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alifornia can be an excellent location for entrepreneurs looking to start their dream business. The state offers the fifth largest economy in the world, a constant influx of eager-to-spend tourists, and plenty of networking opportunities. But before bringing in profits, California businesses need a business license.
A business license, also known as a business tax certificate, is a government document that certifies a business is legal to operate and safe for the public.
However, a license does not provide insurance coverage or serve as an end-all document for a business. In fact, many businesses require multiple licenses and permits to operate, depending on the nature of the work and location.
Here’s how to get a business license in California to start on the right legal footing with your new business venture.
Types of Business Licenses by Business Structure
The journey to a California business license starts by deciding which business type is right for you. This decision affects how your business is taxed, your legal liability, and how much it costs to form your business.
Sole proprietorship
A sole proprietorship is the simplest form of owning a business. This business type allows an individual to run an unincorporated business for their own profit. In a sole proprietorship, all profits are subject to the owner.
While you don’t need an official business license to start a sole proprietorship, you may need additional permits depending on your work. However, this business type leaves the owner 100% liable for business debts, and there is typically no distinction between personal and business income.
Limited liability company
A limited liability company, or LLC, combines the advantages of partnerships and corporations, like profit sharing between owners, without double taxation. Owners also experience limited liability for debts or losses, which are held separate from their personal assets. But California LLC agreements can be complex, and there are costs associated with legal and filing fees.
Partnership
Both general and limited partnerships allow multiple business owners to share resources and provide more capital for their business. All partners are 100% liable for business debts in a general partnership, even if their investments aren’t equal. Limited partnerships require a formal agreement and a certificate of partnership with the state. It’s inexpensive to establish a business partnership, but difficult to sell should one partner decide to leave.
S-corporation or c-corporation
Corporations are separate entities from their founders. Profits generated by a corporation are taxed as company income. Once income is distributed to shareholders, they’re taxed again as personal income. This scenario limits the owner's liability to debts and losses and makes it easier to transfer a corporation to a new owner. However, establishing a corporation can be costly and requires complex paperwork.
The key difference between an S-corp and a C-corp is their tax classifications, with larger companies typically benefiting from a C-corp structure.
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How Much Does It Cost to Get a Business License in California?
Business licenses are provided and regulated by local municipalities in California, not the state. This means that the price of filing for a business license in California varies, with fees as low as $15 or as high as several hundred dollars. Remember that a business license must also be renewed every one or two years, adding a recurring cost and task.
There are no fees for a sole proprietorship, but an LLC or corporation is responsible for paying additional fees to the California Secretary of State for filing. For example, an LLC must file the LLC-1 Articles of Organization with a fee of $70. LLCs are also responsible for an annual minimum tax of $800 to the California Franchise Tax Board.
Businesses using a name different than the one registered with the state also need to file an application for a DBA or “doing business as” designation, also referred to as a fictitious business name. DBAs can help with branding or marketing your business, but they do not provide legal or liability protections. Be sure to check with your local government: filing fees vary by county or city, but they typically cost about $40.
How to Get a Business License in California
Ready to start your business in the Golden State? Here are the basic steps to take to secure the proper licensing and permits for your new business.
1. Decide key business details
The first step to getting a California business license is to name and form your business. You’ll want to decide on all the appropriate information before filling out an application. In general, you can expect to provide your business name, Employer Identification Number (EIN), business entity type, address, phone number, and business plan. Proof of insurance may also be necessary before you can secure a business license.
2. Fill out a business license application
There is no one-size-fits-all California business license application. Instead, requirements vary by business type and location. Start by visiting your city’s website or reviewing the Governor's Office of Business and Economic Development website for guided assistance in determining the appropriate application requirements.
3. Consider city-, county-, and statewide permits
While the state of California doesn’t administer statewide business licenses, it does regulate seller’s permits. If you rent out or sell tangible goods that are subject to sales tax sold at retail, you will need a seller’s permit in California.
Other permits and licenses are required depending on your business type and where you operate your business in the state of California. From building permits, or public health permits, to vocational licensing or liquor licensing, you may need to obtain additional permissions and local business licenses.
For further information on licensing requirements and permit assistance by city and county, the CalGold website is a helpful resource.
4. Consider federal permits
Some California businesses may require federal permitting. Industries that may need this additional filing include farming, firearms, fishing, transportation, and alcohol sales. You can find a list of industries requiring federal permitting here.
Important Next Steps
Once you secure your business license, it’s time to prepare your business for its big debut.
This may include setting up a physical store, if applicable, or hiring employees (unless you’re a sole proprietor). In addition, you may wish to launch a website and initiate marketing strategies and a social media presence.
Another key next step for any new business in California is to open a business bank account to keep personal and professional funds separate.
With the right business banking partner, you’ll set your business up for success from the start. Find out why Novo was built with the needs of small businesses in mind, from sole proprietors to LLCs, to Corporations.
This page is for informational purposes only and is not intended to be relied upon as legal, financial, or accounting advice. Please consult your own professional if you have any questions.
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