What Is A California Sole Proprietorship?

A California sole proprietorship is a business that is entirely owned and operated by a self-employed individual (proprietor) or a married couple.

A sole proprietorship is considered the simplest form of business organization. Individuals are automatically regarded as sole proprietors if they engage in business activity without formally establishing a legal entity.

Sole proprietorships are used by self-employed individuals, independent contractors and service providers, small retailers, artisans, consultants, freelancers, and gig-based workers. Newly established businesses or entrepreneurs testing an idea may choose a sole proprietorship before formalizing a legal structure.

The proprietor is the sole owner of the business. A sole proprietorship cannot be sold or transferred and ceases to exist when it dissolves, or the owner dies.

A sole proprietorship is entirely run and managed by its owner. An owner may hire employees, as any other company, and delegate them with specific responsibilities but remains ultimately accountable for all activities of the business.

A sole proprietorship cannot issue shares, and the owner contributes all of the capital for the business. Generally, the owner's personal creditworthiness is indistinguishable from the company when applying for credit, even when it's a business loan.

The owner is personally liable for all company actions, including its financial and legal obligations, meaning that creditors or lawsuits may target personal assets. The owner is fully accountable even if they invest only a portion of their money into the business. Therefore, liability insurance may be recommended or even required in some cases.

A sole proprietorship and its owner are treated as a single entity for tax purposes. The owner reports all business profit or loss on their personal tax return, and the business tax rate depends on the individual tax rate. The company's banking and accounting are generally kept separate from the owner's personal finances.

A sole proprietorship is established by filing a fictitious business name statement, also known as "Doing Business As" or "DBA" (and sometimes referred to as "trade name") with the local county recorder. It continues to exist until the company dissolves or the owner dies. In California, the DBA statement must be renewed every five years.