How to Set Up a Sole Proprietorship in California?

How to Set Up a Sole Proprietorship in California?

Setting up a new business in California can be exciting and profitable. Now, deciding on what type of business structure you want to move ahead with demands time and research. If you’ve chosen a sole proprietorship to start off your business off the ground, great!

 The question is how does one begin? Apart from getting a California seller’s permit, what is it that you need to do? 

What’s the process? 

Well, below we have enlisted the pointers which you need to follow in order to set up a sole proprietorship in California. 

Pick a Name for Your Business

The first and foremost thing to set up a proprietorship is to choose a name for your business. Though sole proprietorships exist under the name of the owner yet some owners use a different name to give their brand a separate identity. This helps them expand their brand’s reach for marketing and advertising purposes. 

Before picking any name, make sure it isn’t used by any other business in California. Name should not be misleading. You can check more information regarding choosing a name on California’s official website.  

Obtain Business Licenses and Permits

The next step is to obtain all the required business licenses and permits as per the nature of your sole proprietorship. Some of the licenses that you might need are occupancy permits, sales tax permits, business licenses, vocational licenses, etc. 

As the owner is personally liable for all the debts and actions of the business, you will be required to get a seller’s permit and report all the taxes related to your business operations.  

Pick a Name for Your Business

Get an EIN 

EIN or Employer Identification Number is a nine-digit number that you are required to have for reporting your business tax information to the IRS (Internal Revenue Service). Also known by the name of a Federal Employer Identification Number, an EIN is a kind of social security number for your business. You may or may not require to get an EIN depending upon certain circumstances. 

Insurance 

While setting up a sole proprietorship in California, make sure that you keep up with all the required insurance programs. Your business might need to purchase professional liability coverage, unemployment insurance or any other type of insurance coverage depending on your business type. 

 Benefits of Setting up a Sole Proprietorship

 Easy Process 

The process of forming a sole proprietorship is easier and inexpensive than an LLC and corporation. From performing little paperwork to being independent with all the decisions, the entire process of a proprietorship is more convenient. 

Tax Advantages

The major benefit that comes along with setting up a proprietorship is the pass-through taxation. In this type of business structure, the taxes owed by the business are passed through the owner who pays it once through his/her personal income tax. Simply put, a business does not have to pay separate taxes on its profits. 

Fewer Government Regulations

Launching a sole proprietorship demands fewer government regulations and hence less hectic. Following government requirements like reporting financial information to the common public,  a sole proprietorship does not have to keep up with such regulatory requirements. This is one of the major reasons why individuals go for a proprietorship business type. 

Disadvantages 

  • The major disadvantage of  a proprietorship is that it comes with unliability liability that is beared by only the owner. However, the case is different with an LLC. 
  • Unlike other business structures, sole proprietorship has fewer capital raising options.