California is the largest state in the United States by population, and it is also the wealthiest. These are just two of the reasons why the state is home to so many industries, including technology, entertainment, agriculture and farming. However, even though many major companies, including Google, Apple, and dozens of others have started here, it still presents many challenges to individuals who want to do the same. If you are considering starting a business, below are the most important steps you should take, including how to decide on a business structure.

Decide on a Business Structure

In California, as in most other states, there are four main types of business structures. These include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.

A sole proprietorship is a business that is owned and operated by only one person. The benefits to this structure are that you will be the only one in control of making business decisions and that you can retain all of the profits yourself. However, just as you will be the only one making a profit, you will also take on all liabilities for your debts and other losses. For example, if you own a sole proprietorship and someone slips and falls on your property, they can sue you personally instead of suing the business.m

A partnership, on the other hand, is owned by two or more people. Generally speaking, each partner will contribute something to the business and in turn, they will also share equally in the profits and losses of the business. To avoid disputes, partnerships should always include a partnership agreement that can outline the roles and responsibilities of each partner.

LLCs are essentially a hybrid of business structures. Each member of the LLC has a right to a certain percentage of the company’s profits and losses, and no member can be held personally liable for actions taken against the business. LLCs are also afforded certain benefits of corporations.

Corporations are their own entities and they also include owners and shareholders. The shareholders are not responsible for any debt or loss the business incurs. Corporations are the most complicated type of business to set up; you must register them with the IRS and you are responsible for paying state and federal taxes.

Choose a Business Name

Maybe you already have a name in mind for your business, but this step in starting a business is much harder than you may think. You should conduct a search with the U.S. Patent and Trademark Office (USPTO) to prevent disputes surrounding your name in the future. Corporations must also include language within their name to identify their structure, and certain industries, such as accounting, the law, and medicine, have additional restrictions placed on their names. Due to the fact that choosing a business name is such an involved process that has the potential to become complicated quickly, it is always wise to work with a California business lawyer who can explain how the law applies to your potential business name.

Register the Business

All businesses in California must be registered, and how you do that will depend on your business structure. For example, if you are registering an LLC, you will need to file Form LLC-1, while if you are registering a corporation, you will need to file an ARTS-GS. Again, a business lawyer can ensure you are filling out the right paperwork, and that it is filled out properly to avoid unnecessary delays. Additionally, a lawyer will also advise on any other steps you have to take, such as holding an organizational meeting after registering a corporation.

Apply for a Federal Employer Identification Number

An employer identification number (EIN) is essentially a Social Security Number for your business. An EIN is only required for corporations, LLCs, and businesses that do not have any employees. However, while you may think you can skip this step if you have another business structure, such as a sole proprietorship with employees, it is still a good idea to apply for one. If you do not, you will have to use your personal Social Security Number, which could place you at greater risk for identity theft.

Open Financial Accounts

Even the smallest businesses should open separate financial accounts so it is easier to keep track of personal finances and business finances. Also, applying for business credit cards can help you build credit for your company, which will allow you to apply for more credit and larger loans in the future that will help your company. It is essential that you only complete this step once you have completed the steps above, as you will typically need the paperwork you have filed for your business, your EIN, and your business name.

Apply for Necessary Licenses and Permits

Every business owner in California must apply for a business license. A business license allows you to operate not only within the state, but also within the county your business is located. Depending on the type of business you are opening, you may also have to apply for additional licenses and permits. For example, if you are opening a restaurant that will sell alcohol, you must also apply for a liquor license.

Understand Ongoing Requirements

Opening a business can be a lengthy ordeal. Unfortunately, even once your business is open, it does not end there. Your business will still likely have to meet ongoing requirements and you must know what these entail. For example, if you own an LLC, you will need to file a “Statement of Information” every two years. This form will provide the state with updates about your business address, among other things. Understanding the ongoing requirements for your business can be complicated, but this is another area in which working with a business lawyer is a great asset.

Our California Business Lawyer can Help You Structure Your Business

Choosing the right structure for your business will impact your company and the way you operate for years to come. Although it is an important step, it is also just one of the many you will have to take when starting a business. If you are about to start a business and need experienced legal counsel, our Santa Monica business lawyer is here to help. At Klein Law, we have helped many ambitious owners start their own business, and we want to put that experience to work for you. Call us today at (310) 295-2261 or contact us online to schedule a consultation.