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California Small Business Law

Being a small business owner means not just being your own boss, but also being the boss. Starting and running a business involves many different skill sets and incorporates, among other things, business, marketing, tax and legal issues. The majority of businesses in California (and the U.S.) are considered small businesses, which employ roughly half of the workers in the state.

LawInfo's Small Business Law articles have valuable, practical information every California business owner needs to be successful and avoid legal problems. There is information on hiring and firing employees, choosing the right insurance policies and filing business taxes.

So for business owners in Los Angeles, San Diego or San Francisco, it's important to understand the law and know how to proceed when a legal issue develops. From how to make a valid contract to hiring independent contractors, we have the California small business law information you need.

Typical Legal Issues Faced by Small Business Owners

Legal issues crop up for all businesses, be it contracts, taxes or employment. Legal questions and issues will vary widely by industry and it's a good idea to consult a business attorney beforehand. But a small business owner may encounter legal issues such as:

  • Hiring and managing employees in accordance with California and federal employment laws;
  • Which legal structure to select (such as a corporation, partnership or limited liability company);
  • Extending credit and collecting on past due amounts in accordance with California and federal laws;
  • Protecting inventions and trademarks through intellectual property law;
  • Maintaining the required level of workers' compensation insurance coverage; and
  • Complying with health and safety regulations when constructing or preparing a work site.

Business Structures: LLP, LLC, Corporations

The legal business structure you choose will depend on a number of factors, including tax obligations and investment needs. LawInfo has a breakdown on the various legal structures for your business, including how to decide which ones may work best.


When two or more individuals share ownership of a California business, including both profits and losses, it's structured as a partnership. Personal liability and management structures are generally based on what kind of partnership is formed:

  • General Partnership—General partners share equal responsibilities and obligations, including profits, debts and liabilities. Taxes are paid through each general partner's personal income.
  • Limited Partnership—The personal liability of each limited partner is based (or limited) to the amount of their investment. At least one of the partners must assume “general partner” status, which comes with greater liability and exposure to debts.
  • Limited Liability Partnership (LLP)—Limited partners are protected from much of the partnership's liabilities and debts while offering some of the tax advantages of a general partnership.

Limited Liability Companies (LLC)

Think of an LLC as a corporation/partnership hybrid. The owners of an LLC pay their business taxes as part of their personal income while enjoying protections from personal liability. Small business owners who want to shield their personal assets often lean toward forming an LLC.


The corporation is the most complex legal structure for a business. Corporations offer the best liability protections for owners and stand as their own legal entity. One way to look at it is that a corporation is treated as its own “person” for legal and fiduciary purposes. While a corporation may be sued, its officers typically are protected from liability associated with the business.

Sole Proprietorships

As the name implies, a sole proprietorship is a company with one owner. There is no paperwork required to establish a sole proprietorship—you simply set up shop. But you still have to acquire all of the necessary licenses and permits. While they are cheap and simple to set up, sole proprietorships do not offer protections from liability.

Can an Attorney Help My Small Business?

A small business owner should get assistance with legal matters as they can ruin a business if mishandled or ignored. Issues like defending against wrongful termination claims or negotiating the acquisition of another company's assets are complex and time-consuming. Retaining an attorney to help prevent legal problems is a wise move.