Checklist of Steps for a Sole Proprietorship in California

By Cindy DeRuyter, J.D.

Checklist of Steps for a Sole Proprietorship in California

By Cindy DeRuyter, J.D.

Opening your own business can be enormously rewarding, both personally and financially. Many entrepreneurs decide to establish sole proprietorships because of the relative ease and simplicity of doing so when compared with starting other types of businesses. If you intend to start a sole proprietorship in California, you do not need to register the business with the California Secretary of State. However, there are additional steps you should take to get your business off on the right foot.

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1. Verify the name you want to use is available.

One of the most important decisions you must make is what to call your business. Many sole proprietors choose to use their own names for their businesses. However, others choose to create a business name for marketing purposes—to help attract and retain customers.

You cannot use a name that another business is already using in your county. Similarly, you cannot choose a name that would create confusion.

To check to see if the name you want to use is available, you can complete a Name Availability Inquiry Letter and send it to the California Secretary of State's office.

2. Register your fictitious business name.

If you want to use a name for your business that is different from your legal name, you need to file a Fictitious Business Name Statement with the California county (or counties) where you plan to conduct business. Each county has its own version of this form, so contact your county to obtain a copy and filing instructions.

3. Obtain tax identification numbers.

Next, determine whether you need to obtain an employer identification number (EIN) from the Internal Revenue Service (IRS) and a state tax identification number for California filings.

As a sole proprietor, any business income you earn is taxed as your individual income; you do not need to file separate business income tax returns. However, if your business will have one or more employees, you may need tax identification numbers for payroll tax withholding purposes. You can obtain an EIN online.

Some businesses must also pay sales and use tax. When in doubt, consult with a business tax professional who can advise you on your obligations.

4. Obtain licenses and permits.

Depending on the nature of your business, you might also need to apply for business licenses or permits. For example, some businesses need seller's permits from the California Department of Tax and Fee Administration.

Some types of sole proprietorships need business-specific licenses, including cosmetologists, auto repair shops, insurance professionals, and more.

5. Register for unemployment insurance and purchase workers' compensation insurance.

If you intend to hire employees for your sole proprietorship, register for unemployment insurance with the California Employment Development Department. You must also obtain workers' compensation coverage through a licensed insurer in the state, ensuring that coverage complies with the California Department of Industrial Relations' requirements.

6. Establish a business bank account.

Finally, opening a business bank account helps keep business income and expenses separate from personal finances. When it comes time to file and pay income taxes, it helps to have separate financial records.

Opening a sole proprietorship in California is relatively simple. If you want help with the process, work with a California-licensed business law attorney.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.