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TRANSCRIPT
THE GUIDE TOStarting, Protecting, and Running a Business
in theState of California
www.corpnet.com | 1.888.704.4830 | [email protected]
THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
TABLE OF CONTENTS
BENEFITS TO STARTING A BUSINESS IN CALIFORNIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Trending Industries in California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Drawbacks to Starting a Business in California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4STARTING A BUSINESS IN CALIFORNIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Choosing a Name for Your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5HOW TO REGISTER AND PROTECT YOUR BUSINESS NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6WHAT YOU NEED TO KNOW ABOUT LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7YOUR BUSINESS STRUCTURE OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 The S Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Limited Liability Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Other Business Structures in California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Professional Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 NonprofitCorporation.............................................................10WHICH BUSINESS STRUCTURE IS RIGHT FOR ME? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 How Many Shareholders Will You Have? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Do You Plan to Raise Capital? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 WhatSortofProfitDistributionDoYouWant?...............................................11 How Much Paperwork Do You Want to Do? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11IS CALIFORNIA THE BEST PLACE TO FORM YOUR CORPORATION? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12HOW TO FORM A CORPORATION IN CALIFORNIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13HOW TO FORM A LIMITED LIABILITY COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14GETTING BUSINESS LICENSES AND PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15LAUNCHING YOUR BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16PROTECTING YOUR BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 RUNNING YOUR BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ForeignQualification............................................................18 DoingBusinessUnderaDifferentName.................................................18 Conversion of Business Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Closing a Business – Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Selling a Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19KEEPING YOUR BUSINESS IN COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
INTRODUCTION
Ifyou’rethinkingaboutstartingabusinessinCalifornia,congratulations!Youwilljoinmorethan3 million other small business ownersinthisstate.Californiahasagreatclimateforstartingabusiness.Infact,three of the top ten cities for technology startupsarebasedinCalifornia.Butit’snotjusttechnologycompaniesthatflockhere.Theaccommodationandfoodservicesindustrieshavethehighestnumberofsmallbusinessemployeeshere,makingup47%oftheemployeesintheentiresector.Healthcare,retail,andprofessionalandscientificservices,too,havealargepresenceinthesmallbusinessspace.
Benefits to Starting a Business in CaliforniaBesidesthesunnyweatherinmuchofthestate,therearemyriadreasonstostartaCaliforniabusiness.Becausesmallbusinessesplaysuchalargeroleinthestate’seconomy(whichisthelargestintheUS),thereareplentyofresourcestosupportentrepreneurs.Infact,in2015,theSmallBusinessDevelopmentCentersinCaliforniaincreasedfundingsothattheycouldprovideassistancetomoresmallbusinesses!
Dependingonthetypeofbusinessyoustart,youcanfindafantasticnetworkinyourindustry.Fortechnology,there’snobetternetworkthantheonefoundinSiliconValley.Forgovernmentcontractsandmilitaryrelationships,SanDiegoisagreatfit,withmultiplebranchesofthemilitarystationedthere.Andofcourse,there’snoplaceonearthwithmorepeopleintheentertainmentindustrythanLosAngeles.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
Trending Industries in CaliforniaCalifornia has always been cutting edge when it comes to trends that hit the rest of the country later. Afterall,it’sthestatethatelevatedfrozenyogurt(froyo)toanartform!
Some trends to consider as hot businesses include:
● Fitness: The latest workout system and creative dance classes are very popular right now.
● Cupcakes:Peoplelovecupcakes!We’recurrentlyseeingtrendstowarduniqueflavors (think:stoutbeerandchocolate)andminisizes.
● Beer: San Diego is the craft brew capital of the country. Many breweries are opening up throughout the state.
● Aerospace:ThisindustryisbiggerthanbothagricultureandHollywoodcombined,andCalifornia is responsible for 9%oftheglobalaerospaceindustry.
Drawbacks to Starting a Business in CaliforniaIfthere’sonebigdrawbackinthisstate,it’sthehightaxes.StateincometaxinCaliforniacanbeashighas13.3%,whichismorethandoublewhatmostoftheotherstatescharge.Still,withsomanysmallbusinesseshere,thebenefitsmustoutweighthisdrawback.
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California has always been on the cutting edge of trends.
THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
STARTING A BUSINESS IN CALIFORNIA
Sinceyou’vedecidedtostartyourcompanyhere,let’sdiveintowhatyouneedtoknowtodoso.
Choosing a Name for Your BusinessOne of the biggest and most important components of your business will be its name. The name is what peoplefirstencounter,whetherit’sonthesignoutsideofyourshoporwhentheyarriveonyourwebsiteonline.Tothatend,youwantittobememorable,easytosayandspell,andsetthetoneforthekindofbusiness you want to run. Here are some tips to help.
1. Consider How You Want to Be Perceived Askyourselfwhatthefirstthingisthatyouwantacustomertothinkaboutwithregardtoyour business. Do you want them to take you seriously? See you as playful? Edgy? Professional? Let that guide you to the right name.
2. Use a Descriptive Name Themorespecificyouare,thebetterpeopleknowwhatyou’reselling.Forexample,apotential customer will automatically know what ‘Ric’s Heating & Plumbing’ or ‘Carrie’s Cupcakes’ is all about,asopposedtojust‘Ric’s’or‘Carrie’s.’Atthesametime,don’tgetsospecificthatyoubox yourbrandin,shouldyoudecidetoexpandwhatyouofferdowntheroad.
3. Keep it Simple Powerfulcompanynamesareeasytospell,pronounce,andremember.Ifacustomercan’t rememberyourbusinessname,shecan’treferyou.Andifshecan’tspellit,shewon’tbeableto findyourwebsite.
4. Watch for Language and Cultural Pitfalls Abusinessnamelike“GetNailed”maynotbetheidealnameforacarpenter,funnythoughyou mayfindittobe.Thebestwaytoavoidcreatinganembarrassingordamagingbrandsituationis to test your name on your target audience; they may tell you that they don’t understand your name,orevenfinditdownrightoffensive.
5. Make Sure Your Name is Available You can easily check name availability by doing a free business name search through CorpNet forwhatevercountyyouareplanningonconductingyourbusinessin.Atthispoint,it’salsowise to use our free Trademark search application tool to see if the name is available through the US PatentandTrademarkOffice(youcanseeifanyoneelsehasregisteredfor,received,or abandonedatrademarkforyourproposedname).
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
HOW TO REGISTER AND PROTECT YOUR BUSINESS NAME
It’s important that you protect your business name and make sure that it’s legally yours to use in the county you plan to conduct your business in. There are a few ways you can register a business name:
● If you are not planning on incorporating your business yet,youcanregisteryournameby filingaDBA(shortfor“DoingBusinessAs”)withyourcountyinCalifornia.Thisisasimpleand affordableactthatwilllegallyregisteryourbusinessnameinthatcounty.
● If you’re using any name beside your name (Ed Smith vs. Ed Smith Consulting),aDBAmustbe registered in order for any bank to open an account under that business name.
If you are serious about protecting your brand and making sure no one else can use your business name,atrademarkregistrationissuggested.We’llcoverthatinabit.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
WHAT YOU NEED TO KNOW ABOUT LIABILITY
Your small business can be structured in numerous ways. If you never created a formal business structure,thenbydefaultyouhaveasole proprietorship(oneowner)orgeneral partnership(multipleowners).Thesebusinessstructuresarethesimplesttoformandmanage,butthereisonekeydrawback: there is no separation between the business owner and the business.
Ifyouownasoleproprietorshipandyourbusinessissuedbyacustomerorvendor,thenthisisthesameasbeingsuedpersonally.Allofyourpersonalassets,savings,andpropertymightbeatriskinthecourt’sjudgment.
Thisisn’tmeanttoscareyou,butrathermakeyouawareofhowyou’reliwaablewhenyoustartabusiness:
1. Whenever you personally guarantee a loan for your business, you will be personally responsible for that debt.Likewise,whenyousignabusinesscontractasanindividualrather thaninthenameofthebusiness,youwillbeheldpersonallyresponsibleformeetingthetermsof that contract.
2. A corporation or LLC also won’t protect you if you commit a crime while running the business. Enough said.
3. If your actions injure someone, you can still be personally liable. This is because an LLC or corporation can protect you from personal liability for contractual lawsuits, but not against tort lawsuits.Thisisthereasonthatmostprofessionals(doctors,drivers,etc.)takeouta good professional liability insurance policy.
4. If you fail to keep your corporation or LLC in good standing, then a plaintiff may try to go after your personal assets. The most common ways that a company falls out of good standing are failingtoseparatebusinessandpersonalfinancesandnotkeepingupwiththeannualfilingsand fees to the state.
Youmaynothaverealizedthatstartingabusiness,evenasidebusinessthatbringsinjustafewthousanddollarsperyear,couldputyourpersonalassetsatrisk.Fortunately,there’saneasysolutionforseparatingyourpersonalandbusinessassets:creatingaformalbusinessstructurelikeanLLC(LimitedLiabilityCompany)orcorporationforthebusiness.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
YOUR BUSINESS STRUCTURE OPTIONS
OnceyoucreateanLLCorcorporation,yourbusinessnowexistsasitsownentityandisresponsibleforanyofitsdebtsandliabilities.There’sacorporateshieldbetweenyouandthebusiness,andthishelpsprotect your personal assets in many circumstances. Let’s look at a few of your options.
The S CorporationWhile there are a few differenttypesofcorporationstoconsiderinCalifornia,we’llfocusonthe S corporation.ManysmallbusinessownersprefertheScorpbecauseofitstaxbenefits,whichinclude:
● Pass-through taxation:AnScorporationisnotatax-payingentity.ByincorporatingasanS corporationyouaresayingtotheIRSthatyourcompanywillnotpayanytaxes;insteadthe company’sincomewill“passthrough”tothecompanyowners/shareholders,whowillberequired toreportthatincomeontheirindividualtaxreturns.
● Reduction in self-employment tax liability:IfyouareasoleproprietororownerofanLLC,you havetopaythedouble-shareofself-employmenttaxesbecauseintheeyesoftheIRS,youare both the “employee” and the “employer.” Incorporating a business as an S corporation gives youtheabilitytore-classifyyourstatus:youonlyhavetopaytaxesasan“employee.”Insteadof payingdoubleself-employmenttaxes,theScorporationallowsyourcompanytopayyoua salary(andyou’rerequiredtopayself-employmenttaxonthatsalaryamount),andalsogiveyou a“distribution”ofcompanyearningsthatarefreefromself-employmenttaxes.Youcansave thousandsofdollarsonyourtaxes,dependingonyourincomeandtaxbracket,however,realize thatScorporationsarestillrequiredtopaypayrolltaxesonanywagestheypayemployees, including shareholders that are employees.
Rightnow,itwillcostyou$105fortheCaliforniacorporationfilingfees,aswellas$25tofileyourInitialReport.Eachyear,youwillneedtofileyourAnnualReportfor$25.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
Limited Liability CompanyAnother business structure worth considering in California is the Limited Liability Company.Justlikewithacorporation,theLLCprotectsyourpersonalfinances,home,vehicles,andotherassets.Inaddition,bothstructuresallowabusinesstoborrowmoneyandsellequityinordertoraisecapital.Bothstayinexistenceuntiltheyaredissolved,withoutneedforperiodicrenewal,andbothLLCsandcorporationsneedperiodicrenewal.ThewaytorenewacorporationistofiletheAnnualreport,andtorenewanLLC,you’llneedtofileyourBiennialReporteverytwoyears.
BoththeScorp(butnotothertypesofcorporations)andtheLLCofferpass-throughtaxtreatmentwhenitcomestofederalincometax.
TheLLCisalittlelessformalinitsrequirementsintermsofannualpaperworktobefiled,Boardmeetings,andminutestoberecorded.Andwhereasyouarelimitedto100shareholderswiththeScorp,there’snolimittohowmanymembersyoucanhavewiththeLLC.LLCsdonothaveshareholders,butrathermembersthathaveapercentageofownershipbasedoffoftheircontributionstotheLLC.Also,theLLCallowsyoutopassthroughmorelossthantheSCorponyourpersonaltaxes,mostnotably when it comes to real estate.
Currently,theLLCfilingfeesinCaliforniaare$75.YouarealsorequiredtofileanLLCInitialReport,whichcosts$20,andyou’llhavetofileyourLLCBiennialReportfor$20everyotheryear.
Other Business Structures in CaliforniaWhiletheScorpandLLCarethemostpopularforbusinessesinCalifornia,thereareafewothersworthconsideringinspecificsituations.Ifyou’reunsureofwhichbusinessstructureisrightforyou,useourfree BusinessStructureWizardtofindoutwhichisthebestfit.
Limited PartnershipWhilesimilartoa“GeneralPartnership”insomeways(thebusinesshastwoormoremembers,agreementamongthepartners)theLimited Partnership(LP)offersits“Limited”partnersassetprotectionand a shield from personal liability. One partner may be the “General” partner and the other may be the “Limited”partnerinanLP.TheGeneralpartnersareexposedtopersonalliabilitytothesameextentastheywouldbeinaGeneralPartnership.Inotherwords,theGeneralpartnersmaybepersonallyliableforthe acts of the other partners in their dealings with third parties.
TheLimitedpartners,however,maybenefitfrompersonalassetprotectiontotheextentthattheyarenotmanaging the partnership and will only be liable up to the amount of their investment in the company.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
Professional CorporationA professional corporation is necessary for certain individuals who provide professional services that requireslicensing.Thesetypesofprofessionalservicesinclude:
● Physicians/Doctors
● Attorneys/LawFirms
● AccountingProfessionals/CPAs
● Architects
● Otherlicensedprofessionals,dependingonstatestatutes
Nonprofit CorporationIfyouarelookingtoreceive501(c)(3)taxexemption,considerthenonprofitcorporation,whichisanorganizationthatexistsforcharitable,educational,religious,literary,orscientificpurposes.UnderSection501(c)(3)oftheInternalRevenueCode,anonprofitcorporationmaybeexemptfromtaxationandmaybeeligibletoreceivetax-deductibledonationsfromitscontributors.
Anonprofitcorporationcannotpaydividends,andupondissolution,corporateassetsmustbedistributedtoanotherqualifiednon-profitgroup.ThefilingrequirementsatboththeStateandFederallevelcanbecomplicatedinordertoestablishandmaintaintax-exemptstatus.Wesuggestalwayshavinganaccountantfilethisexemptionapplicationforyou.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
WHICH BUSINESS STRUCTURE IS RIGHT FOR ME?
While both the LLC and the S corparebothgreatchoicesforyoursmallbusinessstructure,you’llhavetoaskyourselfthesequestionstodeterminewhichisthebestfitforyourCaliforniabusiness.
How Many Shareholders Will You Have?TheLLCandScorphavedifferentrestrictionsonownership. S corps must be owned by individuals (ortrusts)thatareU.S.citizensorresidents,andyou’relimitedto100shareholders.LLCs,ontheotherhand,maybeownedbyotherLLCsorcorporations,buttheownersdonothavetobeU.S.citizensorresidents.Youcanhaveanunlimitednumber of members in an LLC.
Do You Plan to Raise Capital?Both structures allow you to borrow money and sellequitytoraisecapital.AsanScorp,youcanissuesharesofstock,whileLLCscansellinterestsinthecompanyinaccordancewithitsOperatingAgreement.Butbeaware:becauseyoucanonlyhave100shareholdersasanScorporation,youmayfinditmoredifficulttouseequitytoraisecapitalasyougrow.
Also,ifyou’replanningtoreachouttoinvestors,realizethatmostwillpreferyoutobeincorporatedrather than have an LLC.
What Sort of Profit Distribution Do You Want?AnScorpisn’tasflexibleinitsdistributionofprofitsandlossesasanLLC.InanScorporation,youhavetopaydividendstoshareholdersinproportiontoshareownership.LLCs,though,canallocateprofitsand losses in any proportion they like to members.
How Much Paperwork Do You Want to Do?TheScorpisabitmorerigidinitsrequirementsincorporateformalitiesthantheLLC.You’rerequiredtofileanAnnualReportyearly,aswellasholdmeetingswithyourBoard.
LLCsdostillrequirestatefilings,thoughtheyaredifferentfromthoseforScorps.YourArticles of OrganizationmustbefiledwiththeSecretaryofStatetoformanLLCandthemembersoftheLLCarerequiredtoenterintoanOperatingAgreementthatgovernshowtheLLCwillbeoperated.
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What’s the best fit for your California business?
THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
IS CALIFORNIA THE BEST PLACE TO FORM YOUR CORPORATION?
NotsureifyoudoenoughbusinessinCaliforniatoneedtoqualifyorregister?Ifyoumeetanyofthesecriteria,youdo.
● YourbusinessactivelyengagesinanytransactioninCaliforniaforthepurposeoffinancialgainor profit.
● YourbusinessisorganizedorcommerciallybasedinCalifornia.Abusinessiscommerciallybased in California if it is the primary place from which the business is directed.
● YourCaliforniasalesexceedeither$500,000(annuallyadjustedforinflation)or25%ofyourtotal sales. Sales include sales made by an agent or independent contractor of the entity.
● YourCaliforniarealpropertyandtangiblepersonalpropertyexceedseither$50,000(annually adjustedforinflation)or25%ofyourtotalrealpropertyandtangiblepersonalproperty. ● YourCaliforniacompensationpaidexceedseither$50,000(annuallyadjustedforinflation)or25% of the total compensation.
● Anyofyourbusiness’members,managers,orotheragentsconductsbusinessinCaliforniaon behalfofthecompany,regardlessofwhereyourbusinessprimarilyconductsbusiness.
SoifyouconductasubstantialamountofbusinessinCalifornia,it’swisetoincorporateyour business here.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
HOW TO FORM A CORPORATION IN CALIFORNIA
Whileformingacorporationiseasierthanit’severbeen,usinganaffordableincorporationservicelikeCorpNet is often a smart choice. The authority for incorporating in California is the California Secretary of State.Thisisthegovernmentagencyresponsibleforallforms,filings,andrecordkeeping.
Fictitiousbusinessnames(OrDBA,doingbusinessas)arefiledatthecountylevel,notthewiththeSecretaryofState.OtherpermitsandlicensesmayberequiredatthecountyorevencitylevelinCalifornia.TheusualpointofcontactistheCountyTreasurer’sOffice.Forthedetermineddo-it-yourselfers,here’showit’sdone.
Step 1: Search to make sure your company name is available. You can use the free CorpNet company name search.
Ifyouplantoincorporateinthebanking,trust,oraprofessionalservicesindustry,realize youmaybesubjecttorulesregulatingthosespecificareas.So,forinstance,an acupuncturistmayhavenamingrequirementsbasedontheirlicensetopractice in California.
Step 2: Register your corporation with the Secretary of State. CorpNetoffersfilings of the ArticlesofIncorporationandArticlesofOrganization.Bylawsarenotfiledwiththe SecretaryofState,butarekeptatcorporateoffices.
Step 3: Hold the first official meeting for the corporation and adopt the Bylaws. This is a legal meeting and must be recorded as such.
Step 4: Apply for a Federal Employer Identification Number (EIN) under the corporate name. InCalifornia,youwillalsohavetofilewiththeEmploymentDevelopmentDepartment (EDD).TheEDDissuesemployeraccountnumbersandadministersCalifornia’spayroll taxes,includingUnemploymentInsurance,EmploymentTrainingTax,StateDisability Insurance,andCaliforniaPersonalIncomeTaxwithholding.
Step 5: Obtain any specific licenses and permits required, either statewide or for the county in which you will do business.Someexampleswouldbe:electrician’slicense,trucking licenses and permits,liquorlicense,etc.ThesearenothandledbytheSecretaryofState. GetinformationonwhatpermitsyouneedfromtheGovernor’sOfficeof Economic Development.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
HOW TO FORM A LIMITED LIABILITY COMPANY
YoucanfilethepaperworkyourselftoformanLLC,thoughitcanbehelpfultoworkwitharegisteredagent who can help you navigate the process.
Step 1: The first thing you need for your new company is a business name. Because you’re planningtofileanLLC,youwanttoensurethatnooneelseisusingthenameyou’re considering.Tothatend,useafreenamesearchtooltomakesureit’snot already registered.
Step 2: Register your LLC with the Secretary of State.CorpNetoffersfilingsoftheArticlesof OrganizationforLLCs.
Step 3: After you form your LLC, you will need a Federal Employer Identification Number (FEIN),whichyouwillusetoidentifyyourbusiness,openabusinessbankaccount,and other processes.
Step 4: The Operating Agreement is an essential document for your LLC, as it outlines the rights and obligations of all members of your LLC. It also lists the distribution of income toeachmember.Keepthisdocument,signedbyallmembers,inyouroffice. IfyourLLCwillhavelessthanfiveshareholdersormembers,it’sbesttoformanLLCinthe state where your business has a physical presence.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
GETTING BUSINESS LICENSES AND PERMITS
EverycompanyinCaliforniaisrequiredtopossesseitherafederal,state,county,orlocalbusinesslicense,permit,andtaxregistration—oralloftheabove.Requirementsaredeterminedbythetypeofactivityyourbusinessdoes,aswellasitslocation.Here’sasummaryofthepotentiallicensesandpermits you might need:
● General business license: Most business types in California will need to get a general business license. This is basically an annual license issued by your local city or county that lets you legally operate a business in the area.
● Professional license: Someprofessionals,suchasbarbers,contractors,orsurgeons,willneed alicensetodemonstratetheirproficiency.Ifyou’reafreelancewriter,softwaredeveloper, designer,orconsultant,youwon’tneedaprofessionallicense.
● Seller’s permit: Ifyourbusinesssellstaxablegoodsorservices,youneedaseller’spermit. ● Use Tax Account: Ifyoudon’tqualifyforaseller’spermit,buthavegrossreceiptsamountingto $100,000ormoreannually,youmayneedausetaxaccount.
● Health permits: If your business is involved with selling products that are consumed by people (i.e.food)orthattouchthehumanbody(i.e.anailsalon),thenyou’llneedalocalhealthpermit fromyourcityorcountywithanannualinspection.Examplesofthesebusinessesinclude restaurants,foodtrucks,streetvendors,wholesalefoodmanufacturers,beautysalons,and tattoo parlors.
● Signage permits: Insomelocations,youwillneedtogetapermitfromyourcounty/cityzoning department before you can put up a sign for your business.
● Fire permit: Youwillneedtogetapermitfromthefiredepartmentifyouhaveaphysicalspace that’sopentothepublic,orifyourbusinesswillbeusinganyflammablematerials.
● Home occupation permits: Insomeplaces,you’llneedtogetapermitforahome-based business,evenifyou’rejustrunningablogfromyourcomputer.Youcancheckwithyourcity/ countyplanningdepartmenttofindoutifit’snecessary.
TofindoutwhichpermitsorlicensesyouneedinCalifornia,startwiththeCA.gov website,thenyourcounty,aswellasyourcity.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
LAUNCHING YOUR BUSINESS
There’salottotakecareofwhenyoufirstlaunchyournewbusiness.Firstyouwillneedtohiretherightpeopletokeepyourcustomershappyandyourbusinessflowing.You’llneedtostartmarketingyourbusiness,usingsocialmedia,blogging,PR,email,andmore(forthat,checkoutourCEONellieAkalp’sbook,The No-Nonsense Guide to Small Business Marketing).You’llalsoneedtomakesureyoustarttrackingyourfinancestherightwayfromdayone,usingsmartaccountingsoftware,sothat,cometaxtimenextApril,it’seasiertofileyourtaxes.
Alotoftheseeffortswillbeongoing.Forexample,youcan’tmarketyourbusinessonceandexpectittokeepgoingwithoutalittleelbowgrease.Asthedustsettlesonceyoulaunch,getintoacadenceofhowyou’ll manage your business and who will help with each area.
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Keep your customers happy and your business flowing.
THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
PROTECTING YOUR BUSINESSAfterallthehardworkyou’veputintostartingthebusinessofyourdreams,itwouldbeashameifsomeoneelseweretouseyourideaorbusinessname.Fortunately,therearetoolsyoucanusetoprotect your business and intellectual property.
TrademarksAtrademarkisaword,phrase,name,orsymbolthatidentifiesthesourceofaproductorservice.Youcantrademarkacompanyname,productname,logo,ortagline.
Whileit’snotnecessarytoregisteryourtrademarkwiththeUSPatentandTrademarkOffice(USPTO),filinganofficialtrademarkwiththeUSPTOwillgiveyouanadditionallayeroflegalprotectionandwillmakeiteasierforyoutoseeklegalaction,shouldanyonetrytouseyourtrademarkedmaterial.Beforeyoufileatrademark,conductafreetrademarksearchtomakesurenooneelsehasalreadytakenwhatyouwanttotrademark.Ifyouwantmoreextensiveinformationontrademarksoutthere,orderacomprehensive trademark search.
CopyrightsAcopyrightprotectsliterary,dramatic,musical,artistic,andotherintellectualworks,orwhatareconsidered‘originalworksofauthorship.’Thiscanevenincludewebsitecopy,agraphicyoudesigned,avideo,orcomputercode.
Asyouwriteandpublishthework,youautomaticallyownacopyrightforit.Youcanevenusethecopyrightsymbol©andusetheterminology“AllRightsReserved.”Butkeepinmind:officiallyregisteringyourcopyrightprovidesanextralayerofprotection.
PatentsApatentgivesaninventorexclusiverightstomanufacture,use,orsellaninvention.Youcanpatentsoftwareprocesses,productdesign,andotherinventions.
Unliketrademarksandcopyrights,you’renotautomaticallypatentedassoonasyoudreamupanidea.YouhavetoapplyforapatentthroughtheUSPTO,andthepatentapplicationprocesscanbelongandarduous.Manypatentapplicantsturntoalawyerorpatentfilingservicetohelp.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
RUNNING YOUR BUSINESS
Asyougrowyourbusiness,makesuretostayontopofanypaperworkorprocessesyouneedtokeepyour corporation or LLC running smoothly.
AmendmentsOvertime,youmayneedtomakechangestoyourbusinessstructure.IfyouhavefiledacorporationorLLC,makesureyoufilethenecessaryAmendmentpaperwork.AnAmendmentwouldneedtobefiledforchangestoyourArticlesofIncorporation/ArticlesofOrganizationlike:
● Changestothecompanyname
● Changestotheregisteredagentinformation
● Companybusinessaddress
● Directorormemberinformation
● Numberofauthorizedshares
● Businessactivitiesofthecompany
Foreign QualificationIfyourcompanyisincorporatedinCalifornia,butisdoingbusinessinotherstates,youmayneedtoqualifyyourcorporationorLimitedLiabilityCompany(LLC)withinthestatewherethebusinessisbeingconductedbyfilingaCertificateofAuthoritywiththatparticularSecretaryofState’soffice.
ForeignqualifyingyourcorporationorLimitedLiabilityCompany(LLC)willallowyoutodobusinessinmultiplestates,aswellasopenabankaccountinthestateyouaredoingbusinessin.
Doing Business Under a Different NameIfatsomepointinthefutureyoudecidetooffshootpartofyourbusinessunderanameotherthantheoneyouincorporatedas,youmayneedtofileanewDoing Business As.
Conversion of Business EntityIfyoudecidetoconvertyourbusinessentityfromonetypetoanother,youneedtofileyourArticles of Conversion with the state of California.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
ReinstatementIfatsomepoint,youfailtokeepupwiththecorporateformalitiesrequiredinCalifornia,yourcorporationmaybeadministrativelydissolvedorbeplacedinaNon-CompliantstatusbytheCaliforniaSecretaryofState.
InordertogetyourcorporationorLLCbacktoactivecompliantstatus,youwillneedtofileforReinstatementofyourcompany.AReinstatementisalegalfilingsubmittedandfiledwiththeCaliforniaSecretaryofState’sofficetoofficiallybringyourcorporationorLLCbackintogoodstandingandinactivecompliantstatuswithstaterequirementsanddeadlines.
Closing a Business – DissolutionIfyoudecidetocloseyourbusinessdowntheroad,realizethatyouhavelegalresponsibilitiestoproperlydissolveyourcorporation,otherwiseyouarestillresponsibleforfilingfeesandtaxes.YouwillneedtofileyourArticles of DissolutionwiththestateofCalifornia.Failuretofileappropriatedocumentationmayresultintaxes,penalties,andotherfeesforeverydaythecompanycontinuesinexistence...evenifyou’ve stopped doing business.
Selling a BusinessIfthedaycomeswhenyoudecidetosellyourbusiness,you’llneedtohaveallyourfinancialrecordseasilyaccessible,soit’sagoodideatokeepgreatrecordslongbeforeyoudecidetobuy(thatmeansstartdoingsotoday!).Onceyousettleonavaluationforyourbusiness,startlookingforabuyer.Youwant someone who will carry on the legacy of your business so that it will continue to serve customers in thewayitalwayshas.YoucanpostyourbusinessonbusinessdirectorieslikeBizBuySell.com,ortalktoemployees to see if anyone wants to take the reins.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
KEEPING YOUR BUSINESS IN COMPLIANCEYouwillgetbusyfastwithyournewcompany,butmakesureyoudon’tletimportantthingsfallthroughthecracks.IfyouincorporatedyourbusinessorformedanLLC,youwillfirstneedtofilethatinitialreport,buteveryyearthereafter,you’llneedtosubmityourannual report.
If you use the freeCorpNetBIZBusinessComplianceandmonitoringtool,you’llgetnotificationwheneverthere’ssomethingyouneedtofile.Butifyoudon’twantthehassleofhavingtomeetthesedeadlines,youcanusearegistered agent service for your corporation or LLC. This company can act on yourbehalfinsubmittingcorporatecompliancepaperwork,andyoudon’thavetoeventhinkaboutit.
ThereareothertoolsthatCorpNetoffersthatcanhelpyoustaycompliant,including:
● Compliance Kit & Seal
● CorporateStockCertificates
● LLCMemberCertificates
Ifyouhaveanyquestionsabouthowtokeepyourbusinesscompliant,pleasecontact us at CorpNet at 888.704.4830.
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THE GUIDE TO STARTING, PROTECTING, AND RUNNING A BUSINESSIN THE STATE OF CALIFORNIA
©2008 – 2015 CORPNET, INCORPORATED. ALL RIGHTS RESERVED.
THANK YOU FOR READING THE CORPNET GUIDE TO STARTING, PROTECTING AND RUNNING A BUSINESS IN CALIFORNIA!
Wehopethatyouhavefoundourguideinformative,andwelookforwardtohearingfromyouwhenyouare ready to start your business.
Want to learn more about starting and running a business? Go to blog.corpnet.com and read our latest smallbusinesstips,tricksandideas.
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Disclaimer:CorpNet®isadocumentfilingserviceandCANNOTprovideyouwithlegal,taxorfinancialadvice.CorpNetisNOTalawfirm.Wearenotyourattorney,norareweyouraccountant,norareweasubstituteforanattorneyoranaccountant,oranyotherprofessionalserviceprovider.CorpNetputsforthitsbesteffortstoprovideyouwithaccurateandtimelyinformation.TheinformationinthisdocumentreflectsinformationcompiledingoodfaithasofJuly29,2015.TheinformationinthisdocumentisNOTGUARANTEEDtobeaccurateandshouldNOTberelieduponforpurposesofmakingbusinessdecisionsthatcouldhaveafinancialorlegalimpactuponyou.Assuch,theinformationprovidedhereinistobesolelyusedasaneducationalresourceandwestronglyrecommendyoutoseektheadviceofanattorneyortaxadvisorshouldyouneedspecificlegalortaxadvice.
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