Setting Up as a Sole Proprietor in California

By Roger Jewell

Starting a sole proprietorship in California is not very complicated when compared to other entity types. However, sole proprietorships carry the risk of unlimited personal liability, so it is important to make sure that your business has adequate insurance and complies with all legal requirements. Nearly every business should begin with a formal business plan; a process which assists in identifying strengths, weaknesses, opportunities, and threats to your enterprise, known as “SWOT” analysis.

Starting a sole proprietorship in California is not very complicated when compared to other entity types. However, sole proprietorships carry the risk of unlimited personal liability, so it is important to make sure that your business has adequate insurance and complies with all legal requirements. Nearly every business should begin with a formal business plan; a process which assists in identifying strengths, weaknesses, opportunities, and threats to your enterprise, known as “SWOT” analysis.

Business License

Most cities and counties require that certain businesses have a business license and pay an initial fee for obtaining a license. Local taxes may be assessed based on projected and actual sales. Municipal ordinances vary so you will need to contact the city and county where you will be conducting business to see if a business license is required for your specific business. For example, many cities require that Amway distributors obtain a business license.

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Occupancy Permits

If you are not operating out of your home, you may be required to obtain an occupancy permit issued by the city and/or county where your business is located. This requires that a government inspector approve of the premises to ensure that your business complies with ordinances. The type of business you are operating must be legally appropriate to comply with planning and zoning laws. This, too, usually requires payment of a government fee.

Home Occupation Permit

If you intend to operate out of your home, you may be required to complete a home occupation permit application, have an inspection of the premises, and pay a fee for your permit. Home occupation permits are usually subject to some restrictions that don’t apply to businesses not operated in residential neighborhoods. Many cities place restrictions on deliveries, parking, and prohibit signs, among other prohibitions. For example, while a real estate broker may be able to to obtain a home occupation permit, the conditions of the permit may prohibit him from meeting with prospective clients at his residence.

Professional, Vocational, and Other Licenses

Some occupations, professions, vocations, and industries require specific licenses from the California Department of Consumer Affairs or other state agencies. One of the resources to assist you in finding out if you need a special license is the CalGOLD website. This convenient website allows you to search for licensing information about over 130 different professions and industries. For example, auto mechanics and construction contractors require special licenses.

Fictitious Business Name Statements

All businesses operated in California must obtain a fictitious business name statement application and pay a fee if the name of the business contains anything other than just the name of the actual owner of the business. This statement is recorded in the office of the county recorder in the county where the business is being operated. Failure to file a fictitious business name statement can result in serious consequences and businesses usually can’t maintain a legal action to enforce a business contract unless and until a current fictitious business name statement has been filed.

Sales Tax Permit

If your business sells retail products, you are usually required to obtain a retail seller’s permit from the California State Board of Equalization. This requires completion of an application and payment of an initial fee.

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Checklist of Steps for a Sole Proprietorship in California

References

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