How to start a business in California and save money?

Nowadays to pay hundreds of dollars to incorporation providers is a waste of money especially when you can do almost anything entirely online by yourself. When you know all the important information and requirements, then starting a business in California could be easy!

I went through this entire process when I was incorporating my LLC in California for my business Mail on Screen and during the whole process, I realized it is quite easy and I did not need to pay any incorporation providers. I decided to provide this complete tutorial for both domestic and international applicants who wants to start a business in California and avoid paying a fee to the providers.

Follow these steps and start your business in California today!

  1. Choose a Business Entity
  2. Choose a Business Name
  3. Business Address & Registered Agent
  4. Form Your Business
  5. Statement of Information
  6. Bylaws
  7. Apply for an EIN
  8. Open a Bank Account

1. Choose a Business Entity

Before you dive into the whole process you should primarily consider what type of business is right for you. I did not include in this tutorial Sole Proprietorship because it is not considered as a business entity. Below you find different types of businesses you can form in California.

  • Corporation
  • Limited Liability Company
  • Limited Partnership
  • General Partnership
  • Limited Liability Partnership

If you wish to find out more about business entities in California, please visit the official website of the California Secretary of State.

I will briefly introduce and compare the two most common business types you can form in California, the Corporation, and the Limited Liability Company.

Corporation

The corporation is a legal business entity that is completely separated from its owners. The owners are commonly known as shareholders. The corporation is managed by a board of directors. The Biggest Advantage of the corporation is the highest liability protection for owners, easily accessible capital from investors. On the other hand, maintaining the corporation is more time and money-consuming.

Tip: The corporation is probably the best choice for those who want one day to sell the business to the investors.

California Corporation Costs: (required by California State)

  • State fee for Corporation: $100
  • Statement of information: $20 (every two years)
  • Annual franchise tax: $800 (every year)

Limited Liability Company

The limited liability company or LLC combines similar personal liability protection as a corporation but is not considered a separate business entity when it comes to income tax. All LLC’s profits and losses are taxed through their owners (called members in LLC) in their personal income tax. The LLC can be managed by its members or managers. Another plus is less paperwork with LLC than with the corporation.

Tip: LLC is probably a better option in most cases unless you are not looking for investors.

California LLC Costs:

  • State fee for LLC: $70 (required by California state)
  • Statement of information: $20 (every two years)
  • Annual franchise tax: $800 (every year)

2. Choose a Business Name

In the previous step, you decided what type of business you will establish, and now it is time to choose the name for your business. Always follow California naming requirements to avoid any problems. Complete California naming requirements you can find below.

Follow most important naming requirements below

  • Do not include words that are used by government agencies such a (State Department, FBI, Treasury, NSA and so on)
  • There are some restricted words such a (Bank, Attorney, University) These words can be possibly used for the name of your business with additional requirements and permits. For this reason, I suggest avoiding these words
  • Your business name must include designator like examples below: (these are most common, and I recommend them)

Your LLC name + LLC

Your LLC name + limited liability company

Your Corporation name + INC

Search if the desired name is available

  • Be sure your desired name is not occupied by another business. You can search for free on the official website of California State.

Tip: To avoid any problems choose the name that you did not find when name searching

Tip: It is also a good idea to find out if the domain name with your desired business name is available

3. Business Address & Registered Agent

When registering your business with secretary state of California, you will have to fill:

  • Business address in California
  • Agent for service of process in California

I created this tutorial to help people incorporate their business in California without paying high fees to someone else. In this step, you may consider and determine what is your options when it comes to business address and registered agent, in California commonly known as an agent for service of process.

Technically you do not need to pay for a business address and hire a commercial registered agent for your business if you nominate yourself, your family member, or a friend with a physical street address in California. If you do not have an address or someone else with an address in California, you will have to obtain a business address from some mail forwarding provider and hire a commercial agent for the service of process.

Business Address in California

Are you confused about what the terms below mean?

  • Mail Forwarding
  • Mailing Address
  • Business Address
  • Virtual Address
  • Virtual Business Address
  • Virtual Mailbox
  • Virtual Office
  • Mail Forwarding

These terms above usually represent similar services. Signing for one of these services you will get a mailbox on a real street address in California provided by some mail forwarding provider. You have the right to use this address as your own postal mailbox for personal and business purposes. Best mail forwarding providers offer free online accounts when you can view and manage all your mail entirely online.

Tip: You cannot use PO.BOX address as your business address in California when registering your business with the secretary of state. Always be sure you get a physical street address when signing up for a mail forwarding service.

Agent for service of Process in California

The agent for service of process commonly known as registered agent legally represents your business with the secretary of state and with other government agencies. The main responsibility of the agent of process is to receive official mail documents, on behalf of your business name. It can be individual person or commercial provider that meets these requirements:

  • Physical street address in California (not PO.BOX)
  • Available on this address from Monday through Friday during business hours           
  • Must be able to forward as soon as possible any mail to actual owner of the business

Before you nominate your agent for service of process, compare the advantages and disadvantages of all possible choices.

Comparison of different agents for service of process


Yourself

+

  • You will save some money

  • Loss of privacy because the address of agent of process is public in California
  • Loss of freedom because you should be accessible at your address Monday through Friday.
  • If you are on vacation or travel for any reason you can miss important mail and it can have negative consequences for you and your business.

Family Member or Friend

+

  • You will save some money

  • Loss of privacy because address of agent of process is public in California
  • Loss of freedom because you should be accessible at your address Monday through Friday
  • You must trust your family member’s or friend’s responsibility
  • Some people do not like the idea that someone from family or friends will see private information dedicated to your business

Commercial Agent for Service of Process

+

  • You protect your home address
  • You can view and manage your mail 24/7 from anywhere in your online account
  • You will not miss some important mail if you are not home

  • You will pay some money for this service

Business Address & Registered Agent in California by Mail on Screen

  • Unique mail forwarding and registered agent combination – 1 online account.
  • Real Street address in Los Angeles
  • Available with a business plan – only $30 per month
  • Incoming mail – unlimited
  • Open & Scan – 20pcs per month
  • Up to 10 recipients

How to hire Mail on Screen as my registered agent?

  1. Sign Up for mail forwarding, confirm the email
  2. Fill the form with desired business name – even if you did not register your business yet
  3. Select the business plan that includes free registered agent
  4. Pay for the first month – you can use a credit or debit card
  5. Notarize USPS Form 1583
  6. Go to your Mail on Screen account – Settings – California Registered Agent  
  7. Now you have all information that you will need in next step 4 – Form Your Business

Tip: Before you go to step 4 – Form Your Business, you should already have information about your agent for service of process.

4. Form Your Business

You have basically three options, how to register your corporation or LLC in California:

  1. Online
  2. By mail
  3. Submit in person in Sacramento

I will describe only online filling because it is fastest and most convenient way.

Online Filling – Processing Time:

You can expect a processing time of approximately 5 business days. You will get a confirmation in your email.

Online Filling – Prepare:

  • Debit or credit card
  • Business name that is available – see step 2
  • Business address in California – see step 3
  • Agent for service of process – see step 3
  • Your name and address (domestic or international)
  • Phone number
  • Email

Corporation

  • State fee for Corporation: $100
  1. Click on the button – Form Corporation
  2. Follow online form
  3. File Articles of Incorporation for Corporation

Limited Liability Company

  • State fee for LLC: $70
  1. Click on the button – Form Corporation
  2. Follow online form
  3. File Articles of Organization for Limited Liability Company

Tip: If you register a corporation you will have to provide number of issued stocks. One is minimum. If you do not know how many money stocks you should have, I would recommend at least 100 stocks.

Tip: If you cannot properly load online forms in links, you are probably outside of the US and you have a problem with VPN. I have personal experience with this service and it worked for me.

5. File Statement of Information

All newly formed corporations and LLCs in California are required to file an initial statement of information within 90 days of formation.

You have basically three options, how to file statement of information for corporation or LLC in California:

  1. Online
  2. By Mail
  3. Submit in person in Sacramento

Online Filling – Prepare:

  • Debit or credit card

Corporation

  • State fee for statement of information: $20
  1. Click on link – Corporation statement of information
  2. Fill name of your corporation and search
  3. Click on button – continue filling

Limited Liability Company

  • State fee for statement of information: $20
  1. Click on link – LLC statement of information
  2. Fill name of your LLC and search
  3. Click on button – continue filling

Tip: Be aware that you must file a statement of incorporation every two years. To see how to properly maintain your corporation or LLC in California read this article.

6. Create Bylaws

Bylaws are an internal source of rules for a corporation or LLC to determine and regulate ownership, management structure, and processes in the organization. The common name for corporation bylaws is articles of incorporation and operating agreements for LLC. You are required to create bylaws for your business, but you do not have to prove this document to the California secretary of state. However, you will need this document when opening a bank account.

There are plenty of sources of free and paid templates on the internet. You can also hire a lawyer to create this internal document for your business. It is completely up to you.

I historically used this templates in links below.

Corporation

Limited Liability Company

7. Apply for EIN

An EIN is Employer Identification Number is a nine-digit number issued from IRS for tax purposes. The EIN is important for opening a bank account or if hiring employees.

Obtaining an EIN from IRS is easy and you can apply online (only domestic applicants) You can also apply by filing form SS-4. Download the SS-4 form below and apply by mail or fax if you cannot apply online.

  1. Online
  2. By Mail
  3. By Fax

IRS fee for EIN: free

Mail to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999

Fax: (855) 641-6935


Tip: If you are international applicant for EIN (non-resident) please read this

8. Open a Business Bank Account

In most cases, you will have to visit the bank in California to open a bank account for your California business.

A common recommendation is to choose one of the biggest banks, but this is completely up to you.

Opening business bank account:

  • Visit local branch of desired bank in California.
  • Bring filed articles of incorporation or articles of organization from state of California.
  • Bring bylaws for corporation or operating agreements for LLC.
  • Bring letter from IRS with assigned EIN
  • Provide Business address in California – see step 3
  • Bring 2 IDs (passport, driver’s license etc.)
  • Initial deposit in cash (typically $100-200 according to bank)

Congratulations! your business in California is all set!

Do not forget to properly maintain your business in future