California Sole Proprietorship

Becoming a Sole Proprietor in California

Starting a sole proprietorship in California is simple and free. You don’t need to go through any official setup or pay fees. Just start your business to operate as a sole proprietor.

Even though it’s easy to begin, it’s wise to follow some additional, but not required, steps that could benefit your business.

DBA Acquisition

A doing business as (DBA) name is a crucial part of many sole proprietorships, as it enables you to use an assumed name for your business, rather than your own personal name. The advantages of acquiring a DBA start with image ― most customers feel that an assumed name is more professional and trustworthy than doing business with a company that uses its owner’s personal name instead.

That said, sole proprietors can sign up for a business bank account using their DBA name, which is another step that goes a long way toward making customers feel more comfortable doing business with you.

You should begin the process of acquiring a DBA in California by conducting a preliminary business search through the California Secretary of State to see whether your desired business name is available.

Once you have determined that your DBA is not already in use, you must then file a Fictitious Business Name Statement with the county where your business is located. Then, to complete the process of claiming your DBA, you must publish a statement in a major county newspaper for four consecutive weeks.

If you need a more detailed explanation of the process of acquiring a DBA in California, you can read our more detailed guide on the subject.

Determine Taxation Requirements

Sole proprietors without employees usually don’t need to acquire a federal tax ID number (EIN), because as a one-person business, you can typically just use your own social security number for most things an EIN is used for. Still, if you would rather not use your SSN for privacy purposes, it would be a good idea to get an EIN regardless.

Beyond that, the nature of your business will determine which taxes apply to you as a sole proprietor.

If your sole proprietorship sells handmade goods, for example, then you will need to register to pay sales and use tax. To register for this tax and other industry-specific taxes, you can use the California Tax Service Center, which will automatically sign you up to pay any taxes that apply to your sole proprietorship.

Obtain Business Licenses and Permits

There isn’t a requirement in California for sole proprietors to acquire a general business license, but depending on the nature of your business you may need other licenses and/or permits to operate in a compliant fashion.

California has a myriad of permits and licenses that apply to businesses in particular industries, so you should use the state’s CalGold permit and license search to find if you must obtain any permits or licenses to legally conduct your business in California.

In addition, you should check to see if your business needs any licenses or permits on the local level.

All of California’s major cities – including Los Angeles, San Diego, San Jose, San Francisco, and Fresno – have their own requirements, so you should check with your local government to ensure that you are in compliance with all licensing and permitting standards.

What Is a California Sole Proprietor?

As opposed to a corporation or limited liability company (LLC) in California, the sole proprietorship is not a legal business entity. The sole proprietorship is a one-person business that is not considered to be a distinct entity from the person who owns it, and it is frequently operated using the owner’s personal name.

Here are the three main things you need to know:

Tax Responsibilities

Because there’s no distinction between the owner and the business itself, sole proprietors don’t need to file business tax returns ― they instead simply claim any business profits or losses on their personal tax returns.

Contracts

Sole proprietors are allowed to sign contracts using their personal name, and along those same lines, customers can write checks to the business by using the sole proprietor’s name.

More Flexible

The other big difference between sole proprietorships and more formal business structures is the fact that sole proprietors are allowed to commingle business and personal assets as much as they want to. With LLCs and corporations, ownership is required to keep their assets separate from those of the company. The downside of this aspect for sole proprietors is that if your business is sued, creditors are free to pursue your personal assets like your house, car, personal bank accounts, etc. For corporations and LLCs, creditors are limited to your business assets.