In California, you can establish a sole proprietorship without filing any legal documents with the California Secretary of State. There are four simple steps you should take:
1. Choose a business name.
2. File a Fictitious Business Name Statement with the county recorder.
3. Obtain licenses, permits, and zoning clearance.
4. Obtain an Employer Identification Number.
In California, a company may use any name that is not the same as or too similar to another registered business. In addition, the name may not be misleading to the public. To make sure your business name is available, it is important to run a search in the following government databases:
If you use a business name that is different from your legal name, California requires you to file a Fictitious Business Name Statement in the county recorder's office where the business is located. Check the California State Association of Counties for a list of county websites. Business owners have a 40-day grace period from the business start date to file this statement. The filing fee is $26. In order to complete the application process for registering a fictitious business name, the business owner must publish the statement in a well-known newspaper within the county for four consecutive weeks.
Your business may need to obtain a variety of licenses and permits depending on its business activities. California provides a comprehensive database of every license and permit that may be required by any sole proprietorship. A business can obtain this information by going to the California Governor's Office of Business and Economic Development CalGold website. Type in your county and city to get a list of all the required permits and licenses for your business activity as well as information about required filings and laws you may be subject to, such as minimum wage laws and inspections.
Sole proprietors who wish to have employees need to obtain an Employer Identification Number, or EIN. This is a nine digit number issued by the IRS for tax reporting purposes. All businesses with employees are required to report wages to the IRS using their EIN. Registering for an EIN can be done online at the IRS website.
Sole proprietors without employees are not required to have an EIN because they can use their Social Security number to report taxes. Nevertheless, you may want to obtain one anyway for your business. Some banks require one to open a bank account and it can reduce the risk of identity theft.
In California, businesses that pay at least $100 to employees in a given quarter are also required to register for a California employer account number. You can register online at the California Employment Development Department (EDD) website.
If you have employees, you must report and pay employment taxes quarterly. For more information on being a California employer, see the California Employer's Guide, available on the State of California Employment Development Department (EDD) website.
It is important to consider doing the following once you have established your sole proprietorship:
For information on other California business entities, see Nolo's section on Starting a Business in California.