How to Start an Online Business in California

Steps to start and launch an online business from the ground up

Online Business in California

Are you ready to start an online business in California? Congratulations! You have a long road ahead of you, but if you start off on the right foot, you have a bright future. Whatever it is you have to offer, there are people out there who are eager to become your loyal customers. We've created this guide to help you get started and make informed business decisions that will help you build a strong foundation for your new business.

California is home to some of the nation's most lucrative industries, however it's also known as a challenging place to start and run a business. The state is famous for its numerous regulations which every business needs to follow in order to operate legally. Fortunately, there are plenty of resources available to help you follow the law, and it's still possible to grow to great success. This guide will be your reference.

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Table of Contents

Come Up with a Business Idea

You may already have an idea for your online business. But even if you do have a business idea, don't skip this section — we're including other information to help you ensure your idea is viable and something you can build a good strategy around.

First off, you should always choose an industry you're passionate about. This will help you stay focused and will also ensure you can more quickly establish yourself as an expert in your field. Customers can always sense when a business has a genuine interest in advancing its industry and serving your needs, and your enthusiasm will carry over to them.

Next, do market research to determine any needs that aren't being met by your competition. This will help you settle on your unique value proposition (UVP), also called a unique sales proposition (USP). This is what makes your business special and helps you stand out from the others. A UVP can be anything, from a long-term service agreement like a warranty, to a specific tone and attitude your business takes when dealing with customers. The important factors are that your UVP is constantly present in your business, and that it helps differentiate you from your competitors.

Start with a Business Idea

Choose a Business Name (and Plan Your Domain)

Naming your business can be surprisingly exciting, since putting a name on something always makes it feel more "real." However, it can also be very stressful. Many people feel that they're not good at coming up with names, especially with the pressure of starting a business. A business name needs to be memorable and brandable to improve your visibility to customers, and it can definitely feel like a challenge to come up with a name that meets these criteria while still describing your business well enough that first-time potential customers can understand what you do.

Another consideration when naming your business is that you're also going to need to pick a domain name (URL) for your website. If your domain name is exactly the same as your business name, it will be a lot easier for customers to remember, so try to find a business name that's still available as a domain name. Some variation is fine, but try not to stray far enough that your website's URL becomes confusing.

In addition to a URL for your website, you're also going to want your business to have a presence on social media, which can include Facebook, Twitter, Instagram, Pinterest, and more. It's best if your business's username on each of these platforms is the same, and if it's identical to your domain name, all the better.

Business Name

Your other concern is that your business name isn't taken by someone else. The California Secretary of State has the following guidelines for business names:

"Corporation, limited liability company and limited partnership names may be adopted as follows:

  • A corporation name may be adopted if the name is not the same as or too similar to an existing name on the records of the California Secretary of State or if the name is not misleading to the public.
  • A limited liability company name may be adopted if the name is distinguishable on the records of the California Secretary of State or if the name is not misleading to the public.
  • A limited partnership name may be adopted if the name is distinguishable on the records of the California Secretary of State."

The California Secretary of State's website includes further resources to help you find out if a business name has already been taken.

Additionally, you should check to ensure the desired name of your business isn't trademarked by someone else. You can do this by searching the Trademark Database on the US Patent and Trademark Office's website. The rules for trademarks are a bit different in that you can use a similar name as long as you're providing a completely different product or service than the existing trademark. Additionally, trademarks aren't necessary for doing business, but can be applied for to protect the names of your business or unique products. Learn more about trademarks on the USPTO website.

Create a Business Plan

No business can succeed without a plan. In fact, the better your business plan, the more likely you are to reach all your goals and see the type of business growth you've been hoping for. There are established guidelines and templates available, so it's not too hard to learn how to write a business plan that will cover the necessary points:

  • 1
    Executive summary: an overview of your business and its mission.
  • 2
    Business description: a basic explanation of your business and how it will work.
  • 3
    Market analysis and competition: proof that customers need your products and what makes your business different from your competitors.
  • 4
    Your product or service: a detailed description of what you want to sell.
  • 5
    Marketing and sales plan: an explanation of how you'll reach your customers.
  • 6
    Ownership, management, and personnel: a description of your employee structure.
  • 7
    Financial plan and projections: a collection of detailed financial information including how long it will take to pay off your initial investment, and more.
  • 8
    Investment: a description of the return on investment for anyone with money staked in the business, including you.
  • 9
    Appendices: supporting documents that help other points of your plan.

Choose a Business Structure

Possible business structures include different options that provide varying levels of protection for the business owner and determine how your business will file taxes, while also carrying different requirements. You should always choose a structure that works best for your business in the present and allows the type of growth you want to achieve in the future.

The four main business structures are sole proprietorship, partnership, limited liability company, and corporation. Each of these is geared toward a different size of business with different needs. Additionally, there are subcategories of these business structures including limited partnerships, C corporations, S corporations, and more. Here are the basics:

  • A sole proprietorship is a one-person business in which the business is essentially the same as the owner. This type of business is the easiest to set up, but it's meant to remain small. There's also no liability protection, so if the business finds itself in legal trouble, the owner's personal assets are at stake.

  • A partnership works almost the same way as a sole proprietorship except that all the profits, responsibilities, and liabilities are split between the partners, which can be more than two people. Partnerships have similar advantages and disadvantages as sole proprietorships.
  • A corporation is owned by shareholders and managed by a board of directors, who can be chosen by the shareholders based on the business's charter. While corporations have some advantages like liability protection and the ability to sell stock, they also have the most rules and paperwork, and are often not the best choice for a small business.

  • A limited liability company (LLC) is the most popular choice for a new business because it combines some of the best advantages of corporations and sole proprietorships or partnerships. The business owner is protected from liability and the workload is far less than that of a corporation. The disadvantage is that an LLC can't sell stock, but this may not be a concern for a new business.

  • Business Structure

    You should always choose the business structure that most closely matches your business plan. The California Secretary of State recommends consulting a business attorney or tax advisor, and also provides more information about business types on their website. We've also put together a detailed comparison of business structures in our free ebook below.

    Download the experts guide on how to choose the right shopping cart solution for your business.

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    Register Your Business

    When you've chosen the structure you want to use, it's time to register your business so you can operate legally in the state of California. The registration procedure varies depending on your business's structure and industry. To find out exactly what you need to file, and learn about all the associated fees, visit the California Secretary of State's Forms, Samples, and Fees page. If you're going to have employees, you also need to enroll with the Employment Development Department.

    Lastly, you may have to file a DBA, or "doing business as." This is required in a few situations, such as for all sole proprietorships or if you plan to do business under a different name than the business name you register. A DBA is also called a "fictitious name." You'll need to file your DBA in the county in which your business is based, and many counties in California also have additional requirements, such as publishing your DBA announcement in a local publication.

    Register Your Business

    Complete instructions for filing a DBA in California can be found here. Some counties also have their own online resources, such as this web page for filing a DBA in Los Angeles County.

    File Taxes

    File Taxes

    As a business, you'll need to collect sales tax on the products you sell. While it's possible for some business owners to file under their own social security number, it's better to get an Employment Identification Number (EIN) to help protect your own identity. You'll also use your EIN when you open a business bank account and if you apply for business loans. The IRS has complete instructions on their website for applying online for an EIN.

    In California, you'll need to pay certain taxes on your small business in addition to collecting and remitting sales tax. These include a franchise tax and, if you have employees, a payroll tax. Business taxes in California can be quite confusing and will also depend on the structure of your business, but fortunately, resources are available to help you find out the taxes you need to pay. The State of California Franchise Tax Board has a detailed guide for the taxes involved in doing business in California.

    Necessary Licenses and Permits

    Obtain the Necessary Licenses and Permits

    The licenses and permits you need will depend on your type of business and where in California you are based. Some of the permits and licenses are specifically for retailers who will be inviting customers into their location, so if you're only selling online and have no current plans for a brick-and-mortar store, you don't need those. However, there's still a lot to look over to ensure you're fully licensed to operate legally.

    The best resource for learning about the required permits and licenses is CalGold, which allows you to look up all the necessary licensing for businesses in California including all requirements from the city, state, and federal government. The site is geared more toward brick-and-mortar businesses but is still very helpful for those selling exclusively online. They also have a list of contacts for more information.

    Business Bank Account

    Set Up a Business Bank Account

    One of the biggest mistakes a new business owner can make is to try to use their personal bank account for their business. Your business funds and expenses should never be mixed with your personal money, even if you're a sole proprietor — this is called "commingling" and makes it much harder to do accurate accounting and taxes, plus it can break your liability protection.

    Best financial practices aren't the only reason your business should always have its own bank account: some of the services you need to use can only be connected to a business account. For example, you'll need to accept payment online for your products, and many payment processors won't work with a personal account. If you want to get a business loan or business credit card, you'll need a business bank account for those, too.

    Like your other business decisions, your choice of bank should be based on the specific needs of your new business. Fundera maintains an excellent guide for California small business owners trying to choose a bank.

    Build Your Online Store

    Once your business is thoroughly planned, registered, and in possession of its own bank account, you're ready to start selling — and that means it's time to build your online store! When you build an eCommerce website, remember that it needs to do more than simply provide a shopping cart for customers to make purchases. Your website is also your business's presence on the internet and takes central stage in your mission to build your brand.

    Choose a website builder that's focused on eCommerce as its core functionality, rather than trying to add a shopping cart to a website later. By using the right eCommerce platform to create your website, you'll start out with better tools available that will help you grow your business faster. For more information on creating your website, check out our free guide:

    Build Your Online Store

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    Frequently Asked Questions

    What type of business is the cheapest to start?
    If you want to start a business with very little capital, a dropshipping business could be right for you. You'll still need the appropriate permits and licensing, but you won't have to invest in storage space or inventory before you make any sales.
    Are there any licenses specifically for eCommerce?
    There are no eCommerce-specific licenses, but for certain industries, you'll need different types of agreements. For example, shipping carriers have guidelines you'll need to meet if you want to sell wine online, and you'll still need to follow the law.
    What eCommerce software is best for selling online in California?
    Shift4Shop offers the best eCommerce software for building your online store, complete with all the features you'll need to provide your customers with a secure, top-of-the-line shopping experience, plus a robust set of tools for managing and growing your business. Low pricing and 24/7/365 support make it suitable for all types and sizes of business. Sign up for a free online store today and see it for yourself.
    How do I accept online payments?
    To accept online payments, your website will need to be connected to one or more payment providers. Shift4Shop is automatically integrated with Shift4 Payments, so you can start taking credit card payments right away without any extra set-up needed. Shift4Shop also integrates with more alternative payment methods than any other eCommerce platform. If you'd like to use an alternative payment processor, you'll need to create an account with them and add them to your site.