How to start a business in California

Get a federal EIN

Apply free on the IRS website and get the number immediately. You'll need it for the state tax registration, a business bank account, and payroll. Opening a new location? You already have one; the same EIN works in every state.

Sign an operating agreement

This internal document sets out who owns what, how decisions get made, and what happens if an owner leaves. It isn't filed with the state, but banks often ask for it, and it helps protect your liability shield. Single-owner LLCs need one too.

Open a business bank account

Bring your EIN letter, filed formation documents, and operating agreement or bylaws. Keeping business and personal money separate is one of the main things that protects your personal assets.

Check industry licenses and permits

Many businesses need a license or permit before opening, separate from registering the company. Check three levels: the state licensing board for your field, your city or county, and any federal agency that regulates your industry.

• Trades and construction: general contractors, electricians, plumbers, HVAC and roofers usually need a state or local license, and often a bond
• Personal services: salons, barbers, nail and esthetics shops need a shop license plus licensed staff; massage and tattoo studios are licensed too
• Professional services: accounting, engineering, architecture, law, real estate and insurance require state licenses for the people and sometimes the firm
• Child care, elder care and home care need a state facility or agency license and background checks
• Retail with restricted products: alcohol, tobacco and vape, cannabis, firearms (federal FFL), pawn and secondhand dealers
• Auto, transport and logistics: auto dealers and repair shops, towing, movers, and trucks that need a USDOT number
• Money and finance: lenders, mortgage brokers, debt collectors and money transmitters are licensed by the state, often through NMLS
• Local permits for almost everyone: city business license or tax registration, zoning or home occupation permit, sign permit and fire inspection

Decide on S corp tax treatment (optional)

If you want S corp taxation, file IRS Form 2553. The deadline is tight: generally within 2 months and 15 days after the start of the tax year you want it to apply. See Business basics for when it makes sense.

Form your LLC with the state

File Articles of Organization (or the state's equivalent) online through bizfile Online.

Name a California agent for service of process

You need an agent for service of process with a street address in California to receive legal papers and state notices. Use a registered agent service if you have no one local.

Register a trade name (DBA) if you use a different name

Fictitious business names are filed with the county clerk, not the state. Fees vary by county.

Know California's formation rules

LLCs and corporations owe at least the $800 minimum franchise tax every year, even with no income. The first-year LLC exemption ended for tax years starting in 2024.

Register with EDD (payroll withholding) / Franchise Tax Board (income tax) / CDTFA (sales tax)

Register for payroll taxes and state income tax withholding with EDD through e-Services for Business. Register for a seller's permit with CDTFA online if you sell taxable goods.

• Employees complete Form DE 4 for state withholding
• Sales tax applies to tangible goods. A seller's permit from CDTFA is required, and local district taxes add to the statewide rate.

Check local taxes and business licenses

Many cities require a local business tax certificate or license (for example Los Angeles and San Francisco). San Francisco and some other cities also impose gross receipts or payroll-related business taxes.

Register to collect sales tax

California calls it a Seller's Permit. Register with the California Department of Tax and Fee Administration (CDTFA) through CDTFA Online Services before you make your first taxable sale in California. You'll collect tax from customers and send it to the state.

• State rate: 7.25%
• Local taxes: The 7.25% statewide base rate includes a local portion, and many cities and counties add district taxes on top. You report district taxes on the same CDTFA return.
• No renewal; the permit stays valid while you are actively selling
• Services are generally not taxed in California, unless the work creates a new item, such as custom fabrication.

Buy items you resell tax-free with a resale certificate

Give your supplier CDTFA-230, General Resale Certificate so you don't pay tax on inventory you'll resell. The buyer gives it and must include their seller's permit number and the words "for resale"; it stays valid until the buyer revokes it. Keep certificates your own customers give you, too.

• Accepts the MTC Uniform Sales and Use Tax Resale Certificate

Selling into California from another state? Watch the threshold

Out-of-state sellers must register once sales into California pass $500,000 (preceding or current calendar year), even with no office here.

• Counts total combined sales of tangible goods delivered into California by you and related companies, including sales made through marketplaces. There is no transaction count test.
• Since October 1, 2019, marketplace facilitators with over $500,000 in California sales must collect and pay the tax for their third-party sellers.

Note this California sales tax rule

The MTC certificate is accepted for resale only, not for other exemptions.

Complete Form I-9 and W-4 for each hire

Form I-9 is never mailed to the government. You keep it in your own files and show it only if ICE or the Department of Labor asks for an inspection.

• The employee completes Section 1 by their first day of work
• You review their original documents and complete Section 2 within 3 business days of the start date
• Keep it for 3 years after the hire date or 1 year after employment ends, whichever is later
• Store I-9s together, separate from personnel files, so an inspection doesn't expose other records
• Remote hire? Have an authorized representative check documents in person, or, if you use E-Verify, use the DHS remote video inspection option
• Also collect a federal W-4 for withholding

Post federal workplace notices

Federal posters (minimum wage, EEO, FMLA if you have 50+ employees, and others) go alongside the state ones.

Register for unemployment insurance with EDD

Register once you pay wages to employees working in California. Reports and payments are usually quarterly.

• 2026 new employer rate: 3.4%
• Taxable wage base: $7,000
• Employers also pay ETT of 0.1% on the first $7,000. Employees pay SDI of 1.3% on all wages (no wage cap), withheld by the employer. File DE 9 and DE 9C quarterly.

Set up the state paid leave or disability program

State Disability Insurance (SDI) funds both disability and Paid Family Leave. Employees pay 1.3% of all wages in 2026 through payroll withholding. Employers do not contribute.

• 2026 employee rate: 1.3%
• No taxable wage limit since 2024
• Employer withholds and remits with other EDD payroll taxes

Buy workers' compensation insurance

Required at 1 or more employees. Coverage is required for every employer with even one employee. Buy from a private insurer or State Compensation Insurance Fund, or get approval to self-insure.

Report each new hire

Report new hires and rehires on DE 34. Also report independent contractors paid $600 or more on DE 542 within 20 days.

Follow California pay timing rules

California's wage payment rules:

• Pay frequency: At least twice a month on regular paydays set in advance.
• Final pay: Fired: all wages, including accrued vacation, due immediately. Quit with 72+ hours notice: due on the last day. Quit without notice: due within 72 hours. Late pay can trigger up to 30 days of waiting time penalties.
• Overtime: 1.5x over 8 hours in a day or 40 in a week, and for the first 8 hours on the 7th straight workday. 2x over 12 hours in a day and over 8 hours on the 7th straight day.
• Itemized wage statements are required each payday. A written Wage Theft Prevention Act notice is required at hire for non-exempt employees.

Pay at least California minimum wage

$16.90 an hour.

• Tipped employees: $16.90 (no tip credit)
• Local rates: Many cities set higher rates. As of July 1, 2026: Emeryville $20.34, Berkeley $19.61, San Francisco $19.61, Los Angeles city $18.42, LA County unincorporated $18.47, Santa Monica $18.47. Separate higher rates apply to fast food and health care workers and to hotel workers in some cities.
• Coming up: $17.40 statewide on January 1, 2027. Exempt employee salary floor becomes $72,384 per year.

Set up required sick leave

Employees who work 30+ days in a year in California earn at least 1 hour per 30 hours worked. Employers must allow use of 40 hours or 5 days per year and may cap accrual at 80 hours or 10 days.

• Use can start after 90 days of employment
• Front-loading 40 hours or 5 days is allowed
• Unused accrued leave carries over, subject to the cap
• Many cities have their own, more generous sick leave rules

Register for CalSavers or certify an exemption

Employers with 1 or more employees that do not offer a qualified retirement plan must register for CalSavers or certify an exemption. The deadline for employers with 1 to 4 employees was December 31, 2025. Penalties start at $250 per employee and rise to $750 per employee.

Provide required harassment prevention training

Employers with 5 or more employees must give sexual harassment prevention training every 2 years: 2 hours for supervisors and 1 hour for all other employees.

Post California workplace notices

Display the state's required labor law posters where employees can see them, along with the federal posters. Workers' comp notices come from your carrier.

Pay daily overtime, not just weekly

California overtime is counted by the day as well as the week, which catches many out-of-state employers off guard.

• 1.5x for hours over 8 in a workday (up to 12) and over 40 in a workweek
• 2x for hours over 12 in a workday
• 7th consecutive workday in a workweek: 1.5x for the first 8 hours, 2x after 8
• Alternative workweek schedules (like four 10-hour days) are allowed only through a formal employee vote under the wage orders
• Paid time off doesn't count toward the 40 weekly hours

Check local minimum wage and sick leave rules

Over 40 cities and counties set their own minimum wage, and several have their own sick leave ordinances. Use the higher local rate where employees work.

Check city and county sick leave laws

These local laws apply to employees who work within the city or county, on top of the state rules. Where they differ, follow whichever is more generous to the employee. Not in force: Los Angeles County (unincorporated areas) (repealed).

• Berkeley: All employers; employees who work 2+ hours in a week in Berkeley and are entitled to state minimum wage; 1 hour per 30 hours worked; cap 72 hours accrual cap for employers with 25+ employees; 48 hours for employers with fewer than 25 (small employers may limit annual use to 48 hours).
• Emeryville: All employers; employees who work 2+ hours in a week in Emeryville and are entitled to state minimum wage; 1 hour per 30 hours worked; cap 72 hours (more than 55 employees); 48 hours (55 or fewer); cap is on balance held, not annual.
• Los Angeles: All employers regardless of size; employees who work 2+ hours in a week in the city and 30+ days for the same employer within a year; 1 hour per 30 hours worked (employers may front-load); cap 48 hours per year; employers may cap total accrual or carryover at 72 hours.
• Oakland: All employers; employees who work 2+ hours in a week in Oakland and are entitled to state minimum wage; 1 hour per 30 hours worked; cap 72 hours (10+ employees); 40 hours (fewer than 10); cap is on balance held.
• San Diego: All employers regardless of size; employees who work 2+ hours in at least one week of the year in San Diego; 1 hour per 30 hours worked; cap Employers may cap accrual at 80 hours and annual use at 40 hours.
• San Francisco: All employers; employees working within San Francisco; 1 hour per 30 hours worked; cap 72 hours (10+ employees); 40 hours (fewer than 10); cap is on balance held.
• Santa Monica: All employers; employees who work 2+ hours in a week in Santa Monica and are entitled to state minimum wage; 1 hour per 30 hours worked; cap 72 hours per year (26+ employees); 40 hours per year (25 or fewer).
• West Hollywood: Employers in West Hollywood; full-time employees (part-time prorated); 96 hours of paid leave per year for full-time employees, based on weekly hours up to 40; front-loading allowed; cap Accrual may stop at 192 hours (or higher employer cap); plus a separate 80-hour unpaid, job-protected sick leave bank.

Collect a W-9 before the first payment

The W-9 gives you the contractor's legal name and tax ID for their 1099. Check the classification first: if you control how and when they work, they may legally be an employee.

Send Form 1099-NEC to contractors

File with the IRS and send the contractor a copy by January 31. For payments made in 2026 and later, the reporting threshold is $2,000 per contractor per year (it was $600 before).

Report independent contractors to EDD

File DE 542 within 20 days for any contractor paid or contracted for $600 or more. Misclassification rules under the ABC test are strict.

Skip the FinCEN BOI report (U.S. companies are exempt)

FinCEN's final rule, effective August 14, 2026, permanently exempts companies formed in the U.S. from beneficial ownership reporting. Ignore letters or emails demanding a BOI filing fee; they're a common scam. Only companies formed outside the U.S. still file.

Pay the $800 franchise tax every year

The FTB charges the $800 minimum tax each year until the entity is formally cancelled, even with no business activity.

File the Statement of Information

Keeps your business in good standing with the state. Missing it can lead to penalties or dissolution.

Know your state business taxes

$800 annual tax for LLCs, due the 15th day of the 4th month of the tax year (first year: 15th day of 4th month after filing). LLCs with California income over $250,000 also owe an LLC fee of $900 to $11,790.

File quarterly unemployment reports and withholding returns

File unemployment wage reports each quarter and state withholding returns on the schedule you're assigned (if the state has income tax), plus the annual W-2 reconciliation.

File sales tax returns on time

CDTFA assigns you a monthly, quarterly, quarterly prepay, or annual schedule; returns are due the last day of the month after the period ends. File a zero return if you had no sales; skipping it can bring penalties.