A step-by-step guide to start-ups in the state of California
Starting a business involves a lot of paperwork to file and government guidelines to follow. This can be overwhelming for many new entrepreneurs. The following guide can help any potential business owner successfully set up an LLC in California.
Step 1: Define the business niche
The first step is to decide what the company will do. Many entrepreneurs will do market research to determine if a business idea is viable. Viability will be indicated by consumer needs, market availability and profit potential.
It should also be something you are passionate about because every entrepreneur would want their business to succeed and be around for a long time.
Step 2: Write a business plan
Starting a business without a business plan is a risky move. A business plan clearly explains the business, how it will be managed and important financial details. It also states how the company wants to achieve its goals and provides a time frame for achieving the set goals.
Although a business plan is not always a requirement for business registration, investors will almost always need a business plan when considering investing in a business. It also helps business owners have a clear plan of action.
Step 3: Choose a business structure
Incorporating a business as an LLC protects the personal assets of the business owner. A limited liability company (LLC) is legally considered a separate business entity for its owner. This means that the owner’s personal assets such as a house or car cannot be seized to pay business debts.
Step 4: Register with the IRS and the government.
Depending on the type and activity of the business, different business licenses and permits may be required.
Appoint a registered agent
A registered agent is an individual or business entity that receives legal documents and notices on behalf of the business. California state law requires a business to appoint a registered agent.
State and federal regulations can be difficult to navigate, and a registered agent service in California can make this process streamlined and easy. Due to the strict requirements that a registered agent must adhere to, it is always a good idea to let the professionals handle the job. Registered agent services are companies that specialize in this function and can usually help with a range of other services as well.
Create an operating agreement
The LLC Operating Agreement is a document created between the members (owners) of the LLC that details the ownership, how the shares are divided, and the business structure. In California, it is a legal requirement to enter into an operating agreement.
The advantage is that the agreement protects members from each other and provides clear guidelines on the protocols to be followed.
Get an EIN
The IRS requires some businesses to register for an Employer Identification Number (EIN). This is similar to a social security number, but for businesses. Even if the business is a sole proprietorship with no employees, it is still advisable to obtain an EIN as most banks require this number to open a business bank account.
Obtain relevant licenses and permits
Your registered agent service can also advise on permits and licenses required in the state. Alternatively, you can visit your local government website for more information.
Step 5: Buy insurance
No one knows what could happen in the future, so business insurance is crucial in terms of protecting the business and its assets. Most LLCs obtain general liability insurance that covers claims against:
- Bodily injury
- Property damage
- Copyright violations
- Damage to reputation
General liability insurance does not cover all cases and some additional insurance may be required such as:
- Workers’ compensation
- Commercial property insurance
- Insurance of commercial vehicles
Final points to remember
After the company is registered, a business bank account can be opened. This is to ensure that business finances are kept separate from personal finances.
Now the business can start focusing on branding and marketing strategies to increase customer base and generate revenue.
Starting a business can be stressful, but the legal process doesn’t have to be.
