What is a Sole Proprietorship?
Establishing a sole proprietorship is the most common and basic way to start a new business. In most cases, a sole proprietorship is established by an individual by simply starting a business. At most a sole proprietorship will need a few simple filings to get going.
Only one owner is involved in a sole proprietorship. There is an exception for spouses, as California law allows a husband and wife venture to be classified as a sole proprietorship. The owner of a sole proprietorship controls every aspect of the business, and receives all profits from it.
There is no separate legal entity with a sole proprietorship. This is very important to note for liability purposes. For example, if a corporation, which is a separate legal entity, is sued, the corporation owners – its shareholders – are generally protected from individual liability, that is, their liability is limited by their investment in the company in the form of the amount they paid for their shares. However, because there is no distinction between the business and the business owner in a sole proprietorship, the owner can and will be held liable for all business liabilities. In other words, the sole proprietor is personally liable for all debts and actions of the company.
A sole proprietorship exists as long as the proprietor (business owner) is alive. The sole proprietorship will cease to exist once its owner dies.
A sole proprietorship in California does not need to file any organization documents with the Secretary of State. However, if the sole proprietorship is going to do business using a name different from the sole proprietor’s, a Fictitious Business Name Statement must be filed.
The sole proprietor will also have to report all business income and expenses on his or her taxes. There is a specific form for this that is part of the California personal income tax return. As with personal income, the sole proprietorship’s tax rate will depend on the proprietor’s total taxable income.
Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law needs.