Posted on February 27th, 2020
There are over 4 million small businesses in California that hire about 7.1 million people throughout the state.
Approximately 99.8% of companies in California involve small businesses and 48.8% of the state’s human resources.
This makes California small businesses an essential element of the Golden State economy. In the third quarter of 2018, the GDP for California increased at a 3.5% rate, which outpaced the economy of the U.S. by 3.4%.
If you want to start a business in California, you need to know what type of business you want to open.
This could be a partnership where all partners should have a copy of the legal partnership agreement.
Alternatively, if it’s a corporation or limited liability company (LLC), you should have Articles of Incorporation and Articles of Organizations, respectively.
Next, decide on a name for your business. Then perform a name search to confirm that your name doesn’t match with other businesses.
Here’s what you need:
1. Licenses and Permits
Starting a business in California will require you getting various licenses and permits. If you are opening a selling goods business, take a seller’s permit from the Board of Equalization.
If your company has more than one employee, you need to register with the California Employment Development Department. This will enable you to file withholding taxes for the employees.
You have to get an employer identification number if your business is taxed separately. To open a bank account for your business, you must have an EIN. This is accessible from the IRS website and has no filling fees charged.
2. General Business License
A general business license is a need for every California business, depending on its location.
3. Regulatory Permits and Licenses
Regulatory permits and licenses are compulsory because they cover specific services or industries, the environment, health and safety, and building and construction.
State agencies are responsible for the issuance of these statutes. There is a state website that guides business owners on the steps to take to get permits and licenses.
Occupational and professional licenses should be applied by those working in different fields. The state website offers information on occupational and professional licensing.
Laws That Apply to California Small Businesses
There are small business laws such as SB 269 that allows companies a grace period of being liability-free. AB 1616 provides bakery and pasty businesses to work from home. AB 1616 small business law does not need zoning permits. Finally, family benefits increase using the small business AB 908 law.
1. California Tax Laws
Tax laws in California include the California Competes Tax Credit (CCTR), which is an addition of California Business Tax Code. It is a law that enables small businesses to recover part of the capital expenditure upon meeting targeted milestones.
There is also the California Homemade Food Act of 2012, which is a law that allows home-based chefs, bakers, and pastries the ability to operate without using a commercial kitchen space. These small businesses are not affected by zoning laws.
2. Employee Remuneration Laws
Before opening a small business in California, you need to know the employee remuneration laws. These include the paid family leave or AB 908 that took effect in 2018 and which the paid family leave benefits were increased up to 70%, and minimum wage laws changed from 1st January 2017, where a new law governing employee minimum wage was enacted.
The Fair pay act was effected in 2016, preventing employers from underpaying workers based on their previous, gender, or race inclinations.
3. Employee Protection on Immigration and Background Check Laws
After opening a small business in California, you are not allowed to carry out any criminal background checks on your employees. Employers are also not allowed to ask about any criminal history as they can use it to determine the employment conditions.
4. California Business Laws
There are some specific labor laws for California that merged with employment and workforce rules that anybody opening a small business in California should comply with. For instance, the minimum wage is more than what is offered in other states, and their overtime is more strict.
California labor laws form the foundation of federal regulations to impact your business. When looking at these labor laws, you should understand their effects on the workforce in your business. These laws benefit employees more than state or federal laws.
Here is an explanation of the above. A small business starting in California can ensure it is compliant to the local and state labor laws by outsourcing its payroll and human resource to a third-party expert.
Your employees will have the option of managing their pay stubs and management of time offs. A small business does not have to handle routine questions on payroll, benefits, and human resources.
California small businesses face unique challenges, regarding strict employment laws.
Challenges Facing California Small Businesses
1. New Regulations
California is reputed for trying out new regulations. It is a state that is willing to depend on new regulatory measures; this compliance is mandatory for most businesses.
California consumer privacy act of 2018 is California’s reaction to the European Union’s General Data Protection Regulation (GDPR) that requires companies to protect consumer data.
2. High Taxes
The other challenge faced by small businesses is high taxes. This is universally recognized by existing business owners.
3. Cost of living
The cost of living in California is very high. California is a wealthy state, which makes wages, costs of services, and goods very high.
Overall the cost of doing business in California is high, but businesses make more money, unlike other states.
4. Competitive labor market
Since California’s economy is good, unemployment is also minimal; it makes the labor market very competitive. This means that it is an employee’s market where you have to give attractive benefits and compensation so that you can attract and keep top talent.
Businesses should consider the labor market when developing workplace cultures and compensation packages for this free talent.
Taking the Right First Step
When opening a California small business, you should ensure that you first determine the company you want to start and acquire the needed permits and licenses.
You will also have to understand the labor laws, tax requirements, as well as employment laws.
With all these and much more in place, you will be on your way to being the next successful small business owner in California.
If you find the red tape overwhelming, but want to ensure your business is operating by the book, it may help to enlist the assistance of a professional.
Contact us today with your legal business questions and to see how we can help.
