Last updated: February 23, 2026
California is the largest state economy in the U.S. and the fifth-largest economy in the world. The state’s massive consumer market, access to talent, and innovation-driven culture make it a magnet for entrepreneurs. But California also has more regulatory requirements than most states — a mandatory $800 annual franchise tax, required workers’ compensation for all employers, and a state income tax with rates up to 13.3%.
This guide walks you through every step to legally start a business in California, from choosing your structure to getting the licenses and tax registrations you need. We’ve compiled requirements from the California Secretary of State, the Franchise Tax Board, CDTFA, EDD, and local agencies so you don’t have to piece it together yourself.
How to Start a Business in California (Step by Step)
Step 1: Choose Your Business Structure
Your business structure determines your personal liability, tax treatment, and paperwork requirements. The most common options in California:
- Sole Proprietorship — Simplest to start, but you’re personally liable for all debts. No state filing required (just a fictitious business name statement if using a DBA).
- LLC (Limited Liability Company) — Most popular choice. Protects personal assets, flexible tax treatment, and relatively simple to maintain. Note: California LLCs pay an $800/year minimum franchise tax.
- Corporation (S-Corp or C-Corp) — More formal structure with shareholders, directors, and officers. Better for businesses seeking investors or planning to go public.
- Partnership — For businesses with two or more owners. Can be a general partnership (GP), limited partnership (LP), or limited liability partnership (LLP).
For most small businesses, an LLC is the right choice. It gives you liability protection without the complexity of a corporation. Just factor in the $800 annual franchise tax when planning your budget.
Step 2: Register Your Business with the State
LLC Formation via California Secretary of State
California business entities are registered through the California Secretary of State at sos.ca.gov. Online filings are handled through bizfile Online.
| Item | Cost |
|---|---|
| Articles of Organization filing fee | $70.00 |
| Total to form a California LLC | $70.00 |
| Statement of Information (due within 90 days, then biennial) | $20.00 |
| Annual Franchise Tax (FTB) | $800.00/year minimum |
How to file:
- Go to bizfile Online and select “File a new LLC”
- Choose a business name that includes “LLC,” “L.L.C.,” or “Limited Liability Company” — it must not be confusingly similar to existing entity names on file
- Designate an Agent for Service of Process — either a California resident with a physical street address or a registered corporate agent
- Pay by credit card — online filings are typically processed within 2-3 business days
- You’ll receive confirmation and can download your filed document from bizfile Online
Statement of Information: Within 90 days of forming your LLC, you must file a Statement of Information (Form LLC-12) with the Secretary of State ($20). After that, it’s due every two years during the month your LLC was formed.
Fictitious Business Name (DBA): If you plan to operate under a name different from your LLC’s legal name, you’ll need to file a Fictitious Business Name Statement with the county clerk in the county where your principal place of business is located. You must also publish the statement in a local newspaper. Costs vary by county (typically $10-$100 filing fee plus publication costs).
Federal EIN (Employer Identification Number)
After forming your LLC, apply for a free EIN from the IRS at IRS.gov. You’ll receive it immediately when applying online. You need an EIN to open a business bank account, hire employees, and file taxes.
Important: Register your LLC with the state before applying for an EIN, since the IRS application requires your legal entity name.
Step 3: Get Required Licenses & Permits
Local Business License
Most California cities require a local business license (sometimes called a business tax certificate). Unlike Florida and Texas, California local business licensing is typically handled at the city level, not the county level.
- Who needs one: Any person or business operating within city limits
- Where to get it: Your city’s business license or finance department
- Cost: Varies widely by city — typically $50-$500+ depending on the city and business type
- Renewal: Annual in most cities
CalGold — California Permit Database
California provides CalGold, a free online tool that helps you identify which permits and licenses your specific business type needs based on your industry and location. Enter your business type and city to get a customized list of required permits from federal, state, and local agencies.
Step 4: Register for State Taxes
California Franchise Tax
All California LLCs must pay an annual minimum franchise tax of $800 to the Franchise Tax Board (FTB). This is due by the 15th day of the 4th month after the beginning of your LLC’s tax year (April 15 for calendar-year filers).
- Minimum tax: $800/year — applies even if your LLC earns no income
- First-year exemption: New LLCs are exempt from the $800 minimum franchise tax for their first tax year
- LLC fee (in addition to franchise tax): Based on total California income:
- $0 for income under $250,000
- $900 for income $250,000-$499,999
- $2,500 for income $500,000-$999,999
- $6,000 for income $1,000,000-$4,999,999
- $11,790 for income $5,000,000+
California Sales Tax
If your business sells taxable goods, you must get a Seller’s Permit from the California Department of Tax and Fee Administration (CDTFA) before beginning operations.
- Base state sales tax rate: 7.25%
- Local district taxes: Additional 0.10%-3.25% depending on your location
- Combined rates: Typically 7.25%-10.25% in most areas
- Registration: Free online at CDTFA Online Registration
Many applicants receive their permit immediately after submitting their online application. The permit must be displayed at your business location.
California State Income Tax
Unlike Texas and Florida, California has a state personal income tax with progressive rates ranging from 1% to 13.3%. LLC members report their share of LLC income on their California personal tax return.
Employer Taxes (If Hiring Employees)
If you plan to hire employees, you must register with the Employment Development Department (EDD) for multiple payroll taxes:
- Unemployment Insurance (UI) Tax: New employers start at 3.4% on the first $7,000 per employee. Experience-rated range: 1.5%-6.2%
- Employment Training Tax (ETT): 0.1% on the first $7,000 per employee
- State Disability Insurance (SDI): 1.3% of all employee wages (2026 rate) — withheld from employee paychecks, no wage cap
Register through EDD Payroll Taxes. Report new hires to EDD New Hire Reporting within 20 days.
Step 5: Get Business Insurance
Insurance requirements depend on your business type and whether you have employees:
Workers’ Compensation
California requires workers’ compensation insurance for ALL employers — even if you have just one employee. This is one of the strictest requirements in the country.
| Status | Requirement |
|---|---|
| Any employer with 1+ employees | Workers’ comp is mandatory |
| Sole proprietors with no employees | Not required (but recommended) |
| LLC members/corporate officers | May elect to be excluded from coverage |
Penalties for non-compliance: Operating without workers’ comp is a criminal offense in California. Penalties include fines of up to $100,000 and potential jail time. The state can also issue a stop-work order, shutting down your business until coverage is obtained.
Learn more at the California Department of Industrial Relations, Division of Workers’ Compensation.
General Liability Insurance
While not always legally mandated, general liability insurance is practically essential for most businesses. It protects against claims of bodily injury, property damage, and advertising injury. Many clients, landlords, and government contracts require proof of coverage.
California Business Guides by Industry
Every industry has different licensing, permit, and insurance requirements. Choose your business type for a detailed breakdown of everything you need in California:
- How to Start a Cleaning Service in California — Permits, insurance, Cal/OSHA requirements, and cost breakdown
- How to Start a Food Truck in California — Health permits, MFF license, fire safety, and commissary rules
- How to Start a Daycare in California — DSS licensing, background checks, training, and facility requirements
- How to Start an HVAC Business in California — CSLB C-20 license, EPA certification, bonding, and insurance
- How to Start a Hair Salon in California — Board of Barbering and Cosmetology license, and sanitation rules
- How to Start a Landscaping Business in California — CSLB C-27 license, pesticide licensing, and workers comp
- How to Start a Private Investigation Business in California — BSIS licensing, experience requirements, and bonding
California Business Resources & Official Links
| Resource | What It’s For |
|---|---|
| California Secretary of State | LLC/Corp formation, statements of information, entity search |
| bizfile Online | File Articles of Organization and other documents online |
| Franchise Tax Board (FTB) | Franchise tax, state income tax, LLC fee |
| CA Dept. of Tax and Fee Administration (CDTFA) | Seller’s permits, sales tax registration |
| Employment Development Department (EDD) | Payroll taxes, UI, SDI, new hire reporting |
| CalGold (Permit Database) | Find all permits and licenses for your business type and location |
| CA Division of Workers’ Compensation | Workers’ comp requirements and coverage |
| IRS EIN Application | Free federal tax ID number |
| CA New Hire Reporting (EDD) | Report new employees within 20 days |
Frequently Asked Questions
How much does it cost to start an LLC in California?
The filing fee for Articles of Organization with the California Secretary of State is $70. You’ll also need to file a Statement of Information within 90 days ($20) and pay the $800/year minimum franchise tax to the FTB. New LLCs are exempt from the $800 franchise tax for their first tax year.
Does California require a general business license?
California does not have a single statewide business license, but most cities require a local business license (business tax certificate). Costs vary widely by city, typically $50-$500+. Some industries also require state-level licenses from agencies like the CSLB, Board of Barbering and Cosmetology, or BSIS.
Does California have a state income tax?
Yes. California has a progressive state income tax with rates from 1% to 13.3%. LLC members report their share of LLC income on their personal California tax return. LLCs also pay an $800/year minimum franchise tax plus an additional LLC fee based on total California income (starting at $900 for income over $250,000).
Do I need to collect sales tax in California?
If you sell taxable goods, yes. California’s base sales tax rate is 7.25%, with local district taxes adding up to about 3.25% more. Combined rates typically range from 7.25% to 10.25%. You must get a free Seller’s Permit from the CDTFA before you begin collecting.
When is the California LLC Statement of Information due?
Your initial Statement of Information (Form LLC-12) is due within 90 days of forming your LLC. After that, it’s due every two years during the month your LLC was formed. The filing fee is $20.
Is workers’ compensation insurance required in California?
Yes – for ALL employers. California requires workers’ comp for every business with one or more employees. There is no minimum employee threshold. Operating without coverage is a criminal offense with fines up to $100,000 and potential jail time. The state can also issue a stop-work order.