How to Set Up a Sole Proprietorship in California

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Congratulations on starting a business! Becoming an entrepreneur can be one of the most challenging yet ultimately rewarding things you’ll ever do. In particular, as a sole proprietor, you may be faced with many unique challenges since every aspect of starting and running your company is, in the end, your responsibility. You may have an idea, a website and a business plan already, but before you can legally get started with operating your business, you will need to follow the proper channels to register your sole proprietorship in California. Fortunately, this process is reasonably straightforward.

Naming Your Business

The first thing you must do to register a sole proprietorship in California is to come up with a business name. From a business perspective, the name should be one that speaks to what you do and can be easily remembered by your customers. Also, try to make it unique enough that it won’t get confused with other companies. You should verify you can obtain a website domain name that matches your company name. It’s especially helpful if your company name contains search engine optimization-friendly keywords, which helps people find you online. You should know that the name you select for your company cannot be taken by any other business in California.

You will also need to file a Fictitious Business Name Statement with your local county government office. This document will ask you to provide the name of your business and personal identifiers. It is essentially a DBA or "doing business as" document. A sole proprietorship is not a legal entity and, therefore, does not reflect anything about your tax status. In general, you cannot apply for a sole proprietorship online.

Sole Proprietorship in California

As a sole proprietor, it’s up to you to determine whether you need one or more permits to run your company. You can use the CalGold website to search for the permit you might need by business category and by area. It also provides information about agencies you can contact to obtain the necessary permits.

Other considerations when starting a business include local zoning laws. If you are operating a store or office that requires a physical presence, you’ll need to be sure the location you select for your company is zoned appropriately. You can contact the government in the town or city where you plan to run your business to learn more. Many municipalities have a zoning board specifically designated to deal with these matters.

Taxes for a Sole Proprietorship

If you operate a sole proprietorship, you are required to pay taxes on your net income. If you have filed for an Employer Identification Number with the federal government, pay your taxes using this number, rather than your Social Security number. However, many sole proprietors choose to file a federal Schedule C at tax time and include their income and expenses on their personal tax return filed using their Social Security number. Legally, it is your responsibility to understand what taxes you might owe and to track your income. You can be audited and penalized for not paying taxes throughout the year or for filing incorrectly. Sole proprietors should hire the services of an accountant, financial advisor or attorney.

You may need to obtain a seller’s permit in California, depending on the type of business you will be running. If you plan to sell products at the wholesale or retail level, you’ll have to apply for this permit from the state’s Board of Equalization. A seller's permit is not the same as a resale certificate, which is the form you give your suppliers for a tax exemption on items you plan to resell.