Many self-employed California residents are eager to start their businesses. The simplest and most rational solution to this issue is to join the ranks of sole proprietors.
Organizing and managing a business in this format is the least difficult in America and has no service pitfalls. Although, future business owners will have to adhere to certain norms. Also, be prepared that you will have to face some restrictions regarding the functions of your sole proprietorship.
So, the main task of this manual is to help you answer the essential question – is the business format of an individual enterprise right for you? And, of course, we will tell you which aspects to pay attention to while opening a sole proprietorship and how to set up a business structure in this vein properly.
The Proper Way To Start Business As The California Sole Proprietor
There is no algorithm for organizing the business work of an individual entrepreneur in California as for LLC. In addition, the state does not charge additional service fees for the formation or management of this type of business or company. Are you looking to become an individual business owner and start a sole proprietorship in California? – Just start working!
Though, you still have to go through several additional legal formalities. These service stages are optional. Although many sole proprietors prefer not to neglect them, compliance with these formalities guarantees the legal protection of their interests.
Applying For DBAs
Almost every company and business owner prefers doing business as a DBA. There are many benefits to running a business under an assumed name compared with an entity or LLC. We are talking primarily about creating the business image of your company. Potential clients and consumers will find this approach more professional and give you more confidence. It turns out that a company that uses the real name of its owner is often not competitive.
Let’s clarify that a company owned by sole proprietors can use the DBA to open and manage a business bank account. Customers will appreciate it as one more advantage in favor of the business owner, so they feel more comfortable.
If you need a more detailed explanation of the stages of DBA licensing in the District of California, you can read our more extensive instructions on the subject.
Clarification & Compliance with Tax Requirements
You can run your business in this format and not hire third-party employees. In this case, you do not need to obtain an EIN (Federal Tax Identification Number) because your Social Security number will replace it. Of course, it would be correct to take care of your confidentiality and still use the EIN and not the SSN.
The nature and the structure of the business activity of individual entrepreneurship determine the list of tax requirements that the state will put forward (as with LLC).
If your sole proprietorship sells, for example, self-made (handmade) goods, then you need to go through the registration process to pay taxes on both product sales and use taxes. To complete the registration process for this type of taxation, including other taxes by industry, you can take the California Tax Service Center. This center will automatically register you for each type of taxation that applies to your business.
Business Licenses & Permits
California does not have strict conditions regarding the obligation of self-employed persons to obtain a general business license. But depending on the type of business you are running you may need to obtain other licenses and/or permits to do business following all rules and regulations.
The government of California has many types of licenses and permits that are used by organizations of all kinds in government.
Based on the vast number of firmans and clearances available in the government, you should use a CalGold search to find out whether or not your business is required to obtain any kind of permit or license to operate a development locally in the state of California.
Additionally, you need to see whether or not your business requires any view of local licensing or permits.
Each of California’s densely populated cities, the list of which includes the following: Los Angeles, San Diego, San Jose, San Francisco, and Fresno, use their own personal business licensing conditions.
Based on the available state conditions, you will need to make a referral to your local governing bodies to make sure that your business activities follow each of your state’s licensing and clearance standards.
California Sole Proprietor: The Notion & Essence
A sole proprietor is not a legal entity! But any corporation and limited liability company (LLC) has this status. As a sole proprietor, you run the business alone (register and manage it on your behalf). It is worth noting that this gives the business owner advantages, though, imposes additional obligations and responsibilities on him.
Make Sure to Pay Attention to the Following Three Aspects
There are obligations to pay taxes to the state
A business owner and an individual entrepreneur are the same people. It means that filing tax returns is not a requirement, as with an entity or LLC. You need to declare your income and expenses and fill out the declaration of an individual;
Business owners who are registered as sole proprietors have the right to enter into contracts on their behalf, unlike an entity. Also, receiving profit from clients, in checks they can indicate their name in the recipient column;
Flexible terms of business management
The advantage difference between individual entrepreneurship and any entity is the ability to combine work and personal assets. Whereas corporations and LLCs must separate personal assets from company assets. It has several positive and negative aspects. For example, if you have financial difficulties, creditors can seize or confiscate your personal property (house, car, etc.). In the case of corporations and LLCs (or any entity), creditors do not have this freedom, as their powers only apply to business assets.
Of course, the structure of doing legal business as a sole proprietor is greatly simplified while in California. You don’t even have to pay any commission fees provided for the entity or LLC. At the same time, based on the nature and structure of the business activity that you conduct, you will all have to go through a series of entity stages.
The issues of taxation, obtaining licenses, and permits require more detailed consideration. Also, pay attention to the possibility of obtaining and using DBA. These aspects are vital, as their omission can result in unnecessary legal penalties for you.
We have prepared this manual so that you can think over the structure of your business to the smallest detail. Manage it correctly and get more legal profit!