June 23, 2024 #1 Local News, Information and Event Source for the Century City/Westwood areas.

The ABCs of Forming a Business in Los Angeles

Los Angeles is an ideal place to start a business. The city offers easy access to trained employees and multiple potential business partners. It has a large consumer base plus easy access to world markets. Additionally, as it’s a favorite place for many entrepreneurs to start a new business, LA offers tools and resources you can use to get your new business off the ground without undue delay.

Forming a new business in Los Angeles isn’t complicated. However, there are some steps you need to take to obtain the licenses and paperwork you need to operate your new firm. The following overview will help you get started on the right track.

File a Business Name

Unless you’re naming your new business after yourself, you’ll need to pick a fictitious business name and register it. You can do this online, by mail, or in person. Alternatively, you can hire a third party to register your business name on your behalf.

According to LA regulations, it is your responsibility to ensure you’re legally allowed to use the name you pick. You can’t pick a name that has been trademarked by another company or that could cause consumers to confuse your business with another local business. Do careful research before choosing a name to make sure you won’t face legal problems down the line.

Choose a Business Structure

Once you’ve filed a business name, it’s time to choose a business structure. The most common options for new business owners are sole proprietorship, partnership, limited liability company, S corporation, and C corporation. Each model has its own advantages and disadvantages to consider. You can change from one structure to another, but it’s not easy.

Sole Proprietorship

Over three-quarters of all businesses in the United States are sole proprietorships. It’s an easy business setup as you don’t have to fill out paperwork to start your company. You can also easily switch from a sole proprietorship to another type of business. However, setting up a sole proprietorship is also risky. Your personal assets aren’t separate from your business assets. This means you could lose everything if someone sues your business.

Partnership

If you’re setting up a business with one or more people, you may want to consider setting up a partnership. There are several types to pick from, making it easy to find one that meets your specific needs. However, be aware that it can be time-consuming and expensive to switch from this business model to a different one if one or more partners want to leave the business or increase/decrease their involvement in it. Furthermore, if a partner bails on the partnership, you can be held liable for paying that partner’s share of the debts.

Limited Liability Corporation

A limited liability corporation (LLC) is an ideal structure for many small businesses. It’s easy and affordable to register your business as an LLC in Los Angeles. California treats an LLC as a separate entity for tax purposes, enabling you to save money on taxes. What’s more, your personal assets are separate from your company’s assets. This means your personal assets aren’t in danger if someone files a lawsuit against your company.

S Corporations and C Corporations

Will your business be publicly traded? If so, you’ll need to file as either a C corporation or S corporation. An S corporation has a lower tax rate than a C corporation. However, there is a lot of paperwork to fill out and many requirements to meet if you choose this business model. A C corporation has a high tax rate, but foreign investors would be allowed to invest in your business. This is something that would not be possible if you set up an S corporation.

The only advantage of setting up an S or C corporation when starting your business is to raise a lot of money at the onset in order to grow your business quickly. Setting up either of these business structures is time-consuming as you have to meet many different requirements and fill out a lot of paperwork. Furthermore, there are ongoing legal requirements to meet in order to keep your designated business structure.

Apply for Tax Numbers

To do business in LA, you need both a Federal Tax Number and a State Tax ID Number. If you set up a sole proprietorship you can use your social security number. For all other business structures, you’ll need an employee identification number (EIN) from the IRS. Once you have an EIN you can apply for a state tax ID number, also known as a SEIN.

Apply for Needed Permits and Licenses

Businesses operating in LA will likely need to apply for at least one type of license or permit before opening their doors to the public. Here are the most commonly required permits and licenses for your consideration.

Seller’s Permit

All retailers, wholesalers, and manufacturers are required to apply for a seller’s permit before beginning business operations. This applies even if you sell goods online instead of in person. You’ll also need a sales tax permit before you sell goods.

Public Health Permit

Any new business that sells food or beverages needs a public health permit, as do daycare centers, body art businesses, commercial laundromats, and garment manufacturers. You also need a public health permit if you are building a new facility or remodeling an existing one. If your business continually sells “essential foods” such as fruits, vegetables, dairy products, bread, and/or meat, you can apply for a food stamp permit once you have a public health permit. A food stamp permit enables you to accept SNAP cards. This significantly expands your potential customer base.

Alcoholic Beverage Control License

If you sell alcoholic beverages, you need an ABC license. This holds true even if alcohol isn’t the main product you’re selling. Furthermore, you’ll need to file for expanded privileges if you intend to sell alcohol to people who aren’t drinking on your business premises.

DLSE License

Farm labor contractors, talent agents, companies involved in industrial homework, garment manufacturers, and car washing/polishing companies are all required to obtain a DLSE license in the state of California. You also need a DLSE license if you employ minors who are selling products door-to-door.

California Contractor’s License

You need a California Contractor’s license to take on construction jobs that cost more than $500 per job. What’s more, you can’t split a large job into $500 “pieces” to avoid this requirement. Additionally, a California Contractor’s license is also required if you bid on construction jobs.

Check Zoning Laws

Are you buying land to build your business? If so, you’ll want to check LA’s land use and zoning laws before you choose a business property. These regulations outline not only how you can use your property but also how many units you can build on the property. Furthermore, you’ll need building permits before you construct your new structure.

Start Promoting Your New Business

Once you’ve fulfilled all the above requirements, it’s time to open your doors and start promoting your business. Targeted Google Ads can help you reach tens of millions of people who are looking for what you have to offer. Social media ads help you target local consumers who are likely to be interested in your goods and/or services. You can display ads based on location, age range, gender, ethnic background, or other criteria. A business website is a must, even if you aren’t selling things online. Most people who are looking for products or services turn to the internet to see who can meet their needs. Content marketing is a good way to establish yourself as a trustworthy industry leader.

Every business needs a strong foundation. This means not only choosing the right location, ensuring there is demand for your products and services, and procuring financing for your business but also meeting legal requirements to sell goods and/or services in Los Angeles. While it takes time and costs money to set up a new business in LA, it’s well worth the hard work and expense. Obtaining needed permits and licenses can prevent your business from facing legal problems, fines, or even being shut down by LA authorities. What’s more, many permits and licenses empower you to offer potentially lucrative goods and/or services you would be unable to provide otherwise.

It’s also worth noting that you don’t have to meet these requirements on your own. Los Angeles is home to many experienced business agencies that specialize in helping entrepreneurs set up new businesses. You can hire a third party to help you fill out the paperwork needed to apply for a business name, create your new business structure, and more. Seeking out professional help and assistance from brokers, lawyers, and other professionals will help you avoid making mistakes with your paperwork and enable you to open your business to the public faster than you’d be able to on your own.

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