A step-by-step guide for start-up businesses in the state of California
Starting a business includes a lot of paperwork to be filed and government guidelines to follow. This can be overwhelming for many new entrepreneurs. The guide that follows can assist any prospective business owner with successfully establishing an LLC in California.
Step 1: Define the business niche
The first step is to decide what the business will do. Many entrepreneurs will do some market research to determine if the business idea is viable. Viability will be indicated by consumer need, availability in the market and potential for profit.
It also needs to be something that you are passionate about as any entrepreneur would like to see their business succeed and be around for a long time.
Step 2: Write a business plan
Starting a business without a business plan in place is a risky move. A business plan clearly explains the business operations, how it will be managed and important financial details. It also outlines how the business aims to achieve its objectives and provides a timeline for achieving the set out goals.
Although a business plan is not always a requirement to register a business, investors will almost always require a business plan when considering investing in a business. It also helps business owners to have a clear plan of action.
Step 3: Choose a business structure
Incorporating a business as an LLC protects the personal assets of the business owners. A limited liability company (LLC), is legally considered to be a separate business entity to the owner. This means that the owners personal assets such as a home or car can not be seized in order to pay for business debts.
Step4: Register with the IRS and government.
Depending on the type and industry of business, a variety of business licenses and permits may be required.
Appoint a registered agent
A registered agent is an individual or business entity that receives legal documents and notices on behalf of the business. California state law requires a business to appoint a registered agent.
State and federal regulations can be difficult to navigate and a California registered agent service can make this process streamlined and easy. Due to the strict requirements a registered agent must adhere to, it is always a good idea to let the professionals handle the job. Registered agent services are companies that specialize in the function and can usually assist with a variety of other services as well.
Create an operating agreement
An LLC operating agreement is a document created between LLC members (owners) that details the ownership, how shares are divided and business structures. In California it is a legal requirement to create an operating agreement.
The benefit is that the agreement protects members from one another and gives clear guidelines on protocols to be followed.
Obtain the EIN
The IRS requires some businesses to register for an employer identification number (EIN). This is similar to a social security number, but for businesses. Even if a business is single-owned with no employees, it is still advisable to obtain an EIN as most banks require this number to open a business bank account.
Get relevant licenses and permits
Your appointed registered agent service can also advise on the permits and licenses required in the state. Alternatively, the local government website can be visited for more information.
Step 5: Buy insurance
No one knows what might happen in the future, so business insurance is crucial in terms of protecting a business and its assets. Most LLCs acquire general liability insurance which covers claims against:
- Bodily injury
- Property damage
- Copyright infringements
- Reputational damage
General liability insurance does not cover all instances and some additional insurance might be required such as:
- Workers compensation
- Commercial property insurance
- Commercial vehicle insurance
Final points to remember
Once a business has been registered, a business bank account can be opened. This is to ensure that business finances are kept separate from personal finances.
Now a business can start focusing on branding and marketing strategies to grow the customer base and generate revenue.
Starting a business can be stressful, but the legal process does not have to be.