California Business Laws

California business laws regulate large and small businesses, from insurance to livestock management. Any business entity buying and selling products in California must have a seller’s permit. Small business owners have as many regulations as big corporations.

Assembly bills and new laws go to the voters before becoming regulations, so business owners have a say in what affects their trade.

Although most of California’s laws resemble other states, California has a long history of going its own way. As a result, California has its own business laws and regulations similar to but different from the rest of the nation. FindLaw provides a concise summary of some of these laws that affect large and small companies.

According to recent statistics, more than 99% of all businesses in California are "small businesses." A small business has fewer than 500 employees. The California Office of Small Business Advocate helps small businesses obey state and federal regulations. The California Secretary of State handles small business formation.

California Business Formation

Business types in California range from one-person operations to multi-national conglomerates.

• Sole proprietorships are businesses owned and operated by a single individual. A sole proprietorship may have more than one employee, but they are often small businesses with few workers.

• Partnerships may have two or more owners. A partnership describes the nature of the business relationship. Whenever two or more people create a profit-oriented business, they have a partnership.

• Limited liability companies and limited liability partnerships protect business owners from personal liability. Sole proprietors and partners can be held personally liable in legal matters, but members of LLCs and LLPs cannot. There are additional requirements for setting up and filing a limited liability company.

• When a business incorporates, it becomes a separate entity from the company’s owners, operators, and shareholders. To incorporate, a business must follow specific local and state laws. These include filing articles of incorporation, issuing stock, and electing a board of directors.

Any business can become an LLC or a corporation. There are benefits to incorporation, such as tax breaks, protection from liability, and the ability to buy real estate in the business’s name. Business owners should get legal advice during business formation.

Regulations for California Business Owners

Large or small, businesses must comply with regulations affecting their ability to do business and their employees’ right to work. California’s employment laws affect all state and private workers within the state.

Proposition 22 established that gig workers are independent contractors. If a company uses independent contractors, some factors can make them "employees" despite their contract.

Other laws that affect California corporations’ operations include:

• California Wage and Hour Laws. Minimum wage in California is currently $15.50 per hour, about twice the Federal minimum. Any hours over eight in any workday or 40 in any workweek are overtime and paid at time-and-a-half.

• California requires workers’ compensation insurance for businesses with one or more employees. Sole proprietors are not exempt from this regulation.

• Three new family leave laws went into effect in 2023. Assembly Bill 1949 creates penalties for discrimination against workers taking bereavement leave. Senate Bill 951 extends paid family leave through 2024 and increases wage replacement rates for 2025.

Licenses and Permits

Doing business in California, or any state, requires licenses and permits. Once a business has the necessary permits, they must renew them annually. New businesses must obtain them for the first time from local and state agencies.

Local Licenses and Permits

Businesses apply for local business permits at city or county offices where they operate. Each county and city has a list of businesses that are required to have business licenses.

In some areas, like greater Los Angeles, where the unincorporated areas are intermingled with smaller cities and the City of Los Angeles, you’ll need to check with the county to determine exactly which type of license you need.

Local licensing agencies also control building permits, healthcare licensing, and local sales tax. Los Angeles, San Francisco, and San Diego all charge additional sales tax on top of the state sales tax.

State Licenses and Permits

The California Secretary of State’s office handles most general business matters for California companies. This is where you go for answers to questions about:

• Business taxes
• State business licenses
• Business names and trademarks
• Business entity formation

The state also handles business tax laws. State sales tax is currently 7.25%.

Federal Licenses and Permits

The only federal license that California businesses need is an Employer Identification Number (EIN). You need this to report taxes to the federal government, whether you have employees or not. You will need an EIN to open a business account with the bank. An EIN application is available at the IRS website.