Starting a business in California. Advice needed.

[HardDrive]

I'm looking for some guidance.

Heres the situation. A few years ago, my sister started selling custom made tote bags, swim bags, etc (textile girly stuff) on Etsy. They were an immediate hit, and she has had consistently strong sales. This Christmas, she had to stop taking orders in Mid-November for Christmas delivery.

She would like to expand, and I have decided to back her with some $. Were going to form an LLC, and expand her offerings.

I live in OH, she lives in LA. Most of the business activity will take place in CA, so I think it makes sense to form the company there.

My questions:
-Any hidden roadblocks/costs I should be aware of opening a business in CA, and specifically in LA?

-Any landmines I should be aware of in opening a small production facility?

If anyone has general suggestions regarding state/local taxes, I would appreciate it.

Thank you in advance for any advice you can offer.

[bpu699]

I though California is very business unfriendly... and High taxes...

Why would you want to incorporate there... if you live in another state??? People "pretend" to live elsewhere just to avoid incorporating there...

Bo

[Lapkritis]

"Starting a business in California. Advice needed."
Advice given: don't do it. Look instead at Nevada.

[HardDrive]

Well, that is my impression of CA as well. But I'd like some more data.

Part of the complication is that my commitment to OH is not strong. We could end up moving within the next few years.

[Hugh R]

CA minimum income tax for any corporation is $800 last I looked.

I think you even have to pay it if you do business here, and incorporate somewhere else.

[speeder]

What you need is some solid, knowledge-based information and advice, not the usual "I hate KKKalifornia" idiocy from anonymous fools in the Midwest. I can only tell you that there are hundreds of thousands, (millions?), of thriving businesses in this state. More than 20 or 30 states put together in the middle of the country. If CA was a country, it would be something like 7th in the world for GDP.

Low taxes and lax regulations are only a small part of a business equation. Don't get blinded by other's ignorance. It all depends on whether you need customers in the state you are based in, etc. Obviously, some businesses are better to base in Nevada. Good luck.

[sammyg2]

In Los Angeles you have to pay $750 a year if ..... 1 drop of rainwater lands on your property and runs off of your property, for example into the street, sidewalk, or gutter.
$750 if that drop of water remains pure and uncontaminated.
But if it hits the parking lot and picks up a tiny bit of oil from the asphalt, you could be looking at a $10,000 fine.

oh and it's up to you to do the sampling within the first 10 minutes of ANY major rainfall, or within 10 minutes of the first rainfall of the month or season, regardless of how small the rainfall is.
And you are responsible for getting it to ther lab and getting it tested and getting it independantly tested by a second lab if the first one could be in question in any way, and it's up to you to report yourself if you do not comply 100%.
And you have to keep your log books up and accurate and accessable, at all hours of the day or night.
Otherwise you could get in BIG trouble.
Oh and it's not just rainfall. If you water your lawn or plants and a drop of water leaves your property, same same applies.


Note some cities enforce this more than others, Santa Fe springs is one of the most aggressive.
I had to do all of this when I was running a bidness 9 years ago in santa Fe Springs. IIRC I even posted about it back then. This is real, not second hand "I heard so and so said this" stuff.

The alternative would be to make sure all water that hits your property is fully contained and processed on your property and is not allowed to outfall without permit.
That would only cost about a quarter mil a year. For a small lot.



I post that as an example of the SMALLEST and most INSIGNIFICANT hassle you would have running a biddness in so Cal.

[Nostril Cheese]

I moved to Oregon. That helped a lot.

Do a little homework on the California Franchise Tax Board.

[jorian]

Originally Posted by speeder

What you need is some solid, knowledge-based information and advice, not the usual "I hate KKKalifornia" idiocy from anonymous fools in the Midwest. I can only tell you that there are hundreds of thousands, (millions?), of thriving businesses in this state. More than 20 or 30 states put together in the middle of the country. If CA was a country, it would be something like 7th in the world for GDP.

Low taxes and lax regulations are only a small part of a business equation. Don't get blinded by other's ignorance. It all depends on whether you need customers in the state you are based in, etc. Obviously, some businesses are better to base in Nevada. Good luck.

+1
Spend some money on a CA accountant, maybe a tax attorney. An initial consult wouldn't be more than a couple of hundred dollars. If you or your sis don't know anyone, start with the local Chamber of Commerce for a referral.

[Rick Lee]

Without jumping on the hate-CA bandwagon, I still don't see why you'd want to incorporate there with NV being nextdoor and thus a reasonable drive for your sister to make periodic visits. You're probably not gonna start your own factory, but rather give the specs to an existing factory and have them make everything for you. Assuming you or your sister can easily visit to check on quality of work, why does the inventory need to ever come into CA unless the end customer has it shipped there? Surely, there must be lots of factories where you can send them the specs or patterns, have them make them and then even drop ship to the customers. If this were a matter of hiring some local help to make the bags in your sister's garage, that'd be another story. Surely, this stuff can be subbed out to a production facility for a reasonable unit cost.

[look 171]

Guys, there are millions of business here and they are doing fine, do don't be so quick to yap about how bad it is here. Sure there are some BS one must go through to start up a business and the fees are high, but its entirely possible. We have a huge garment district but its in a pretty poor area just outside of downtown. Difficult to get to and its not the cleanest place.

I do know this, many places (cities) are not auto repair, mfg friendly due to the waste. Since I know nothing about making bags, I can't see the AQMD coming after you for anything. There are some very nice smaller industrial type places near Highland park that are clean, and not all all difficult to get to. I have been eyeing a couple of them just so we can have more storage. Sorry I couldn't be any more help. Oh yeah, make sure she is going against traffic during those crazy hours.

[scottmandue]

My dad did very well renting commercial property on Signal Hill (property is still in the family).

I have a friend that runs a business out of Cerritos CA., he complains a lot but he seems to be doing alright.

I'm a blood sucking state employee so I have no first hand experience.

[McLovin]

There are millions of businesses that survive in California . . . but there are many that also fail.

California is certainly one of the most business-unfriendly places in the nation (ask Toyota, Nissan, etc. why they left, or ask yourself why almost no company ever relocates from another state to California). LA County in particular. That it is business-unfriendly relative to almost anywhere in the US is beyond dispute.

That being said, it isn't business-fatal (yet. They're working on it ).

There are a lot of issues in setting up a business anywhere, but one initial thing you need to look at is LLC v. S-Corp. The LLC yearly fees get very high if the company has high GROSS sales (not net profit, or net sales, but gross sales). So, if a company has $2 million cost of goods, and sells those goods for $2 million (thus making nothing), it will still get hit for big yearly fee based on the $2 million in sales.

[speeder]

Originally Posted by McLovin

There are millions of businesses that survive in California . . . but there are many that also fail.

California is certainly one of the most business-unfriendly places in the nation (ask Toyota, Nissan, etc. why they left, or ask yourself why almost no company ever relocates from another state to California). LA County in particular. That it is business-unfriendly relative to almost anywhere in the US is beyond dispute.

That being said, it isn't business-fatal (yet. They're working on it ).

There are a lot of issues in setting up a business anywhere, but one initial thing you need to look at is LLC v. S-Corp. The LLC yearly fees get very high if the company has high GROSS sales (not net profit, or net sales, but gross sales). So, if a company has $2 million cost of goods, and sells those goods for $2 million (thus making nothing), it will still get hit for big yearly fee based on the $2 million in sales.

With all due respect, if a company has $2M in costs and $2M in sales, it's going to fail even in South Korea or Texas. And Toyota did not relocate to TX because of onerous business regulations or taxes in CA., in fact they became the largest automaker in the world with their NA operations based here. They relocated for other reasons related to combining all operations to one location. The employees who had to move from SoCal to TX are all now on suicide watch.

[Rot 911]

McLovin has some good info for you. LLC's are good for what they are: a means to limit personal liability. But not all that useful for tax breaks. I would recommend at least talking to an accountant. If you do choose to move forward with an LLC in CA, it's a pretty simple process. Fill out this online form: http://bpd.cdn.sos.ca.gov/llc/forms/llc-1.pdf

[Lapkritis]

Originally Posted by speeder

With all due respect, if a company has $2M in costs and $2M in sales, it's going to fail even in South Korea or Texas. And Toyota did not relocate to TX because of onerous business regulations or taxes in CA., in fact they became the largest automaker in the world with their NA operations based here. They relocated for other reasons related to combining all operations to one location. The employees who had to move from SoCal to TX are all now on suicide watch.

Eh...

Not sure what you're watching but businesses are fleeing California.

http://finance.yahoo.com/news/why-business-is-leaving-california-for-texas-174227275.html

[Dantilla]

Semi-related:

I almost purchased a large commercial building in California, and the numbers looked really profitable.

Then it occurred to me I should look into California's tax code.......

I will Never own property in California! Took that particular property from "really profitable", to break even at best. No way will I invest that much, to pay so much in local taxes.

YMMV.

[look 171]

Originally Posted by Lapkritis

Eh...

Not sure what you're watching but businesses are fleeing California.

http://finance.yahoo.com/news/why-business-is-leaving-california-for-texas-174227275.html

When was the last time you were here? Sure there are industrial complexes and offie building that are empty, but there are many, many more that are operating 6 days a week. Still there are lots of smaller business here that are doing very well.

[matt f]

You may want to form an LLC with your sister as the legal entity.
AND file taxes as an "S" corp as your federal tax entity.

As others have said, speak to both a California Atty and Acct.

[Lapkritis]

Those that can't escape or choose to for an emotional reason, will remain.

My last trip was 2011.