Setting Up as a Sole Proprietor in California

By Cindy DeRuyter, J.D.

Setting Up as a Sole Proprietor in California

By Cindy DeRuyter, J.D.

If you are considering starting a new business in California, one of the first decisions you must make is what type of business entity you want to form. If you are the sole owner of the business, one option is a sole proprietorship.

Older man in glasses on roof of building looking out at city skyline

Establishing a sole proprietorship in California is generally a simpler process than forming a corporation or an LLC. Sole proprietorships do not need to register with the state. You may need to obtain certain business licenses and permits, file tax and employer identification documents, and file a Fictitious Business Name Statement.

Before taking these steps, entrepreneurs should fully evaluate all options for forming their new businesses. While they are relatively easy to establish, other factors may make sole proprietorships unattractive.

1. Select a Name for Your Sole Proprietorship

Sole proprietorships exist under the owner's legal name, but often owners want to use a different name for business purposes. Choosing an official business name for marketing and advertising purposes can help the business owner expand their reach and can help potential customers understand what types of products or services the business offers.

When considering what business name to use, you will need to confirm that your desired name (or a close variation of it) is not already in use by another business in California. The name you want to use must also not be misleading to the public. For example, adding "Inc." or "LLC" to your sole proprietorship's name would be misleading, as those imply that you've established a different type of legal entity.

The California Secretary of State's website provides more information and a tool for checking name availability. Entrepreneurs may also want to check with the U.S. Patent and Trademark Office to make sure another person or business has not trademarked the desired business name.

2. File a Fictitious Business Name Statement

When you have decided on a business name for your sole proprietorship, you must file a Fictitious Business Name Statement with and pay any required fees to the county where your business is principally located. You must also follow the county's requirements for publicizing your new business's name.

3. Obtain Required Licenses and Permits

Depending on the nature of your sole proprietorship, you may need to obtain one or more licenses or permits from the state and the counties or municipalities where you intend to conduct business. These may include business licenses, professional or vocational licenses, occupancy permits, home occupancy permits, sales tax permits, and more.

The California Governor's Office of Business and Economic Development's CalGOLD website is one resource that can help you determine what permits your business needs and help you obtain them.

4. Obtain an Employer Identification Number and Insurance Coverage

Sole proprietorships are generally disregarded, or pass-through, entities for income tax purposes. However, you may need to obtain an employer identification number from the IRS as well as a state tax ID number under certain circumstances. Check with the tax authorities or with a California tax professional to determine whether your sole proprietorship needs to take this step.

You may also wish to consult with an insurance professional to determine whether you need to purchase unemployment insurance, workers' compensation, professional liability coverage, or other types of insurance protection.

Sole proprietorships are generally simple to establish. However, they do not provide owners with any protection against liability. This means that the sole proprietor's personal assets are potentially at risk if the business incurs financial obligations or liabilities.

A California-licensed business law attorney may be a valuable resource for helping entrepreneurs determine whether to establish a sole proprietorship or another type of business entity.

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.