How to Form a Sole Proprietorship in California
This article discusses some of the basics of operating as a sole proprietorship (i.e., as an individual rather than forming a separate legal entity). We generally recommend against operating as a sole proprietorship. The attorneys of Theta Law Firm are familiar with the formation, maintenance, and dissolution of various business entities in California. For advice on how to form your business or other legal questions relating to your business, please feel free to give us a call or send us an email. To learn more about other business entities, give us a call or take a look at some of the other articles we've written about business entity formation and selection here: www.thetafirm.com/articles .
A sole proprietorship is a business entity owned and operated by a single individual. The sole proprietor receives all profits, is responsible for all taxes and liabilities of the business, and has total control over the business. There is no legal distinction between the business and the individual.
There are no formal requirements needed to actually create a sole proprietorship. However, a sole proprietorship, just like any other business in California, must still comply with local, statewide and national rules and laws. The following is a brief summary of some of the steps a sole proprietorship should take to protect its interests:
Step 1: Pick a Name and File the Fictitious Business Name Statement with the County Recorder
If you plan to operate your business under a fictitious name (e.g. John Black wants to operate his painting business under the name of "Black's Express Paint"), then you must file a Fictitious Business Name Statement with your county's recorder.
Each county will have different procedures. In Los Angeles, you can search the Los Angeles County Registrar's website for name availability. You can then fill out and submit the "Application for Fictitious Business Name Statement," which can be found here: http://www.lavote.net/GENERAL/PDFS/FICTITIOUS_BUSINESS_NAME.pdf. As of the date of this writing, there is a $26.00 fee for one business name and one registrant. The Fictitious Business Name Statement in Los Angeles expires five years from the date it is filed in the office of the County Clerk.
Within 30 days of filing your Fictitious Business Name Statement, you must then publish a statement in a newspaper of general circulation in the county in which the principal place of business is located once a week for four successive weeks.
You should also search the California Secretary of State's website to make sure your business name is not too similar to any other business. Search both LLC and corporation names. You can also search nationwide through the US Patent and Trademark Office in order to avoid any possible trademark issues, which you can do at http://www.uspto.gov/trademarks/index.jsp.
Step 2: Obtain Local Business License and Comply with Local Laws
Different localities have unique rules that apply to businesses within their jurisdiction. Cities in Southern California often require you to obtain a business license to do business in their city. This could be as simple as submitting a form to the city, or it could be much more complicated and require the approval of various local governmental entities.
For example, businesses operating in the City of Los Angeles are required to obtain a business license from the city. Forms necessary for doing business in the City of Los Angeles can be found at: http://finance.lacity.org.
In addition to obtaining the necessary business permit/license, the locality may also require you to pay certain fees and follow other rules.
Each locality is different, so it is best to consult with experience counsel on the subject before opening your doors. The attorneys of Theta Law Firm can help guide you through the web of laws at a low cost.
Additional information can be found at the CalGold Business Permits website: http://www.calgold.ca.gov/.
Step 3: Obtain an Employer Identification Number (EIN)
If your sole proprietorship will have employees, you should obtain an Employer Identification Number (EIN) from the IRS. While sole proprietors without employees do not need to obtain an EIN, there are benefits to obtaining one anyway. For example, other individuals and entities that you do business with will request a social security number or an EIN (and you should limit giving out your social security number as much as possible). Information about the EIN form and the form itself can be found at: http://www.irs.gov/businesses/small/article/0,,id=98350,00.html.
Step 4: Pay California Taxes
Businesses in California are subject to California's payroll tax if they pay more than $100 of wages in any quarter of a calendar year. This will open your business up to numerous additional regulations/laws/requirements. For more information, see the California Employment Development Department (EDD) here: http://www.edd.ca.gov/.
You must also be sure to satisfy federal laws and tax obligations as well.
You can reach an attorney at Theta Law Firm by calling us or sending us an email at law@thetafirm.com. Theta Law Firm can represent clients all across the State of California, including in any of the following counties: Alameda | Alpine | Amador | Butte | Calaveras | Colusa | Contra Costa | Del Norte | El Dorado | Fresno | Glenn | Humboldt | Imperial | Inyo | Kern | Kings | Lake | Lassen | Los Angeles | Madera | Marin | Mariposa | Mendocino | Merced | Modoc | Mono | Monterey | Napa | Nevada | Orange | Placer | Plumas | Riverside | Sacramento | San Benito | San Bernardino | San Diego | San Francisco | San Joaquin | San Luis Obispo | San Mateo | Santa Barbara | Santa Clara | Santa Cruz | Shasta | Sierra | Siskiyou | Solano | Sonoma | Stanislaus | Sutter | Tehama | Trinity | Tulare | Tuolumne | Ventura | Yolo | Yuba