Do you want to start a small business in California? If so, there are a few basic things that you need to keep in mind, to make sure that you start a business the right way. This includes deciding on how to structure your business setup.
Business Formation in California – Getting Started with Your Small Business
If you are planning to start a small business in California, make sure that you do it right. Here are the most important things that you should know:
1. Sole Proprietorship – Most Basic Business Structure
One of the very first things to be done is deciding on what business structure the company should have. It’s quite funny that, when many budding entrepreneurs choose a structure for their business, they include sole proprietorship in their options.
What these businesspeople do not realize is that when you start a business by yourself, you automatically become a sole proprietor. All businesspeople who start their business by themselves start as a sole proprietorship and then afterwards, they can choose to transform into another business entity, like a partnership, if they are going to add more business owners to the company.
2. Keep Track of Income and Expenses
When you start your business as a sole proprietor, the government expects that, every calendar year, you account all of your income as well as expenses, and then pay taxes accordingly. Basically, the Internal Revenue Service thinks that it is important to collect taxes whenever money is earned. Therefore, if you are a single person and you’re out in the business world to get an income flow to support yourself and your business activities, Uncle Sam wants to get a piece of that action. That’s just how things are.
In order to comply with what the government expects from you, it is your responsibility to keep track of your business’ earnings, as well as all the expenses incurred in running the company. The government will collect taxes on the net difference between what you were able to earn in your business, and what it costs you to run the business. In other words, the Internal Revenue Service will tax you on your net profit.
Besides the tax that you need to pay the IRS at the end of the year, other government entities will jump in to make sure that you are paying your fair dues to them, too.
3. Know and Comply With the City Regulations
The second your business starts, you are going to comply with city regulations. A lot of people think they can start any business, anywhere they want. This is not true, because each city has its own set of regulations for businesses.
Most businesses are acceptable, but there is a shortlist of businesses that are not acceptable and will not be licensed by certain cities, under any circumstances. For example, if you are planning to put up a dispensary to distribute marijuana, there are states and cities that will allow this kind of business, as long as you follow regimented procedures to be licensed in that city. But, this kind of business is illegal in many cities.
To make sure that you properly abide city regulations, go down to the city wherein you are planning to open up your business and have a conversation with the business licensing folks.
You should not only find out whether or not the business you intend to start can be licensed in the city, but also whether or not it can be licensed in the specific city location. For example, if you are planning to open an automobile business, you should know that, although this kind of business is generally acceptable, there are city and state restrictions on where and how this kind of business can be operated. Make sure that it is acceptable to the city to have your business operate in the specific location.
Also make sure that not just one, but all government agencies approve of the operation of your business in that location. For example, if you are planning to sell cars, the California Department of Motor Vehicles has specific requirements for running that type of business. A few of their requirements include having a physical location for that business, and having adequate space to park a couple of vehicles. Those who wish to run this kind of business, but plan to do it as a home-based operations, will have trouble with the California Department of Motor Vehicles.
As with all companies, you need to be mindful of the licensing part of the business.
4. Apply for a Tax Identification Number
When doing business transactions,oftentimes you will be asked for a tax identification number. For an individual, the equivalent of a tax identification number is a social security number. In the past, business owners used their social security numbers for business transactions. But because of the high incidence of identity theft and the misuse of social security numbers, business owners these days are very reluctant to use them.
A prudent sole proprietor should contact the Internal Revenue Service and apply for a tax identification number for the business. Once a tax identification number is obtained, you can use it to associate all of your business income and expenses,and file your tax return referencing that particular number by the end of the year.
There are many advantages of having a tax identification number for your business.Many vendors ask for your tax identification number if you’re doing business with them. This is so that they can get a tax write off for certain products or services that they might be selling. In situations like these, you can provide your tax identification number without the need to reveal your own personal social security number.
5. Business Name and Branding
When you start a business, you can opt to give your business a name that does not contain our first name or last name. This is called a fictitious business name. When filing for a fictitious business name, make sure that no other business is using that name by going to the county where the business is located, check for the availability of the fictitious business name, and then file an application for a business name with county recorder’s office.
The process of filing for a fictitious business name ordinarily takes several weeks. You not only need to file an application with the county recorder, but you also need to publish that name in a newspaper of general circulation.
There are times when even if a country recorder allows a business to use a name that is available in their county, it is possible that another company is using name somewhere else in California. Another business can have trademark rights with a specific business name, and therefore, to use that desired name can get that new business in trouble.
A prudent business owner will search for the availability of a fictitious business name with the county recorder’s office, the California Secretary of State Website and the US Patent & Trademark Office.
Have a Business Attorney in California Help You Start Your Business
If you plan to start a business in California, make sure you start it right. To make sure everything is done correctly, seek the help of a competent business attorney in California.
Andy Gale is one of the most reliable and well recommended business attorneys in California. For more information about his services, contact him at +1 (714) 634-4838