Galia Aharoni Schmidt, Esq.
Sole proprietorships are the easiest and simplest business entities a business owner can create. So easy, in fact, that it’s possible to create one without even knowing it! At its core, all it takes to create a sole proprietorship is the simple act of exchanging goods or services for money. But if you’ve done your research and decided that a sole proprietorship is the right entity for you, there are some steps you should take to do it right.
Here are the basic steps to form a sole proprietorship in California:
1. PICK A NAME (REQUIRED)
Your business name can’t be too similar to another registered business, so do your due diligence and search the internet, the Secretary of State website, and the U.S. Patent & Trademark Office to make sure your name isn’t already taken.
2. FILE FOR A FICTITIOUS BUSINESS NAME (SOMETIMES REQUIRED)
If you’re using a business name that doesn’t include your own last name, you are required to apply for a Fictitious Business Name, otherwise known as a “Doing Business As” or “DBA” name, with your local county clerk. For example, the name “Bob Smith Consulting” or “Smith Consulting” would not require an FBN; the name “Horizon Consulting” would. After you apply, you will have to publish a statement in a newspaper for a few weeks.
3. GET YOUR LOCAL BUSINESS LICENSE (REQUIRED)
Almost all businesses are required to get a local business license in the city your business is headquartered in, and in some cases, additional cities in which you do a lot of business. This is for tax purposes. It will almost always include a zoning clearance, as well. See your city’s website for more specific filing information.
4. OPEN A BUSINESS BANK ACCOUNT (HIGHLY RECOMMENDED)
Sole proprietors are not legally required to open a business bank account because there is no legal separation between you and your business. However, any advisor would likely tell you that opening one is a very good idea, and indeed the IRS recommends it. It will save you time and money in the long run, and make bookkeeping and taxes much easier.
5. GET ANY OTHER REQUIRED LICENSES (REQUIRED)
Depending on your industry and location, you may be required to get additional permits or licenses. For example, if you will be selling goods, you will likely be required to get a California Seller’s Permit. See https://www.calgold.ca.gov/ for a search tool that will help you determine what other licenses you may need.
6. GET AN FEIN (REQUIRED IF HIRING EMPLOYEES)
If you will be hiring employees, you are required to get a Federal Employer Identification Number, which is like a social security number for your business. Even if you are not legally required to get one, you can choose to get one in order to avoid putting your personal social security number on documents. Getting one is free and easy to do yourself. The IRS also has a handy tool to determine if you need one.
As always, remember to check with your advisors to make sure a sole proprietorship is right for you, that you’re in compliance, and that your tax structure is set up to your benefit.
You can find the entire Monthly CEO Advisory for December by Clicking Here. If you’d like to learn more about starting a new business, ABL can help.