. Sole proprietors report business income on their personal California return using Schedule C or its equivalent.
If you’re collecting sales tax on physical goods or certain services, you’ll also need a seller’s permit from the California Department of Tax and Fee Administration (CDTFA). The permit itself is free, but you’ll need to collect and remit sales tax on qualifying transactions. Depending on your sales volume, you may file monthly, quarterly, or annually.
Setting up accounting software or working with a bookkeeper from the start saves significant headaches at tax time. Track every business expense, keep receipts, and separate business transactions from personal ones. California’s tax obligations are more complex than most states, and clean records from day one make compliance far easier as your business grows.