The most challenging part for new business owners is having their business registered. Registering your business in California, like many other states, requires adhering to many rules.
Thankfully, we are here to make the whole process easy for everyone. Just read our step-by-step guide.
Important Steps Before Registering your California Business
Decide on a Business Structure
There are many business entities, each with a fair share of pros and cons. The most common legal structures for small businesses include
- Sole proprietorship
- Limited liability company (LLC)
A sole proprietorship is an individual deciding to get into business. It is the cheapest and the most straightforward business entity to start. Besides, you will not share all the profits with anyone.
However, it comes with its fair share of disadvantages too. While you will enjoy all the profits in the business alone, all losses will be on you. In addition, a sole proprietorship doesn’t offer liability protection. If your business gets sued in a court of law, your personal property can be used as collateral to pay for the business actions.
A partnership is owned by two or more people that have agreed to run a business together. Partnership and sole proprietorship are taxed as pass-through entities and don’t offer tax selection options. The profits and losses are passed through to individual tax returns.
Limited Liability Company (LLC)
LLC combines the benefits of liability protection and the simplicity of a sole proprietorship. Besides, it offers the most tax freedom of all the business structures, making it the most preferred business entity in California.
Corporations come with much better liability protection but don’t offer as many tax benefits as LLCs unless you select to be taxed as S-corp. Besides, it requires a little more paperwork to establish, making it more expensive than other business entities.
When choosing the right business structure, consider the followings:
The legality of the Entity: Different states have legally acceptable business structures to follow. Thankfully all the business structures we have listed above are acceptable in California.
Registration Requirements: Sole proprietorship is the easiest and the cheapest to register, followed by a partnership, then LLC. A corporation requires more paperwork and is more expensive.
Management: A sole proprietorship is one person deciding to enter a business and is the easiest to manage. An LLC is more straightforward to manage than a corporation.
Choose an Appropriate Business Name
Before heading to the California secretary of state’s office to register your business, you should have a valid business name. However, California has a stringent naming standard to ensure all business names are unique.
Therefore, before you submit a name for business registration, conduct an online search on the state’s database to ensure the name isn’t already in use. You should also conduct Federal and state trademark name checks to ensure your preferred name isn’t patented as a trademark.
Registering Your California Business
File Your Paperwork
To register an LLC or a corporation in California, you must file formal paperwork with the Secretary of State. The paperwork for an LLC and corporation is typically filing articles of organization and incorporation forms, respectively.
The forms are available on the California secretary of state’s website where you can fill out the forms online or download and send them via email along with the required state filing fees. You can hire a business formation service to undertake the paperwork on behalf of the company.
A sole proprietorship doesn’t need filing documents unless you want to operate your business with a different name from your official name. In such a case you will have to file for a DBA. General partnerships have similar requirements to sole proprietorship, with the only addition being a written partnership agreement.
Designate a Registered Agent
You must have a registered agent with a physical address in California for your LLC or corporation. A registered agent can be a person or business entity responsible for receiving legal documents on behalf of your company.
While you can be your own registered agent, appointing someone or a business service to serve as your registered agent comes with benefits that offer peace of mind.
Important Steps Immediately After Registering a California Business
Register for Taxes
Generally, you’ll need to register your business for tax obligations if you own business property, hire employees, or wish to make significant sales. The process involves applying for an Employer Identification Number (EIN) or other tax registrations administered by the Internal Revenue Service. Afterward, you can begin filling your taxes periodically as the law requires.
In California, every LLC and Corporation must pay an annual franchise tax of $800 to the Franchise Tax Board.
Acquire Business License or Permits
Any business owner must obtain a general business license (tax certificate) in the city where the business is located. The general regulatory licenses and permits cover areas such as
- Health and safety
- The environment
- Building and construction; and
- Specific industries or services
The state also offers specific licensing for professionals and industries.
Registering your business is a significant milestone in the growth of your business. Fortunately, we have made it easier for everyone to register their business in California. You can find more information on California business and other business news here.
via: Information Nigeria