Unpacking California Business Law: A Simple Guide for Small Business Owners

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.

Latest News & Updates

Meet Our San Diego Attorneys

Thomas F. Gallagher, Esq.


(858) 926-5797
tom [at] tomgallagherlaw.com

Troy B. Krich, Esq.


(858) 926-5797
troy [at] tomgallagherlaw.com

Contact Gallagher Krich, APC

What Clients Say:

Mike K., Google

August 11, 2023

Thank you so much for all your help in resolving a real estate matter so quickly and efficiently.

Mike K

What Clients Say:

Veronica D., Yelp

October 17, 2023

We had the pleasure of speaking with Troy for a contractor issue we had recently. He is smart, patient, empathetic and basically the lawyer we would want to be our side for (may God forbids) any legal assistance or battle we need! The interaction we had with him was “free of charge” but we already felt his dedication and concern (he took the time to reach out and follow up on how he can assist us further) which busy lawyers would normally ask their admin or assistant to do so on their behalf. We will be sure to contact again Troy, if need be! Thank you!!

Veronica D

What Clients Say:

Daniel E., Google

October 11, 2022

I left a voicemail for Tom late Sunday evening and received a phone call first thing the next morning.

Tom was very quick to reply to any questions I had, and if he was caught up in a meeting, he was sure to return my call promptly.

Tom provided sound and logical advice, during a very stressful and uncertain time. At times I asked him to be more aggressive and was often met with the pros and cons of that decision, allowing me to understand the approach and thought process behind his strategy.

Ultimately he provided options for several paths for us to take, worked swiftly, and got us where we needed to be.

He reached out several times to check on my sanity and make sure I was good.

As someone with very high expectations, I would highly recommend his services. He provided expertise that proved to be successful, and also took the time to make sure I was emotionally solid.

Tom assisted with me with a 50% / 50% ownership conflict.

Daniel E

What Clients Say:

Deanna, LawConnect.com

February 23, 2022

Really informative and actionable, very grateful to have connected and I look forward to working more with them in the future.


What Clients Say:

Marilyn, LawConnect.com

February 8, 2022

i liked that a lawyer, and not a staff member, called me to get the details and he gave me his opinion of what his initial thoughts are about my case.


What Clients Say:

Bob W., Google

August 30, 2021

What was thought to be a simple breach of contract turned into a nightmare. Through their tenacity and their deep knowledge of the law, we were successful. There is no reason to look any further as you will not get any better representation than this firm. I highly recommend them and strongly suggest that if you are considering starting a business or are already managing one, this firm will guide you, avoiding the troubled waters businesses sometimes find themselves in.

Bob W

What Clients Say:

Rasmita M., Google

August 13, 2021

Johnny Nitti helped us with our estate plan. He was very meticulous while drafting the plan and spent enough time to explain the details to us. He filed the deed with county recorder and paid for the fees himself. Overall, Johnny did a great job and we definitely plan to work with him in the future for any updates to our EP.

Rasmita M

What Clients Say:

George A., Google

August 6, 2021

Johnny Nitti helped me with my estate planning (will, living trust, etc.) and made the process smooth. He is very responsive and organized. I highly recommend contacting Johnny.

George A

What Clients Say:

Ashley C., Google

July 18, 2020

Tom Gallagher is very knowledgeable and helpful when it comes to business law. I reached out to him reguarding the Pandemic and my salon and I’m so glad I did. Many times stress and hard times can fog clarity and he really helped me understand the laws.

Thanks Tom!!!

Ashley C

What Clients Say:

Evan D., Google

July 16, 2019

Thank you Troy for everything! Professional, prompt, and smooth handling of my case. I will be recommending to anyone that is in need of a lawyer.

Evan D