Running a small business in California means you’ve got to get your head around a bunch of legal stuff. This guide is here to help you understand some important points about setting up a business, hiring people, getting contracts right, and keeping hold of your bright ideas.
By staying in the know and being ready to act, you can make sure you’re on the right side of the law and keep your business safe.
Starting Out: Business Formation and Structure
Deciding how to set up your business is one of the first steps you’ll take. In California, you’ve got several options — like being a sole trader, starting a partnership, forming a limited liability company (LLC), or setting up a corporation. Also, it’s wise to obtain a business permit with local city and county government; for businesses selling consumer goods, you will need to obtain a California sellers permit.
Depending on whether you form the business as a corporation or an LLC, you should draft bylaws, a shareholder agreement or an operating agreement to govern your business between yourself and business partners. LLCs can be a good choice because they protect your personal stuff if anything goes wrong with the business and they’re flexible when it comes to management and taxes.
Corporations, especially S corporations, could be a good fit if you’re planning to sell shares to raise money.
If you’re setting up an LLC or corporation in California, you need to file some paperwork with the California Secretary of State, keep up with yearly reporting tasks, and know what you’re up for in taxes. If you forget to follow these rules, you could end up with fines or legal problems.
Cal. Corp. Code § 17701.02 (LLC formation); Cal. Corp. Code § 200 (corporation formation).
Playing Fair: Employment Law Compliance
California’s got a lot of rules to make sure workers get a fair deal. These cover things like minimum pay, overtime, breaks, and making sure everyone’s treated fairly. As a small business, you’ve also got to understand the California Family Rights Act (CFRA) and the Fair Employment and Housing Act (FEHA), which cover things like leave entitlements and anti-discrimination rules.
It’s a good idea to put together a detailed employee handbook, have clear hiring and firing processes, and make sure your workplace is a place where everyone feels welcome to steer clear of legal troubles.
Cal. Labor Code §§ 510, 512 (wage and hour laws); Cal. Gov’t Code § 12940 (FEHA).
Making Deals: Contract Essentials
Contracts are the glue that holds business relationships together – with your suppliers, your customers, and your employees. In California, for a contract to be valid it needs to be about something legal, everyone involved has to agree, there needs to be an exchange of value, and everyone signing has to be in a position to do so.
Make sure your contracts are clear, can be enforced, and look after your business’s interests. It’s also a good idea to include a plan for how to sort out any disagreements that come up. Be sure to consider whether you want to be able to recover your attorney’s fees and costs in the event of a dispute, as it will be unlikely for a court to award you attorney fees and costs unless they are written into your contracts.
Because contracts are so important, getting a lawyer to help you write or check big agreements can be a smart move for your business.
Cal. Civ. Code §§ 1550-1558 (elements of a contract)
Protecting Your Ideas: Intellectual Property
Your brand, your logo, your inventions, and your creative work are all valuable parts of your business. In California, you can keep these safe with trademarks, patents, and copyrights. Registering a trademark with the California Secretary of State and the US Patent and Trademark Office (USPTO) can stop others from using similar marks that could confuse your customers.
You need to register patents and copyrights, which are covered by federal law, with the USPTO and the Copyright Office. Protecting your ideas not only keeps your business assets safe but also makes your business more valuable and competitive.
15 U.S.C. §§ 1051 et seq. (federal trademark law); 35 U.S.C. §§ 1 et seq. (patent law).
Wrapping Up
Running a small business in California means keeping up with a bunch of legal requirements. From choosing how to set up your business, to understanding employment laws, getting contracts right, and protecting your ideas, there’s a lot to keep track of.
But, with some careful planning, a commitment to following the rules, and maybe a little help from a lawyer, you can build and grow your business on solid legal ground.
Always keep abreast of the latest legal requirements and consider consulting with the lawyers at Gallagher Krich APC, experienced California business lawyers, to address any company-specific concerns.
For more information, contact Gallagher Krich, APC, by telephone at (858) 926-5797 or by email at info [at] tomgallagherlaw.com.
Attorney-Advertising. Tom Gallagher, is the attorney responsible for this advertising.
Thomas F. Gallagher, Esq. is a founding partner of Gallagher Krich, APC, a San Diego law firm focused on business law, civil litigation, and contract disputes. With over 30 years of legal experience, Tom provides strategic counsel to business owners, entrepreneurs, and professionals navigating complex legal challenges across California.
His practice includes drafting and negotiating commercial contracts, resolving business disputes, and advising clients on corporate governance, regulatory compliance, and risk management. Read more »
