ACC-DoingBizinCalifornia

Copyright © 2004, AnewAmerica Community Corporation

STARTING A BUSINESS IN CALIFORNIA

I. INTRODUCTION.

This checklist is not designed to be the end-all be-all in business start-up checklists. Rather, it is designedto give you a very broad-brush overview of some of the more important aspects of starting one’s ownbusiness. Some items mentioned are in the nature of legal requirements (such as whether certain permits arerequired), while others are of a more general business nature (such as the necessity of having a solidbusiness plan). It is sincerely hoped, however, that this section will provide you with a helpful roadmap asyou navigate your way through the business start-up process. And speaking of helpful roadmaps, theSecretary of State ‘s office has posted a “Starting a Business Checklist” on their website. To print a copy foryourself, go to their website at http://www.ss.ca.gov/business/checklist.htm.

II. PRELIMINARY STEPS.

A. Choosing and Preserving a Business Name.

1. Trademark. Is the name you wish to use for your business currently trademarked at the state orfederal level? Be aware that trademark rights can arise even without registering a mark.Nevertheless, you can discover whether the name has actually been registered at the state(California) or federal level by checking out these government sponsored websites:

- California Secretary of State’s Trademark and Service mark page is located on the web atthe following URL - http://www.ss.ca.gov/business/ts/ts.htm

- The United States Patent and Trademark Office’s website can be located on the web atthe following URL - http://www.uspto.gov/

2. Website Domain Name. Is the name available for use as a domain name? If the name isn’ttrademarked, and the domain name is not registered already, you may wish to register it. The cost isusually very reasonable, and can be accomplished through a number of service-providers (none ofwhich is specifically endorsed by ANEWAMERICA):

- domain.com- register.com- hostway.com- planetdomain.com, or- web.com

At this stage, you will likely get an e-mail address, find a web hosting company for your business’swebsite, and get your website up and running.

B. Choosing the right Business Structure. Are there compelling legal, accounting, tax or financialreasons for you to operate your business in partnership form? Corporate form? Or, is a limited liabilitycompany more appropriate for you? Or, is the sole proprietorship in the simplest of structures in a viablealternative? This is a critical decision.

C. Write a Business Plan and a Marketing Plan. It is difficult to place this lower on the list of itemsto handle preliminarily, because the business plan for a business is so critical that you should be working onthe plan all along, even if it is not completed as of day 1. Do you know what goes into a business plan? Don’tfret, there are numerous companies which offer help preparing one’s business plans, for which they typicallycharge, and a couple of complimentary options. For instance, you may wish to start with these two sites:

- Small Business Administration www.ba.gov/starting_business/planning/basic.html- American Express - home3.americanexpress.com/smallbusiness/Tool/biz_plan

D. Name Availability and Reservation in California. A preliminary check of the availability of acorporate name (up to 3 names) can be made by writing, calling or visiting the Secretary of State's office in


Sacramento. Name reservation requests can be made over-the-counter at any Secretary of State location orcan be addressed in writing to the Sacramento office. For an example of the procedures necessary to reserve abusiness name, see the Secretary of State’s website at this URL in http://ss.ca.gov/business. You can alsosearch the Secretary of State’s website to determine whether there is an existing corporation or LLC usingthat name - http://kepler.ss.ca.gov/list.html.

E. Picking a Location for your Business. You will need to choose a location for the business, andwhen that decision is made, determine if the zoning laws for the area permit you to run a business of thatnature there, and whether any special permits or variances are going to be necessary.

F. Retaining Outside Advisors. In conjunction with putting together a business plan and determiningwhat type of legal structure is most appropriate for your business, it is advisable to actively engage theassistance of advisors. This should absolutely include the services of an accountant, and may involve theretention of a financial advisor and insurance broker, and the selection of a banker for the business. Anaccountant is especially important, as the creation of a business is fraught with potential tax pitfalls of whichyou should be fully aware. Your attorney will want to work closely with your accountant in devising a businessstructure which best suits your business and personal goals.

I I I . FORMALIZING THE LEGAL STRUCTURE.Now that you have a solid business plan, have given your business a name, and have decided upon theappropriate legal structure for your business, now you must breathe life into your business byformalizing the structure you have settled upon. What follows is a very general description of the processand costs (in terms of filing fees) associated with starting four of the most prevalent forms of doingbusiness in California: the corporation, the S corporation, the limited liability company (LLC), and thegeneral partnership.

A. Forming a Corporation. A corporation’s life is commenced by the filing of Articles of Incorporationwith the Secretary of State. This filing can be done in person through a field office, by mail to their mainoffice in Sacramento, or by hiring one of a number of services to hand carry the Articles for you. It can takeanywhere from one day to 6 weeks to get back conformed copies of Articles, depending upon which method offiling is used.

The Secretary of State’s filing fee is generally $100, but additional fees apply if Articles are filed “over thecounter”, or if extra conformed copies are requested. The cost to filers also increases where a delivery serviceis used. For more information on incorporating in this state, please see the Secretary of State’s website athttp://www.ss.ca.gov/business/corp/corporations.htm.

B. Forming an S Corporation. In addition to the requirements which pertain to a regular corporation(discussed immediately above), a small business corporation wishing to elect federal S corporation statusmust file a federal Form 2553 with the IRS. When this is done, the corporation is automatically an Scorporation for California tax purposes (however, the corporation can elect to remain a California Ccorporation by filing a Form 3560 at the state level).

C. Forming a limited liability company (LLC). An LLC’s life begins with the filing of Articles ofOrganization with the Secretary of State’s office, and the execution of an operating agreement. Filing of theArticles of Organization can be accomplished by mail to the Secretary’s office in Sacramento, or by hiring oneof a number of services to hand carry the Articles for you. It can take anywhere from one day to 6 weeks toget back a conformed copy of Articles, depending upon which method of filing is used.

The Secretary of State’s filing fee is $70, but an additional fee applies if the Articles are filed “over thecounter”, or if extra conformed copies are requested. The cost to filers also increases where a delivery serviceis used. For more information on forming an LLC, please see the Secretary of State’s website athttp://www.ss.ca.gov/business/llc/llc.htm.

D. Forming a general partnership. There are no formalities associated with the formation of ageneral partnership. Once two persons associate together in a business for profit, they become a partnership


by operation of law. Their agreement, in the absence of any express agreement, becomes that which is setforth in the Uniform Partnership Act. The filing of a Statement of General Partnership with the Secretary ofState’s office is permissive.

The fee for filing the Statement is $70.00. For more information about California general partnerships, go tothe Secretary of State’s website at http://www.ss.ca.gov/business/gp/gp.htm.

IV . LICENSES, PERMITS AND REGISTRATIONS.Once you have created your business structure, and transferred assets into the business, you mustnow fully explore all licenses, permits and registrations which may apply to your new business.

A. Federal Level - Employer Identification Number (“EIN”). You are going to need an EIN forfederal tax filing purposes. You will likely want such a number even if you are doing business as a soleproprietor (so that you don’t have to continually divulge your social security number). You can obtain an EINa number of different ways: 1) You can fill out a Form SS-4, which you can obtain from the IRS’s website(www.irs.gov) and mail it to the IRS; 2) you can submit an online application through the IRS’s website(www.irs.gov/smallbiz); or 3) you can call the IRS directly (for a California business entity, the number to callis 800-829-4933). They are open from 7:30 a.m. to 5:30 p.m. local time.

B. State Level.

1. Franchise Tax Board. You will need to clarify with the Franchise Tax Board (FTB) whattaxes apply to your business, and what your filing obligations will be. The results may surprise you.For instance, even though an S corporation is a flow-through entity for federal tax purposes, at thestate level it is subject to an annual tax in an amount equal to the greater of 1.5 percent of thecorporation’s net income or $800.

On the other hand, an LLC is subject to an annual tax of $800 regardless of its income or deductions,and an “annual fee” based upon total gross worldwide income (which kicks in at the $250,000level, and caps out at $11.790 once $5 million in revenue is attained). You can learn more bylogging on to the FTB’s website, at http://www.ftb.ca.gov/.

2. Sales and Use Tax - Board of Equalization. If you are going to be selling tangiblepersonal property, you are probably going to need to apply for a seller's permit with the State Boardof Equalization (BOE). You can register in person or by mail. To register in person, simply go to oneof the BOE’s field offices. For a list of where these are, see the BOEs website at the following URL:http://www.boe.ca.gov/info/phone.htm. You can obtain an application to submit by mail by callingthe BOE at (800) 400-7115. You can ask questions of a representative by calling (800) 735-2922.

Applications may be printed directly from the BOE’s website as well, which you’ll find here -http://www.boe.ca.gov/info/reg.htm. You may also need to contact the BOE to determine whetheryou are responsible for any fuel, alcohol, tobacco, environmental excise, or other special taxes andfees. These special taxes fall under the BOE’s “Special Taxes Program”, about which you can learnmore on the BOE’s website - http://www.boe.ca.gov/info/reg.htm.

3. Worker’s Compensation. If you have employees, you must have worker’s compensationinsurance. You can find out more about worker’s compensation insurance by logging onto theDepartment of Industrial Relations’ website - http://www.dir.ca.gov/workers'_comp.html.

4. Payroll Taxes - Employment Development Department. If you have employees, youwill likely need to apply for an employer identification number with the Employment DevelopmentDepartment (EDD), in addition to the federal EIN you have obtained. A California business isgenerally subject to payroll taxes when the business pays wages over $100 in a calendar quarter toone or more employees. Once this threshold is reached, the employer must register with the EDDwithin 15 days.

Employers are responsible for reporting wages paid to employees, for paying Unemployment


Insurance (UI) and Employment Training Tax (ETT) on those wages, and for the withholding andremittance of State Disability Insurance (SDI) and Personal Income Tax (PIT) due on wages paid toemployees. The EDD rules also mandate that all new employees must be reported to the NewEmployee Registry within 20 days of their start date. Keep in mind that there are reporting ruleswhich relate to independent contractors as well. There is much more information available about theEDD requirements on the EDD’s website, located at the following URL -http://www.edd.ca.gov/taxrep/taxreg.htm.

5. Department of Corporations. Anytime there is an issuance or sale of “securities” inCalifornia, there are potential Franchise Investment Law, Personal Property Brokers Law and EscrowLaw requirements triggered. You may obtain the Department of Corporation’s contactinformation from their website - http://www.corp.ca.gov/.

C. Local Level - Business License & Fictitious Name Filing. The city/county clerk/recorder wherethe principal place of business is located is where the new business obtains a business license and registers afictitious name. The city and/or county clerk’s office can also help you determine what other localrequirements may exist for your business, such as under the zoning laws, or whether a building or otherpermit is necessary. Go here to find contact information for y o u r county -http://www.csac.counties.org/counties_close_up/county_web/index.html. Certain cities allow you to searchthe fictitious name filings online. As an example, see San Francisco’s search tool here -http://services.sfgov.org/bns/start.asp. Once a fictitious business name is filed, the registration lasts for fiveyears. The business license must be renewed each year.

D. Other Permits or Licenses. To determine what other licenses or permits might be necessary foryour business, you will want to log onto the CalGOLD (“California Government: On-Line to Desktops”)website, type in your business name, and explore what other permits might be necessary given the type ofbusiness you are starting. Their website is located at the following URL -http://www.calgold.ca.gov/Welcome.htm. You may also wish to contact the Department of Consumer Affairs,which issues certain kinds of professional licenses, like those issued to dentists, psychologists and barbers -http://www.dca.ca.gov/.

V. Miscellaneous.

A. Intellectual Property. If you have or are developing intellectual property assets in yourbusiness, you may need to consider registering or reserving a federal trademark/service mark,registering a copyrights, and/or applying for a patent if you will be marketing an invention. Forgeneral information about patents and trademarks, look at the U.S. Patent and Trademark office’swebsite (http://www.uspto.gov/), and for copyright information, look on the Library of Congress’website (http://www.copyright.gov/).

B. Business Insurance. Be sure and explore what types of insurance needs you and yourbusiness may need. You need to ensure your business insurance is adequate and consider a businessrider to your homeowner’s policy.

C. Bank Account. At this stage, you will also want to open a bank account for the business. Besure and contact the bank before-hand, to make sure you have all legal documentation the bank willask for as you open the account.

The information contained in this handout is for informational purposes only, and due to frequent policyand legislative changes some of the steps may not apply to your business. Also, there may be other steps thatare required for your business that are simply not covered here. ANEWAMERICA expressly disclaims all liabilityto any person with respect to the consequences of anything done or omitted to be done based in whole or inpart on reliance upon the contents of this checklist. Transmission of this information is not intended to createand receipt does not constitute an attorney-client relationship between ANEWAMERICA and the reader. Noclient or other reader should act or refrain from acting on the basis of any matter contained in this checklistwithout seeking the appropriate legal or other professional advice based upon their particular facts andcircumstances.

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