How to Register a Business in California

by Jennifer Kiesewetter in

TLDR

  • In the United States, California leads the way in population, outpacing the second largest state—Texas--by 10 million people. With such a vast population, it’s no wonder California is home to millions of businesses, both large and small. 
  • Before registering a startup in California, you first need to determine your business's legal entity structure, such as a limited liability company, corporation, general partnership, limited partnership. 
  • In addition to choosing an entity structure, you'll have to choose a business name and registered agent. When picking a name for an LLC, corporation, or limited partnership, you’ll want to distinguish it from any other business names already registered with the California Secretary of State’s office.
  • Finally, after completing the above steps, it's time to submit formation forms to the California Secretary of State. For new or converting entities, the State of California provides sample forms to use or review.
  • If you are a woman or minority-owned company, it’s a good idea to obtain the appropriate certification highlighting your ownership. Depending on the business, you may seek state certification from different California state agencies.
  • To register an LLC in California, you’ll must file an Articles of Organization (Form LLC-1) with the California Secretary of State’s office.
  • Depending upon the chosen entity, you need to understand the annual filing requirements in addition to any owed state tax. For example, as stated above, general stock corporations have a $100 filing fee, where limited liability companies have a $70 filing fee.

In the United States, California leads the way in population, outpacing the second largest state—Texas--by 10 million people. With such a vast population, it’s no wonder that California is home to millions of businesses, both large and small. 

Many Fortune 500 companies are registered in California, including Apple (#4), McKesson (#8), Alphabet (#11), Intel (#45), and The Walt Disney Company (#49), to name a few.

However, California is also home to 4 million small businesses, making up 99.8% of all registered companies in the state while employing 7.1 million employees, according to the U.S. Small Business Administration.

This article explores how and when to register a startup in California and addresses how to register minority-owned companies and limited liability companies (LLCs).

When Do You Need to Register a Business in California?

When registering a business in California, several requirements must be satisfied to register your startup successfully and compliantly. Before registering, it’s a good idea to create a business plan, a roadmap for moving forward. In drafting the business plan, you’ll want to consider your go-to-market strategy, marketing and sales approaches, location, and ownership, just to name a few topics. For help in choosing your business’s location, contact the California Business Investment Services unit of the Governor’s Office of Economic Development (“GO-Biz”), which can provide site selection for your specific needs.

After identifying some of the basics about your startup’s operation, it is then time to register your company. Below, we've broken these requirements into a step-by-step process.

Determine Your Startup’s Entity Structure

Before registering your startup in California, determine your organization's legal entity structure. For example, in California, you may choose to register as a:

  • ·        Corporation
  • ·        Limited Liability Company
  • ·        General Partnership
  • ·        Limited Partnership
  • ·        Limited Liability Partnership
  • ·        Sole Proprietorship

Your chosen business entity determines the next steps in registering the business. To learn more about California's permissible entity types, visit the Secretary of State’s website, giving you further insight into each type.

For example, in California, a sole proprietorship is “set up to allow an individual to own and operate a business. A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business.” However, under California law, you do not have to register your business as a sole proprietor.  Keep in mind, though, that you may have other filing requirements depending upon your business type, such as a business license.

If you choose to organize as a limited liability company or a corporation, specific steps must be followed to register your business. For example, to register a corporation in California, you’ll need to file Articles of Incorporation--samples are on the Secretary of State’s website. If you choose to register your startup as a limited liability company (“LLC”), then you’ll need to file an Articles of Organization (Form LLC-1) with the Secretary of State’s office. We’ll discuss registering LLCs in more detail below.

Choose Your Startup’s Name

In addition to choosing an entity structure for your startup, you'll also have to choose a business name. When picking a name for an LLC, corporation, or limited partnership, you’ll need to distinguish it from any other business names already registered with the state. You can check for available names by visiting California’s business entity name search.

Additionally, you may reserve your business name for up to sixty (60) days by filing a Name Reservation Request Form. You may renew your name reservation but not for sixty (60) consecutive days. To renew, you must have at least one day in between the 60-day reservation periods. The fee for reserving an entity name is $10.

Identify Your Registered Agent

The next step is to identify and obtain a registered agent. A registered agent is “an individual who resides in California, or a corporation, designated to accept service of process (court papers) if the business entity is sued.” If you designate a corporation as your registered agent, that corporation must have a certificate pursuant to California Corporations Code Section 1505 on file with the state.

Like most states, you can act as your own agent for service instead of hiring an individual or corporation to do so. However, if you choose to hire a registered agent, you may consult the Secretary of State’s list of registered corporate agents.

Submit Your Formation Forms

Finally, after you complete the above steps, it's time to submit the formation forms to the California Secretary of State. For new or converting entities, the State of California provides sample forms to use or review. For example, suppose you chose a limited liability company, a limited partnership, or corporate structure. In that case, you can use the state's official forms, or you may use your own document, as long as it meets all the rules specified by law.

Let's look at a specific example. If you choose a general stock corporation in California, you will file an Articles of Incorporation (Form ARTS-GS) with the Secretary of State to create the company. You may file online, through the U.S. Mail, or in person. The filing fee is $100, and any certified copies of the Articles are an additional $5 each. Additionally, you’ll need to file a Statement of Information listing the company’s owners, officers, business description, and business addresses within ninety (90) days of filing your Articles of Incorporation.

How Do You Register as a Minority Owned Business in California?

Corporations and government agencies actively seek to do business with women and minority-owned businesses. Many governmental agencies have specific goals to work with these businesses where private companies understand the benefit of supporting these organizations, as women and minorities have significant purchasing power.  Further, both governmental entities and companies realize that supporting these businesses positively impacts the economy as a whole.

If you are a woman or minority-owned company, it’s a good idea to obtain the appropriate certification highlighting your ownership. Currently, 2.1 million employees in the State of California work for minority-owned businesses, according to the U.S. Small Business Administration.

Depending on your business, state certification is available from various state agencies. For example, the California Department of Transportation offers certification programs, as does the Southern California Minority Supplier Development Council and the California Public Utilities Commission. Further, the Department of General Services provides certifications for small businesses and disabled veteran-owned businesses.

How Do You Register an LLC Business in California?

A limited liability company, or LLC, “blends partnership and corporate structures. You can form an LLC to run a business or to hold assets. The owners of an LLC are members. LLCs protect its members against personal liabilities.”

To register an LLC in California, file an Articles of Organization (Form LLC-1) with the California Secretary of State’s office. The filing fee is $70, and you may file online, through the U.S. Mail, or in person at a designated state office. To obtain a certified copy of your Articles of Organization, you’ll pay an additional $5 for the document.

When budgeting the overall cost for LLC registration, note the required annual franchise tax you’ll owe, further addressed in the next section.

How Much Does It Cost to Register a Business in California?

Depending upon the chosen entity, you must understand the annual filing requirements in addition to any owed state tax. For example, general stock corporations have a $100 filing fee, where limited liability companies have a $70 filing fee.

However, you also must pay a minimum of $800 to the California Franchise Tax Board annually for any corporation incorporated or doing business in the state. However, in the corporation’s first taxable year, the entity is exempt from paying this franchise tax.

Additionally, limited liability companies, limited liability partnerships (“LLPs”), and limited partnerships (“LPs) are subject to this $800 franchise tax. Until recently, these entities were not eligible to receive the same tax exemption as corporations in their first business year. However, during the 2020-2021 legislative session, Assembly Bill 85 was passed, extending the franchise tax exemption to those LLCs, LLPs, and LPs that “organize, register, or file with the Secretary of State ‘on or after January 1, 2021, and before January 1, 2024.’”

Further, California has a 15-day rule, meaning that “[a] business entity is not subject to the $800 annual/minimum tax if the entity both: [1] Did not conduct business in the state during the taxable year [and][2] The taxable year was 15 days or less.” For example, according to California’s Franchise Tax Board:

[I]f an entity filing on a calendar year basis is formed on December 17 or after and does no business for the remainder of the year, then it may not have to file a tax return and pay the $800 annual/minimum tax for that short tax year. Since an entity that meets the 15-day rule is not required to file a tax return, this time period is not considered the first tax year. The following tax year will be considered the first taxable year.
However, AB 85 only provides an exemption from the annual tax for LLCs, LPs and LLPs that organize, register, or file with the Secretary of State on or after January 1, 2021, and before January 1, 2024.

To determine precisely how much you'll owe when registering your business in the State of California, check the Business Programs homepage or call (916) 657–5448.

Benefits of Registering a Business in California

Registering a company in California offers the following benefits:

  • Competitive, booming economy and labor market
  • Diverse industries
  • Anonymity provided to founders of the startup
  • Lower filing fees than many states, including Delaware

Limitations of Registering a Business in California

Here are some limitations of registering your business in California:

  • Navigation of complex corporate rules and regulations
  • Higher taxes than other states, including the annual franchise tax
  • Higher living expenses than other states

We can help!

At AbstractOps, we help early-stage founders streamline and automate regulatory and legal ops, HR, and finance so you can focus on what matters most—your business.

If you're looking for help registering your California business, we can get your documentation ready, overall shepherding this process to ensure it's done right. Drop us a note at hello@abstractops.com.

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