In 2021, California’s GDP reached a high of $3.35T, accounting for 14.6% of the total economy in the United States. As a result, if California had to be viewed as a country, the state would have the 5th largest economy across the entire globe– more productive than the United Kingdom and India. The Golden State’s Silicon Valley has become a hub for tech giants and, as a result, has drawn a great deal of venture capital.
California is also home to some of the world’s wealthiest people, with the likes of Mark Zuckerberg taking up residency in the state. With so much room for growth and endless potential, it is no wonder that so many small businesses are choosing to open up shop in California.
Benefits of Incorporating in California
For entrepreneurs, the Golden State is an attractive option for incorporating a new business. The state has a variety of benefits for business owners, such as:
- Tax Flexibility- Registered enterprises have access to corporate small business tax rates.
- Low Registration Fees- Filing fees in California are far more cost-effective than in other states—including Delaware.
- Superior Liability Protection-The state provides limited liability for any debts or legal judgments against the company.
- Privacy- The state provides anonymity to the business owner.
- State Support- California provides entrepreneurs with a wide range of online resources as well as various funding options for new businesses.
To read more in-depth information, The Really Useful Information Company (TRUiC) is a great platform that provides business owners with an assortment of free resources to grow and develop their businesses.
Forming a Business in California
Create a Business Name
The name of a business has the potential to make or break it and, as a result, is an essential step in the startup process. In California, entrepreneurs are required to follow these guidelines when naming their LLC:
- Include the words limited liability company, Limited, Ltd, LLC, L.L.C., Company or Co.
- Should not cause confusion with a government agency.
- The appropriate paperwork should be filed if the name includes restricted words.
Appoint a Registered Agent
Since registered agents are a federal requirement, entrepreneurs will have to elect one prior to filing for registration. An Agent of Service of Process will be the formal line of communication between the business and the state; they will therefore receive all official government correspondence as well as any legal processes should the company get sued.
File to Register the Business
In order to register a business, owners will have to file Form LLC-1 – Articles of Organization with the Secretary of State in California. Applications can be completed either online, by mail, or in person. This is also a good point for entrepreneurs to decide if the LLC will be member-managed or manager-managed.
File the Initial Statement of Information
An Initial Statement of Information (Form LLC-12) is required to be filed within 90 days of business formation. The filing is done online, by mail, or in-person via the Secretary of State and is a mandatory requirement for all LLCs. There is a non-refundable fee that needs to be paid which is worth taking note of.
Create an Operating Agreement
Although optional in some states, operating agreements are a requirement in California, and for a good reason. It serves as a legal agreement that states– in great detail– the ownership and operating procedures of the LLC. By having a comprehensive operating agreement in place, all business owners are able to confirm that they are on the same page. This will reduce the risk of conflict occurring in the future.
Get an EIN
An Employer Identification Number is a nine-digit number assigned to businesses by the Internal Revenue Service (IRS). This number makes it easier for the IRS to track the business for tax reasons and acts as a social security number for companies.
The State of California boasts some of the largest companies in the world, and there is no doubt that more businesses will be likely to follow suit. In order to conduct business in the Golden State, entrepreneurs must ensure that all local, state and federal government regulations are adhered to. California’s economy has been growing steadily, and with no intention of slowing down, the region has proven itself as a lucrative state for businesses to incorporate in.