California attracts many aspiring business owners with its reputation for innovation and entrepreneurship. As of 2023, there were 4.1 million small businesses in California, and they employed 7.5 million people total. The state’s diverse economy includes tech giants in Silicon Valley and entertainment studios in Hollywood, offering a wealth of potential customers and partners across different industries. Businesses seeking top talent benefit from the state’s access to a highly skilled and educated workforce, including graduates from top universities.

Despite these advantages, starting a business in California can present challenges including relatively high taxes, complex regulations, and higher labor costs and costs of living. Competition can be fierce in certain industries, making it challenging for new businesses to gain a foothold. Whether California is a favorable place to start a business will depend on the industry, business model, and risk tolerance of the entrepreneur.

Below, we’ll explain how to start a business in California, highlight the advantages and disadvantages, and offer resources to help you get started.

What’s in this article?

• What sets California apart from other states for entrepreneurs?
  
• How to start a business in California
  
• Advantages and disadvantages of starting a business in California
  
• Resources for starting a business in California
  

What sets California apart from other states for entrepreneurs?

Here’s how California differs from other states regarding starting a business:

• Huge market and diverse economy: California has the fifth largest economy in the world and is home to a diverse range of industries including technology, entertainment, agriculture, tourism, and aerospace. This large market and economic diversity provide entrepreneurs with a wealth of opportunities and a vast customer base for their products and services.

• Tech and innovation hub: California is home to Silicon Valley, the world’s leading technology hub, and a vibrant innovation environment. This environment creates a culture of entrepreneurship, attracts top talent, and provides access to venture capital, angel investors, and other resources for startups and tech businesses.

• Global gateway: California’s location on the Pacific Coast provides a key gateway to Asia and other Pacific Rim countries. This facilitates international trade and opens opportunities for entrepreneurs who want to expand their businesses globally.

• Environmental consciousness: California is a pioneer in environmental protection and sustainability initiatives. The state has ambitious goals for renewable energy adoption, carbon reduction, and sustainable practices, which creates a favorable environment for businesses in clean energy, green technology, and sustainable products.

• Culture and creativity: California is renowned for its cultural diversity and creative industries, including film, music, fashion, and design. This rich cultural landscape promotes creativity, attracts talent from around the world, and provides opportunities for entrepreneurs in the arts, entertainment, and other creative fields.

• Customer market: Customers in California are known for their openness to new products, services, and technologies, making the state fertile ground for testing and launching innovative ventures. The state’s affluent population and high level of disposable income also create a strong customer market for premium products and services.

• Universities and research institutions: California is home to several world-class universities and research institutions such as Stanford University; the University of California, Berkeley; and the California Institute of Technology (Caltech). These institutions attract top talent, promote a culture of innovation, and provide opportunities for collaboration between businesses and academia.

• Progressive policies: California often leads the nation in progressive policies and social responsibility initiatives. This creates a favorable environment for businesses focused on social impact, sustainability, and ethical practices, and it attracts customers and investors who prioritize these values.

How to start a business in California

Here’s a step-by-step guide to starting a business in California:

Choose a name

Choose a unique name, and use the California secretary of state’s Business Search tool to check availability in California. If you’re operating under a name that is different from your legal business name, you’ll need to file a “doing business as” (DBA) name. If you want to further protect your business name, consider conducting a trademark search or trademarking your chosen name.

Choose a corporate structure

Choose among the following business structures. Consult with legal and financial advisors if you’re unsure which structure best meets your needs and goals.

• Sole proprietorship: This is the simplest business structure, but you’re personally liable for debts and obligations.

• Partnership: This structure comes with shared ownership. Partners are personally liable.

• Limited liability company (LLC): This structure has personal liability protection and flexible management options.

• Corporation (S corp or C corp): This structure provides the most liability protection but involves more complex formalities.

Choose a registered agent

Every business must have a registered agent, an individual or business entity that can receive legal documents and official correspondence on behalf of your business. The agent must have a physical address in California and be available during regular business hours. You can act as your own agent, appoint a trusted individual, or use a professional registered agent service.

File registration documents

File the appropriate documents associated with your business structure with the California Secretary of State’s Office. Pay filing fees online or by mail.

• Articles of incorporation or organization: LLCs need to file articles of organization, and corporations need to file articles of incorporation.

• Statement of information: Most business entities are required to file an initial statement of information and update it periodically.

Apply for relevant licenses and permits

Depending on your industry and location, you might need to obtain various federal, state, or local licenses and permits. For example, a seller’s permit is required if you’re selling taxable goods or services, and certain professions such as contractors, cosmetologists, and healthcare providers require specific licenses to operate. The California Governor’s Office of Business and Economic Development (GO-Biz) provides a CalGold permit assistance tool to help you determine the necessary licenses and permits.

Apply for an EIN, and open a bank account

Register for an Employer Identification Number (EIN), and open a business bank account.

• EIN: An EIN functions like a Social Security Number for your business. It’s required for tax purposes and for opening a business bank account.

• Business bank account: A business bank account separates your personal and business finances for accounting purposes and liability protection. Compare banks and their services to find the best fit for your business needs.

Research insurance and legal obligations

Ensure you have the appropriate insurance coverage, and understand your legal responsibilities before doing business.

• Insurance: Get the insurance you need to protect your business from liability, property damage, and other risks.

• Taxes: Register with the California Department of Tax and Fee Administration (CDTFA), and understand your tax obligations.

• Local regulations: Check with your city or county for any additional local regulations or requirements.

Advantages and disadvantages of starting a business in California

Starting a business in California requires resilience, flexibility, and a willingness to deal with a complex regulatory environment. But for those with the right idea, team, and resources, California can provide unparalleled opportunities for growth and success. Here are the key advantages and disadvantages associated with starting a business in California:

Advantages

• Access to capital: California has a strong venture capital environment. If your business idea is new and can expand, you’re more likely to find investors in California than in many other parts of the country.

• Networking opportunities: California is home to numerous industry clusters, including tech in Silicon Valley and entertainment in Los Angeles. This concentration of businesses creates valuable networking opportunities for startups seeking partnerships, mentorship, or talent.

• Compliance and sustainability: California’s strict regulations regarding environmental and consumer protection create an advantage for industries such as tech and green energy.

• Cultural diversity: California’s diverse population can be a boon for businesses seeking to understand and cater to a wide range of consumer needs and preferences. This diversity also creates a vibrant and creative environment that can attract top talent.

Disadvantages

• Costs: High housing costs, wages, and taxes contribute to a higher overall cost of living and doing business. The high cost of living and increasing competition from other states lead some skilled workers and businesses to relocate to more affordable locations.

• Complex regulations: Though some industries benefit from California’s regulations, others find them overly burdensome. Small businesses in particular can struggle to deal with the complex legal landscape and comply with numerous labor laws and environmental regulations.

• Natural disasters: California is prone to earthquakes, wildfires, and droughts, which can disrupt business operations and increase insurance costs.

Resources for starting a business in California

These resources can be helpful when starting a business in California:

State government resources

• California secretary of state’s business portal: This central hub has comprehensive information and resources for how to start and manage a business in California.

• CalGold permit assistance: This online tool simplifies the process of identifying and obtaining the necessary licenses and permits for your business.

• GO-Biz: This office website lists various programs, incentives, and resources to support business growth and development.

• California Office of the Small Business Advocate (CalOSBA): This office has resources, training, and financing options for small businesses.

• California Infrastructure and Economic Development Bank (IBank): This state-run financial institution offers loan programs and financial assistance for businesses.

• Employment Development Department (EDD): This department provides information and resources for employers on payroll taxes, unemployment insurance, and other employment-related issues.

• Franchise Tax Board (FTB): This board administers state income tax laws and provides resources for businesses.

Local resources

• US Small Business Administration (SBA) district offices: These district offices provide counseling, training, and funding resources for small businesses.

• SCORE Los Angeles: This organization has free mentoring and workshops for entrepreneurs and small businesses.

• Small Business Development Centers (SBDCs): These centers have free consulting, training, and resources for small businesses throughout California.

Other resources

• Los Angeles Area Chamber of Commerce: This chamber of commerce has networking opportunities, business advocacy, and resources for businesses in the Los Angeles region.

• Silicon Valley Leadership Group: This group is a public policy trade association representing hundreds of Silicon Valley employers.

• 500 Global: This venture capital firm and startup accelerator has a strong presence in Silicon Valley.