Before starting a business in California you should become familiar with the various rules and regulations that apply to the type of business you’re looking to establish. Many businesses have individual licensing and registration requirements, and are subject to specific rules and regulations that do not apply to others. There are also additional rules that are enforced at the county or municipal level that you’ll need to be aware of.
There are, however, rules and regulations that apply to all businesses in the State of California regardless of their type or location. For example, if you want to establish a business entity such as an LLC or corporation, you’ll need to prepare and file the required documents with the California Secretary of State. You’ll also need to apply to the Internal Revenue Service for an Employer Identification Number (EIN) regardless of whether you intend to hire employees, as you’ll need one to open a bank account. If you do want to hire employees, you’ll also have to register the business with the Employment Development Department (EDD).
The information below should be enough to get you started. The bottom line is this: When it comes to starting a business, what you don’t know can hurt you a lot. Make certain you’re familiar with everything you need to do beforehand to avoid any unpleasant and expensive surprises.
All companies desiring to open a bank account, file taxes, or hire employees, including business partnerships, corporations, and LLCs, must apply for an Employer Identification Number (EIN) or Employer Tax ID from the Internal Revenue Service.
California companies may also be required to register for more specific identification numbers, licenses or permits for different tax purposes (i.e., income tax withholding, sellers’ permits, unemployment taxes, etc. Contact the California Tax Service Center for more specific information regarding any specific registration requirements for your business.
The city or county in which your business is located may also require you to obtain specific permits and licenses. Here is a short list of a few of the most common licenses and permits required by municipalities.
- Alarm Permit
- Building Permit
- Business License and/or Tax Permit
- Health Permit
- Occupational Permit
- Signage Permit
- Zoning Permit
Filing for a fictitious name (also known as a “Doing Business As” or DBA), allows you to transact business under a different name than your corporation or personal name. Sole proprietors wishing to do business under a business or company name that is different from their legal name will have to file a fictitious name statement with their county registrar or recorder.
In addition to the EIN requirement, The Federal government has imposed numerous other obligations on employers, a few of which are covered here:
- Form W-2: Employers must report annually to the IRS the wage and tax information which has been withheld for all employees. This report is filed using Form W-2, Wage and Tax Statement. A W-2 must be completed for each employee by January 31 each year. Copy A of the W-2 Form must be sent to the Social Security Administration (SSA) to report employee wages for the preceding year. Additional Employer W-2 Filing Instructions and Information are provided by the Social Security Administration.
- Form W-4: All employees must fill out an exemption certificate for their employer (Form W-4) either on or before their start date of employment. The employer is then responsible for submitting the W-4 to the IRS for verification.
- Withholding: The IRS requires employers to withhold and pay income tax and social security payments for all employees, and to keep records of employment taxes for at least four years. To lean more about federal employer withholding requirements, read Employer’s Tax Guide publication.
- Form I-9: Federal law requires that employers verify work eligibility in all employees hired after November 6, 1986. Proof of eligibility to work in the United States must be completed within three days of hire by completing the Employment Eligibility Verification Form, commonly referred to as an I-9 form. Form I-9 must be completed for both citizens and non-citizens.
Employers are also required to follow registration and reporting rules at the state level, such as the following: of the State of California also requires
- State Taxes: State tax withholding requirements vary depending on where employees are located. Visit your state tax agency for further information. California businesses are required to register with the Employment Development Department (EDD) in order to file reports and pay taxes.
- New Hire Reporting: Employers are required to declare all newly and re-hired employees within 20 days of hiring. This information should be submitted via the State of California New Hire Reporting Program.
- Insurance Requirements: The State of California requires businesses to carry certain kinds of insurance. The EDD administers California’s Unemployment Insurance and State Disability Insurance (including Paid Family Leave), as well as payroll and income tax withholding.
- Disability Insurance: Temporary disability insurance benefits provide payment to workers, if needed, due to a non-work related illness or injury. Employers are responsible for deducting this tax from employee wages and reporting taxes to the state. More information regarding various kinds of disability insurance can be found at the State Disability Insurance web page.
- Unemployment Insurance Tax: Businesses are required to pay unemployment benefits to eligible employees. More information regarding unemployment benefits can be located on the Unemployment page of the State of California Employment Development Department.
- Workers’ Compensation Insurance: A Worker’s Compensation claim can be filed by employees who are injured on job. The California Department of Industrial Relations provides a list of frequently asked questions regarding