A GUIDE TO OPENING A BUSINESS, Part 4: Obtaining Necessary Permits

A GUIDE TO OPENING A BUSINESS, Part 4

By Christopher A. Kerosky, Esq.

This is the fourth segment in a series of articles I’ve written on the process of starting and managing a business in California.  This is intended to provide the reader with a step-by step guide through the primary tasks necessary to legally register your business and start operations in this state.

This segment is on obtaining necessary permits to open your business..

Overview.

California requires a host of different permits for those doing business in the state.  Many new business owners are confronted with a vast array of licenses, permits and regulations that can be intimidating and confusing to anyone.  But there are resources available, especially on the internet, to help you through this process.

The most common permit required is a seller’s permit, obtained from the California Board of Equalization (BOE).  This permit allows you to do sales of goods in the state and requires your business to collect sales taxes from customers to cover any sales tax owed to the state.  The taxes are paid annually, quarterly, or monthly, depending on the business sales volume.  If you sell goods to the public, you will need a seller’s permit whether or not those goods will be taxable.  This would include any grocery stores, department stores, gift shops, convenience stores, shops of any kind with products for sale.  It also includes on-line sales located in California. 

On the other hand, services are not taxable in California and therefore businesses that only provide services are not required to obtain a seller’s permit.  This would include most architectural firms, engineers, lawyers, doctors, computer repairmen, etc.  Construction contractors who actually sell products such as custom furniture or windows and doors must charge a sales tax.

One obtains a seller’s permit by submitting the appropriate application to the Board of Equalization.  A sole proprietor or partnership use Form BOE-400-MIP; LLCs and corporations use Form BOE-400-MCO.  You can use one application to obtain a seller’s permit for all of your locations where you sell goods.

Many businesses require additional permits from the state.  For example, the state of California regulates many businesses.  Obviously many service occupations such as doctors, nurses, physical therapists, lawyers, engineers, architects and construction contractors are licensed occupations requiring certain qualifications and usually passing an examination to get a license.  Other examples of businesses which require state permits are bars and nightclubs, auto repair shops, locksmiths and waste management companies.   The federal government requires permits for such things as operating a trucking company, operating a radio or television station, manufacturing food, alcohol or drugs, or making or selling firearms.

Local governments often regulate businesses as well.  City zoning laws dictate which activities are allowed in particular locations.  If your type of business is not consistent with the zoning for the location, you will either need to get a permit known as a conditional use permit, or be granted a variance allowing you to be exempted from the zoning rules.  You should contact your city or county planning department to determine whether your business complies with local zoning.

There is one website in California which provides a comprehensive list of all the government requirements for specific businesses.  This site is a good starting place for any business to determine which permits and licenses are necessary for your type of business.  The website address is www.calgold.ca.gov.

If you are considering starting a business, I advise you to go to this site, enter your business type and location, you will be find a list (often a long list) of the licenses and permits you will need from the federal, state and local government.  The bureaucratic requirements can be somewhat overwhelming, but with some persistence, it can be done. 

Here are a few examples of the permits needed and where to get them in Sonoma County:

Building Inspection and Alteration Permits: Permits for modifying the physical space of your business,  contact County of Sonoma Department of Building Inspection

Business Property Statement: Businesses may be required to report all equipment, fixtures, supplies, and leasehold improvements held for business use based on at cost and/or value,

contact County of Sonoma Assessors Office

Business Tax Registration: All businesses are required to register for a Business Tax Registration Certificate, Contact County of Sonoma Treasurer Tax Collector

Fictitious Business Name: You must file a fictitious business name, unless you use your own personal name for the business: Contact County Clerk's Office, Treasurer-Tax Collector

Fire Department Permit: For public assemblies, garages, storage, service stations, theaters, hazardous chemicals or gases,  contact County of Sonoma Fire Department

Zoning and Planning: Your business location must be checked to determine if it is zoned for your type of business. This also applies to businesses operating from a residence,  contact County of Sonoma Planning and Zoning

Registration Form for Employers: Required to file a registration form within 15 days after paying more than $100.00 in wages to one or more employees. No distinction is made between full-time and part-time or permanent and temporary employees in meeting this requirement,  contact state Employment Development Department Employment Tax Customer Service Office

Wage/Hour Laws: Businesses with employees must comply with laws establishing minimum standards for wages, hours and working conditions,  contact State Department of Industrial Relations Labor Standards Enforcement

Workers' Compensation Information: Businesses with employees must maintain Workers' Compensation Insurance coverage on either a self-insured basis, or provided through a commercial carrier, or the State Workers' Compensation Insurance Fund,  contact State Department of Industrial Relations Division of Workers' Compensation

A GUIDE TO OPENING A BUSINESS, Part 2

By Christopher A. Kerosky, Esq.

Last month, I began publishing a series of articles on the process of starting and managing a business in California.  This is intended to provide the reader with a step-by step guide through the primary tasks necessary to legally register your business and start operations in this state.

Here’s Part 2 on Registering your business name.

Second Step: Registering your trade name or “fictitious business name”.

Once you’ve set up a business and named it, you may wish to open a bank account and start making money.  Opening a bank account itself  is a simple process in California; essentially, you go to the bank, spend an hour or less with an account officer of the bank, and fill out some forms required, and in a few days, your first set of checks come in the mail.  However, there are several steps required before the bank will allow you to open an account.

One is you need to let the government know what name you are using.    That is, if you are not using your own name in the business, but rather a trade name or “fictitious name”, it may be necessary to register that name with the County in which you do business.  Sole proprietors and general partnerships are not registered with the state, and so it is necessary for them to file “fictitious business statements” with the County to inform the public of the owners or “principals” of the company.  If corporations and limited liability corporations are only using their actual registered name, then they do not need to file fictitious business statements but those using a different name in the course of their business also must file.

So, for example, if your name is Bill Gates and you open a sole proprietorship known as “Bill’s Software”  in San Francisco, you need to file a fictitious business statement in City Hall, San Francisco, which lets the government and the public know that Bill’s Software belongs to you.   Likewise, if one is a corporation named, say, “Microsoft”, but it wants to do business using the name “Bill’s Software”, then it must file a fictitious business statement telling the world that this corporation is using that trade name.

This name is then referred to by the phrase “doing business as”; for example, Bill Gates doing business as Bill’s Software, or in the case of a corporation, “Microsoft dba Bill’s Software”. 

There are very specific rules for when you need to file a fictitious business statement and when you do not.  If you use your entire first and last name, “Bill Gates’ Software”, then you do not need to file.  If you use only your first name or initials, like “B.G. Software” , then you have to file.  If you have a partnership using the last names of the partners, let’s say “Gates and Jobs Computer Equipment”, there’s no need to file.  However, if it’s any other partnership name, even one using the first names – such as “Bill and Steve’s Computers” -- then it will be required to file. 

Of course, every business owner believes their business name is original and unique.  However, if it is not, when one attempts to file the fictitious business statement, the county will not allow use of the name.  Before a business owner can register a fictitious business name, a search of the county database of registered names will be done to make sure the name is not already taken.  If your name is Bill Gates and you get the idea to do business in California as “Apple Computers”, you can be pretty sure that you won’t be allowed to do so.

          After filing it with the County, you need to publish your fictitious business statement in a “newspaper of general circulation”.  The County office gives you an approved list.   There are certain legal or specialty newspapers who do this more cheaply than the big newspapers.  The purpose of this is to give formal notice to the world, or at least the subscribers of that newspaper, that you have started your business using the name chosen.

          These county fictitious business records are important for many purposes.  They give consumers a way of making complaints about business owners that may not be otherwise identified.   Certainly if a lawsuit against a business needs to be filed, especially if that business is not a corporation and does not use the owner’s name, one needs to know who the owner is and where to serve him the legal papers.  Lastly it serves to ensure that two or more businesses are not using the same name in the same county for their business.

          It is necessary for small business owners to go through this formality.  For one, business owners break the law by not registering their trade names, and theoretically risk being closed down by the County (at least temporarily).  But there is also the risk that after one has invested time, money and hard work in building up the reputation of a name, if it is not registered, the name may be taken and used by someone else who may benefit from all of your hard work and effort.

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CHRISTOPHER A. KEROSKY of the law firm of KEROSKY PURVES & BOGUE has practiced law for over 25 years and has been recognized as one of the top lawyers in Northern California for 9 years by San Francisco Magazine “Super Lawyers” edition.   He graduated from University of California, Berkeley Law School and was a former counsel for the U.S. Department of Justice in Washington D.C.  His firm has offices in San Francisco, Los Angeles and 7 other locations in California. 
WARNING: The foregoing is an article discussing legal issues. It is not intended to be a substitute for legal advice. We recommend that you get competent legal advice specific to your case.

A GUIDE TO OPENING A BUSINESS, Part 1

By Christopher A. Kerosky, Esq.

The following is a series of articles on the process of starting and managing a business in California.  It is designed for the small business owner who may not be familiar with California law or procedures.  I will attempt to provide the reader with a step-by step guide through the primary tasks necessary to legally register your business and start operations in this state.

First Step: Choosing a Proper Business Form and Registering Your Business.

One of the most important and sometimes most difficult decisions is the proper legal form for your business. There are four basic legal forms, each described below: the sole proprietorship, the partnership, the corporation and the limited liability corporation (LLC).

Generally, the decision should be made with reference to several factors: simplicity and cost of organization; control and decision-making; taxes; and responsibility for the debts and other potential liabilities of the business.  In another article, I deal in depth with the differences between each, but I will describe the basic differences here. 

A sole proprietorship has the advantage of simplicity, requiring less registration and paperwork.  Also, the income of the business is treated as income of individual for tax purposes, which makes tax return preparation a bit easier.  However, there is no protection from personal liability for the owner.  The debts of the business are treated as debts of individual, including liability due to accident or injury.  

A partnership also does not require formal registration or continuous meetings and minutes, as with a corporation.  However, a written agreement between partners is strongly advisable.  Like a sole proprietorship, the income of the partnership are not separately taxed.  But, again, the partners are not shielded from liability.  There are now limited liability partnerships (LLPs) which do provide limited protection for liability, although not as complete as with a corporation or LLC.

Corporations and Limited Liability Corporations are very similar.  Both require corporate documents to be drawn up, usually by a lawyer.   Both require registration with the state described below. 

With corporations, certain legal documents must be kept on an ongoing basis, such as shareholders meeting minutes, records of stock transactions. Formation of an S corporation requires an additional filing with the IRS.  With LLCs, the ongoing paperwork is not as demanding. 

With both LLCs and S corporations (used by most small businesses), income is treated as the  income of its shareholders just like a sole proprietorship.  With larger C corporations, income of business is not treated as  income of individual for the tax purposes. Only dividends paid to shareholders [or salary paid to employees] is treated as income. On the case of payment of dividends, this can subject the company to double taxation under certain circumstances.

One of the principal advantages of LLCs and S corporations is that the debts of the business are not treated as the debts of individual partners. A corporation can go bankrupt even while its shareholders remain solvent.  Most importantly, the shareholders are shielded from the liability of the corporation as long as the corporate formalities are followed.

Once you have decided which business form you will use, it may be necessary to register your business with the state of California.  Corporations or LLCs need to file special registration papers with the California Secretary of State.  For corporations, the necessary papers are called Articles of Organization.  Limited liability partnerships file a Limited Liability Partnership Registration form. 

The Secretary of State must approve all names before they can be registered.   The main criteria that the Secretary of State’s office applies is that they ensure that your proposed name is not already taken by another entity of the same type.  A business entity in California may not use a name that is already registered to another existing business entity of the same type.   Before you file your registration documents with the Secretary of State, it is worth it to check your potential names to see if they are available.  If they are, you can immediately reserve one of them.  You can do so through the Secretary of State’s office in person or at the telephone numbers or websites listed below. 

California Secretary of State Offices

Name check phone number is 916-653-6814

Online at www.ss.ca.gov. 

Sacramento Headquarters

1500 11^th Street

Sacramento, CA 95814

(916) 657-5448

Los Angeles Branch

300 S. Spring Street, Room 12513

Los Angeles, CA 90013

(213) 897-3062

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CHRISTOPHER A. KEROSKY of the law firm of KEROSKY PURVES & BOGUE has practiced law for over 25 years and has been recognized as one of the top lawyers in Northern California for 9 years by San Francisco Magazine “Super Lawyers” edition.   He graduated from University of California, Berkeley Law School and was a former counsel for the U.S. Department of Justice in Washington D.C.  His firm has offices in San Francisco, Los Angeles and 7 other locations in California. 

WARNING: The foregoing is an article discussing legal issues. It is not intended to be a substitute for legal advice. We recommend that you get competent legal advice specific to your case.