How Much Does A Business License Cost?
As a California contractor, you spend a good amount of time swimming around in a sea of paperwork, codes, fees, rules and regulations – business licenses are no exception.
Who would have thought that a construction career would have so much…paperwork? After all, the whole reason we got into this business in the first place is so you can make money as a contractor, not a bureaucrat.
This is the reality of a successful construction career: you spend a TON of time doing things you don’t want to do, jumping through hoops of paperwork and legalese so you can meet the constantly expanding ball of regulations that is starting to take up more space than the state of California itself.
Most of this paperwork and bureaucracy simply cannot be avoided. You need a CSLB license. You need a surety bond. You need workers’ comp. You need all of these things just to do the job of a construction professional – but are you overlooking something?
Many construction professionals get into the business without knowing how to handle the business side of things – like a business license.
Pretty much anyone who owns or operates a business – that’s 95% of contractors – needs a business license to perform work in the various cities and counties of California.
So what is a business license? What does it entail? How do you get one?
In this article, we’ll answer all of those questions and more, so you can make sense of business licenses – and how they relate to your construction business.
So How Much Can I Expect To Spend?
In California, the cost of a business license isn’t a fixed figure and it always depends on your area of operation. Larger cities or counties will obviously (and sadly) demand a higher cost for their business licenses than smaller cities with less opportunities.
In general, California contractors can expect to pay a modest $50 to a hefty $1,000 or more, but as we stated previously, that cost can vary widely depending on your area of operation.
Here’s the cost of the most populated cities across California, so you can get an idea of how much you’ll expect to pay on the highest end.
- Los Angeles County: If a business is subject to county health or safety regulations, it is required to be licensed – obviously that means construction. The average cost for a business license is $430, and it’s important to be submitting your paperwork — the process of obtaining a General Business License can take up to 45 days.
- San Francisco: All businesses in San Francisco are required to register. The registration costs vary based on the type and size of the business and can be $25, $150, $250, or $500. The fee may be prorated for new registrations, depending on when you started doing business in San Francisco during the year, and is calculated based on your estimated tax liability for payroll expenses.
- San Diego: All businesses operating in San Diego are required to register for what is called a “Business Tax Certificate.” The cost for this certificate is $34, plus a $4 state-mandated fee. Late fees are assessed for applications received 15 days after the business start date.
- Sacramento County: Sacramento County offers three types of business licenses – the one contractors need is the General Business License. The cost of these licenses was not immediately available on the county’s website. The website also notes that mobile or Internet-based businesses are considered to be based at your home.
Below you’ll find a list of smaller-but-populated cities and counties you may be doing contractor work in. Let us know which city you want to know about!
Keep in mind the business license costs are just one aspect of getting your contracting business up and running. Check out our article on the full costs of becoming a California contractor for more information on the total costs of legal, licensed contracting work.
Factors Influencing the Cost of a Business License in CA
Now that you know the general ballpark of how much you can pay for a license, let’s take a quick look at the factors that can influence the cost of a business license in California:
- Type of Business: The nature of your business can significantly impact the cost of a business license. This goes for contractors, too. For example, if you’re in a Class C trade, you may need to pay additional fees for permits and qualifications related to your trade.
- Location of Business: As we previously mentioned, the city or county where your business is located can also affect the cost of a business license. The more costly the city, the more you can expect to pay in fees.
- Gross Receipts: Some cities and counties in California scale the cost of a business license according to how much revenue they generate. As you might expect, the more revenue your business generates, the more you’ll have to pay for your business license.
The Process of Obtaining a Business License in CA
Obtaining a business license in California involves several steps. They are:
- Determine your business structure (sole proprietorship/partnership/LLC/etc.)
- Choose a name for your business
- Check your business name’s availability
- Apply for a business license
- Receive your business license
Determine Your Structure
First, you need to determine the type of business entity your contracting company should be. This will be dictated by what profession you’re in, whether you’re starting the business with someone else (like a family member or a co-worker), as well as how big your company is.
A general contractor, for example, will have a different structure than someone who does some welding jobs on a part-time basis. Brothers going into business together means they’d file a partnership. And so on.
Based on your classification, number of employees and whether or not you have any partners or co-owners, you now have to decide what type of company you need that fits your structure.
This could be a sole proprietorship, partnership, corporation, or limited liability company (LLC). Each type of entity has its own set of requirements and fees, with structures like corporations usually being more expensive than sole proprietorships.
Find out more about these types of businesses on the California SOS website.
Choose A Name For Your Business
Next, you need to choose a name for your business and check its availability. If the name is available, you can register it with the California Secretary of State’s office. In many cases, your name will be taken, so make sure you check before you apply with the SOS.
There is a fee associated with this process, which varies depending on the type of business entity you’re establishing.
Apply For A Business License
Once you’ve registered your business name, you can apply for a business license in the city or county where your business will be located. This involves filling out an application form and paying the required fee. These fees vary – more on that later.
The application will ask for information about your business, such as the name you’ve chosen, your business address, type of business, and – of course – the much-beloved gross receipts.
Receive Your License (And Start Building Stuff!)
After your application is approved, you’ll receive your business license. This license must be displayed prominently in your place of business.
In our case, that means putting it on your website or having it on hand whenever on-site. Maybe you keep it in your construction trailer. Or under your bed, just in case. It’s really up to you.
You’ll also need to renew your business license annually, which involves paying a renewal fee (of course you do).
Do I Need A Business License As A Contractor?
As a contractor, you’ll probably ask yourself this question at some point.
The answer is: it depends. There are some places in California where you wouldn’t need a license to perform work, as long as you have a valid CSLB license to perform the work.
However, in general, it’s best not to risk it. In most cases, a business license will cost less than $200 to obtain, and it protects you from any of the legal nonsense that comes along with municipalities and their ability to levy taxes in their area. In other words, it’s usually worth it to just play ball.