How to Start a Business in California: A Legal Checklist

California is one of the most rewarding — and legally demanding — states in which to start a business. Between entity formation requirements, licensing obligations, employment law compliance, and tax registration, the legal tasks of getting properly organized are easy to underestimate. Founders who skip steps at the outset often discover the consequences years later, when the stakes are higher and the fixes are more expensive.

This checklist focuses on legal steps — not business planning or marketing — and covers the sequence of decisions and filings that structure a California business for long-term success.

Step 1: Choose Your Business Entity

The choice of entity — LLC, S corporation, C corporation, or sole proprietorship — has tax, liability, and governance implications that play out over the entire life of the business. For most founders, the decision is between an LLC (flexible governance, pass-through taxation by default, lower administrative burden) and a corporation (required if you intend to raise venture capital, more structured governance, potentially taxed as an S corp for smaller businesses). For a side-by-side comparison, see our overview of choosing between S Corp, C Corp, and LLC.

California imposes an $800 minimum franchise tax on LLCs and corporations regardless of income, plus a graduated fee on LLC gross receipts above $250,000. These costs are modest relative to the liability protection and structure an entity provides — but founders should understand them upfront.

Step 2: File Formation Documents and Appoint a Registered Agent

LLCs file Articles of Organization with the California Secretary of State. Corporations file Articles of Incorporation. Both can be filed online through the Secretary of State’s portal, with expedited processing available for a fee.

As part of formation, you will designate a registered agent — an individual or company authorized to receive legal service of process in California. Your attorney can serve as registered agent or recommend a registered agent service.

Step 3: Draft Your Governing Documents

Filing with the state creates a legal entity. It does not mean you are properly organized. For an LLC, you need an operating agreement that addresses ownership percentages, voting rights, management structure, distribution provisions, and transfer restrictions. For a corporation, you need bylaws, initial organizational resolutions, and issued stock documentation.

These documents are not formalities. They govern how the company operates and how disputes are resolved. Generic online templates frequently omit critical provisions and may not comply with California-specific requirements. See our detailed post on California LLC operating agreement requirements and key provisions for a discussion of what these documents must include.

Step 4: Obtain Federal and State Tax IDs

Apply for a federal Employer Identification Number (EIN) through the IRS — required for any entity that will have employees, open a business bank account, or be taxed as a corporation or partnership. Register with the California Franchise Tax Board (FTB) and, where applicable, the California Department of Tax and Fee Administration (CDTFA) for sales tax and the Employment Development Department (EDD) for payroll taxes. Founders who anticipate raising outside capital should also start thinking early about which financing instrument best fits a seed round.

Step 5: Obtain Required Licenses and Permits

California business licensing requirements vary by industry, entity type, and location. State-level licenses may be required for contractors, professional services (law, accounting, medicine, real estate), food and beverage businesses, financial services, and many other categories. Local city and county business licenses are typically required separately and are easy to overlook.

Operating without a required license can expose you to penalties, civil liability, and in some industries, the inability to enforce contracts with customers. This is worth getting right at the outset.

Step 6: Employment Law from Day One

California’s employment law framework is among the most employee-protective in the country. Before hiring your first employee: prepare compliant offer letters, implement required wage and hour policies, establish workers’ compensation coverage, and set up a compliant payroll system. Post all required state and federal workplace notices.

Worker classification deserves particular attention. California imposes strict requirements on the classification of workers as independent contractors, and misclassification creates significant liability — including back wages, penalties, and tax exposure. Get classification right before you engage your first contractor.

A Note on Getting Counsel Early

The legal costs of getting properly organized at the outset are modest relative to the cost of fixing mistakes later — whether those mistakes involve a defective cap table, an unenforceable contractor agreement, an undocumented IP assignment, or a regulatory violation that surfaces in due diligence when you eventually sell. The best time to engage experienced business counsel is at formation. (If you’re on the other side of the lifecycle, see our post on how to close a business in California.)

➤ Starting a business in California? Contact Petersen | Landis for experienced formation counsel.