What You Need to Know About Being a Sole Proprietor in Silicon Valley
A sole proprietor is an individual who owns an unincorporated business. From a tax and legal standpoint, there is no distinction between the sole proprietor and their business. This has several implications, such as:
- The sole proprietor is personally liable for all debts of the business.
- The sole proprietor can be sued individually for actions taken by the business.
- A sole proprietorship can only have one owner. If two or more people form an unincorporated business, that is known as a general partnership.
- A sole proprietor reports any business income or losses on their individual income tax returns. If the sole proprietor is married and filing separately from their spouse, any income must be allocated based on California community property rules.
- A sole proprietorship ends with the owner’s death.
Since a sole proprietorship is unincorporated, the owner does not have to file any organizational documents with the State of California. That said, there are a few formalities that a sole proprietor should observe when starting a new business.
First, the sole proprietor needs to choose a name for the business. The owner can choose to simply operate under their own name, or they can assume a “fictitious” or separate name for the business.
In order to use a fictitious business name, an owner will need to follow a few steps:
- Search the California Secretary of State’s website to make sure no other business is already using the name.
- Select a name that is not already in use, misleading, or uses terms that might confuse it for a government agency.
- File a fictitious or “doing business as” (DBA) certificate with the city or county where the sole proprietor will conduct their business.
- Publish the DBA name in a local newspaper.
Beyond selecting a name, a sole proprietor may also need to obtain certain professional licenses or permits depending on the nature of their business or occupation. If the sole proprietor intends to operate from home, they must also require zoning clearance from their local government. Finally, if a sole proprietor intends to hire employees other than themselves, they must obtain a separate employer identification number (EIN) from the Internal Revenue Service.
Speak with a California-Silicon Valley Start-Ups Attorney Today
A sole proprietorship offers an easy way to start a new business without going through the more involved procedures of creating a corporation or limited liability company. Still, as a sole proprietor’s business grows, there may come a point where they need to consider one of these formal structures to take advantage of additional legal protections and tax advantages. If you need advice on what to do with your business, contact San Jose Business Attorneys at SLG today at (408) 441-7500 to schedule a consultation.