Forming a Sole Proprietorship

Of the numerous structures under which a business can be formed in California, sole proprietorships are the simplest and most common, but they are only appropriate in a limited number of circumstances. It is in your best interests as you begin structuring and creating your business to seek the assistance of an Orange County business attorney.

How Sole Proprietorships Are Formed

Sole proprietorships are very simply to put together. The steps are few and straightforward:

• First, one needs to choose a business name. This is not actually required, but banks generally will not let a person open a business account without one.
• A fictitious name statement must then be filed with the county recorder, and a business license taken out at city hall. Many jurisdictions require additional licenses and permits, such as zoning clearances.
• You also will need to file an environmental impact report.
• Finally, if employees will be hired, the owner must obtain a Federal Employer Identification Number (FEIN). This can be obtained online through the IRS website.

Advantages and Disadvantages

An Orange County business attorney can best assist you in determining whether a sole proprietorship is the best company structure for your needs. The major disadvantage with this form of business is that the owner retains full personal liability if it fails. This means that you can be personally sued for any default on debt, and your personal assets attached. For this reason, you may want to take out a personal liability insurance policy.

For many business owners, the advantages of a sole proprietorship are worth the personal financial risk. This business form is ideal for very small companies that begin with few or no employees. There is a great deal of flexibility allowed in structuring them, and owners do not have to file annual reports with the federal government. Moreover, there is a distinct tax advantage: sole proprietorships use “flow through” taxation, which is to say the entity, itself, is not taxed. Instead, tax liability flows through the company to the owner. Corporations, on the other hand, are taxed twice: the entity is taxed on its earnings, and the employees are then taxed.

It should be noted that sometimes owners of very small businesses decide that a corporate structure is better suited to their needs; an Orange County business attorney can elaborate on the tax advantages and disadvantages of various company structures.

Call for Assistance

If you are starting a business and need assistance structuring it, an Orange County business attorney at Daily Aljian, LLP would like to speak with you. Call for a consultation today at 949-861-2524.