California is known for its robust economy and diverse industries. As you can imagine, this makes it the ideal place to start a company. However, keep in mind that there are legal requirements that you need to be aware of before opening for business in the Golden State.
Business Formation
With that in mind, the first step in starting a California company is to figure out what type of business entity is appropriate for you. Note that simply working for yourself automatically forms what is known as a sole proprietorship.
This is important because, in the event that your business is sued, any personal assets that you own will be subject to being collected to pay off a court judgment. This includes things like your home and bank accounts.
For this reason, you may consider other business structures that better protect you from this type of liability. These include LLCs, LLPs, and Corporations. Keep in mind that some business structures also offer important tax benefits that you might not be aware of. Because of this, it can be helpful to do some research or speak with an attorney to find out what would be the best option for you.
Note that most business entities require owners to file paperwork with the State and pay a filing fee. There may also be additional licensing requirements that apply to you based on the particular industry you have chosen to operate in. Further, you may also be required to obtain local or county licenses.
Annual Filings
Now, depending on the business type you select, you may also be subject to annual filing requirements. For example, LLCs and Corporations must file what is known as a Statement of Information each year they are in business.
There are also yearly tax filings that you should be aware of. These include, but are not limited to:
- The state business tax filing
- Employer taxes (if you have employees)
- Sales and use tax
- Federal filings
Employee Relations
Now, whether you’re taking on your first employee or manage a team of over 100, there are legal considerations to pay attention to. One of the most important things to be aware of is that there are different rules that apply to independent contractors and employees.
Understanding this distinction is critical because getting the classification wrong can cost your business. Further, there are additional tax payments and filing requirements that apply if your workers are considered employees.
There are also potential conflicts that can arise with employees. These include things like wage and hour disputes, sexual harassment, discrimination, and wrongful termination. For that reason, it’s best to create a work environment that minimizes these issues from the beginning.
One step that you can take to reduce potential employee conflicts is to make sure that job descriptions and interview questions are legally compliant. You should also pay close attention to how your staff is trained and how the termination process is handled. As you might imagine, issues between an organization and its workers often come up when someone needs to be let go (for any reason).
Business Contracts
Note that entering into contracts is part of running a business. These agreements legally require your organization to perform certain obligations in exchange for something in return. A common example would be a lease for your office space.
It’s important to take the time to read these documents and to fully understand the short-term and long-term consequences. Failure to do so can result in potentially costly surprises down the road. For this reason, it can be helpful to have an attorney review any contract you are considering signing.
Regulations for Small Business
As you may know, California is notorious for having considerable rules and regulations that apply to businesses. As a small business owner, it is important for you to understand how the requirements impact your organization.
For example, there are environmental regulations, zoning laws, and rules on selling food or beverages. In addition, certain industries, such as the Cannabis industry, are more highly regulated. Failure to follow these regulations could result in hefty fines or even having your business shut down.