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How to Start a Business in Los Angeles in 2020 (Step-By-Step Guide)

How to Start a Business in Los Angeles

Do you want to start a business in Los Angeles?

Then you’re taking advantage of one of the strongest economies in the country. But there are a few processes you must go through if you’re going to do this right.

These processes include:

  • Finding the right business name.
  • Choosing the correct type of company.
  • Filing all the necessary paperwork.

It can be tough to figure out what you must do to establish your business in Los Angeles, but I can help you with that.

I’m a professional business lawyer who has helped hundreds of my clients to get their companies off the ground. If you need help with this, contact me today at sam@mollaeilaw.com.

I have the experience you need to ensure that it takes just a few business days to get everything ready, so let’s get started!

Step #1 – Determine if You Need to Register a Business in Los Angeles

Not everyone needs to register a formal business in Los Angeles. I’ve provided an easy guide to show you when you need to register for a business in Los Angeles.
If you answer ‘Yes’ to any of these points you need to go through the registration process detailed here.

Are You Earning Money Outside of Your Employer? – For most people with side hustles, this ensures that they need to register a business in the city.

Are You Doing Business Within the Boundaries of Los Angeles? – Take note this doesn’t include anything you do online, so it may not be necessary to register in Los Angeles if you’re running an online business.

Do You Sell Products Subject to Sales Tax? – That could include selling goods like shampoo or other luxury items. Most non-essential goods are subject to sales tax in California.

As you can see, for many people they will have to register a business if they want to establish a side income. There are very few cases where you don’t have to, such as if you’re a non-US citizen doing business online.

Still not sure if you need to register your business? Contact me at sam@mollaeilaw.com.

Step #2 – Choose a Business Name

Next you need to come up with a business name. There are a few things that a business name should always consist of.

You should look for:

  • Something catchy and easily marketable.
  • It should not infringe on anyone’s trademark.
  • Make sure that you aren’t using ‘protected’ terminology.

For example, a bad name would be anything that includes protected terms like ‘insurance’ or ‘bank’. California is clear about the terms that are prohibited by law.

There are also local, state, and Federal databases you can use to search whether anyone already has a name like yours. I recommend having multiple options.

But wait. It’s not easy as coming up with a name.

California is one of the states that require you to file additional documentation for a Fictitious Business Name (FBN) in many cases.

If the name you’re using is different from the name of the owner or doesn’t include their surname, you need to file for a FBN. For corporations, an FBN is necessary if you’re not using the precise name of the corporation.

Every locality has its own rules for filing your FBN. Below is my guide for filing your FBN in Los Angeles.

First of all, you need to visit the Los Angeles County Registrar-Recorder website.

Search for ‘Online Business Filing & Registration System’.  I recommend you file this in-person, if you can, as it will make the process much faster.

Fill out the online application for the FBN, which can be completed in just a few minutes. Visit the Los Angeles County Registrar Recorder County Clerk’s Office and pay the application fee there.

At this point, you’ll need to publish your copy of the state of your new business. It technically must be done in any newspaper of general circulation in Los Angeles County.

That’s something I can help you with. Despite how complex and expensive it sounds, it’s not that difficult. Contact me at sam@mollaeilaw.com and I’ll help you through the process.

Alternatively, the office usually has people who can help you out with this for an additional fee.

Step 3 – Find Your Business Address

You’ll need to mention a business address to start a business in California. Foreigners may use a registered agent, but for US citizens the chances are they’ll be using their home address or a dedicated business address.
This also includes if you’re running an online business out of Los Angeles. Most people will simply use their home addresses for this.

However, I can help you find a registered agent if you don’t live in Los Angeles. I’ll be able to explain how the various licensing requirements work, the boundaries, and anything else you need to know about running your company out of the city.

Just get in touch with me at sam@mollaeilaw.com to find out more.

Step 4 – Choose the Right Type of Business for You

This is where it gets complex as you need to do your research into the right type of business. The decision you make will influence how your company is structured and the various taxes you pay.

Here are the main types of company’s you can establish:

Sole Proprietorship 

This is the cheapest type of company you can setup. The problem is that you have no personal liability protection in the event of legal action.

General Partnership

These companies are the same as the sole proprietorship, but with multiple owners.

Limited Partnership

There are two types of partners that come with this business. You can have general partners, who assume liability, and limited partners that only have liability for their investment.

Take note you should register through the California Secretary of State to limit liability.

Limited Liability Company (LLC)

Most businesses will opt for the LLC because it offers limited liability without the need for the usual corporate formalities.

In California, some professions can’t start an LLC. They must register a specific type of business, which is discussed below.

C Corporations

All corporations are automatically classified with the ‘C corporation’ tag by the IRS, and this is known as the ‘standard’ corporation type. It protects shareholders from personal liability, but you also suffer from double taxation.

So, what is double taxation?

It means your business will have to pay corporation tax on every dollar it makes. And then any money paid out to shareholders is also taxed at the personal income level.
That means you’re losing a lot of money if you take money out of the business.

S Corporations

This is a cross between the LLC and the corporation because you get the liability benefits of a corporation without the double taxation.

One important point you need to know about the S corporation is there can’t be any non-US shareholders. This means foreigners can only access the C corporation.
That’s why I usually recommend that non-US citizens opt for the LLC.

Professional Corporation

This corporation type is unique to California and certain professionals have no choice but to form this type of business.
Some of the professionals that must form a professional corporation include: doctors, lawyers, and dentists.

If you fall under any of these professions, you should talk to me about your options. It comes with extremely specific rules you must abide by.

Step #4 – Make Your Business Official with the Secretary of State for California

The next step to start a business in Los Angeles is to make your business official with the Secretary of State for California. You can do this yourself, but it’s not advisable.
Understand that the rules are extremely specific, and the paperwork can be confusing. There’s no law that states you must have a business lawyer to register your business, but there are benefits to hiring a professional like me.
The process is much shorter when you apply using the channels a business lawyer has access to. At peak times, such as at the start of the year, it can take up to a month to complete the registration of your business.

A business lawyer like me can complete this process in just five business days, and sometimes less.

Finally, I can ensure the accuracy of your application. Applications are routinely rejected because of an error.

As you can see, it’s worth the investment to guarantee a smooth process.

Step #5 – Create an Operating Agreement or Partnership Agreement for Your Business

The type of agreements you should have in place will depend on the type of business you want to form. I always recommend that you get a business lawyer to draft any agreements, so you have guaranteed protection in place.

An LLC should always have an operating agreement.

What is an operating agreement?

It’s an agreement between all members of the LLC. It determines the operations of the company and the various management positions.

You must have this agreement in place to guarantee the liability protection that comes with an LLC.

If you decided to start a corporation, you need to have bylaws. Bylaws determine exactly how your corporation should be run.

In other words, they establish things like voting rights, how important decisions are made, and how profits are paid out to the shareholders of the corporation.
Strictly speaking, bylaws are not a legal requirement and don’t have to be sent to the California Secretary of State, but no corporation should be without them. They can prevent disputes between members later.

They’re also useful for demonstrating to California state authorities, the IRS, and banks that your corporation is legitimate.

But you may be asking whether you can simply find templates for these documents online?

Yes, you can.
Unfortunately, these templates are not tailored to your business and there may be loopholes that could be exploited later. Once you have established these agreements there’s no going back without the approval of your business partners.

I can make sure that your business has all the sections needed to protect you and your partners in the event of future problems.

For more help with this, contact me at sam@mollaeilaw.com.

Step #6 – Get Your Employer Identification Number (EIN)

Your Employer Identification Number (EIN) identifies you to the IRS. You may sometimes hear this being referred to as the Tax Identification Number.

You must obtain an EIN as early as possible because you’ll need it to open a bank account. Thankfully, you can easily get this number through the IRS website.
I always advise even sole proprietorships to get one of these numbers. Technically, owners of this business type can use their social security number, but this only opens you up to an unnecessary mixing of personal and business affairs.

To apply for an EIN, you’ll need to use your social security number.

However, what are you supposed to do if you can’t use the IRS EIN application portal because you’re not a US citizen and you don’t have a social security number?

In this case, you need to use a designated agent to apply on your behalf.

I recommend that you use your business lawyer for this. I’ve helped many of my non-US clients get their EIN through using me as their designated agent.

You should always use a professional as your designated agent to ensure that everything is done correctly.

Step #7 – Apply for a Business Tax Registration Certificate

To do business in the City of Los Angeles, you need to apply for a business tax registration certificate. This is issued by the Los Angeles Office of Finance and every business in the city must have one.

What do you need to get the business tax registration certificate?

The application is quite simple because all you need is your EIN, your legal business name, a description of its activities, the start date of the business, the business type, as well as its address and mailing address.

The entire thing can be submitted online and you’ll receive your new BTRC number. The purpose of this number is so you can pay your local business taxes.
I recommend applying online as the process by mail can take up to six weeks.

Step #8 – Which Business Licenses Do You Need?

The business licenses you need depend on the type of business you have. However, there are certain licenses everyone needs if they want to start a business in Los Angeles.

The main permit you need is a seller’s permit. This known as a Resale License and there’s no fee to apply for this license. The State of California’s Board of Equalization issues it and all businesses require it if they sell merchandise.

The license comes in the form of a California Sales Tax Certificate Number. The businesses that need one are those who will either sell goods inside California or wholesalers of goods in California.
There are two ways you can apply for your resale license:

  1. Through the online portal.
  2. At one of the California State Board of Equalization field offices.

If you can, try to apply for your license in person. This way you can practically guarantee that it will be issued within 24 hours.

Does this license only apply to California residents?

No. Even if your business is registered in another state but does business anywhere in California you’ll need to have this form of license.

There are a variety of other licenses you may need, based on your industry, but there are no other permits specific to the City of Los Angeles.

What Do You Need to Know about Your Responsibilities?

You’ll be expected to comply with filing taxes and renewing your licenses at least once per year. Some industries may even have additional requirements, such as if you’ve formed a professional corporation.

There are two key dates you need to keep in mind as a Los Angeles business:

  • February 28th is the deadline for paying your annual business taxes.
  • December 31st is the deadline for renewing your business permits.

Remember that you must file in Los Angeles regardless of whether you generated any tax revenue at all. Don’t get caught with fines just because your company may be dormant.

Before you file you should be aware of the tax exemptions available to Los Angeles businesses.

You may be entitled to tax credits if your business is considered a small business or a new business and has generated less than $100,000 for that tax year.

I always recommend seeking professional help if you’re trying to take advantage of tax credits.

Conclusion

That’s everything you need to know if you want to start a business in Los Angeles.

I don’t recommend that you attempt to take on the process alone. Hire a professional business lawyer like me to guide you.

Just get in touch with me today at sam@mollaeilaw.com and let’s get started

Sam Mollaei, Esq.

As a Business Lawyer for Entrepreneurs, I help entrepreneurs start their U.S. business without dealing with complicated government forms. I’ve assisted more than 2,246 entrepreneurs successfully start their business and I'm backed by more than 702 5-Star Google Reviews. If you're interested in starting your business, take the first step by requesting your Free Strategy Session on this page.

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