Sole Proprietorship

Recently the California legislature codified the new definition of an independent contractor. The legislation that amended Labor Code § 2750.3(e) set forth requirements for establishing a bona fide business entity, including a sole proprietorship.

Further, Labor Code § 2750.3(e)(2) states::

This subdivision does not apply to an individual worker, as opposed to a business entity, who performs labor or services for a contracting business.

This apparent contradiction in the law states that an individual worker cannot be a bona fide business entity. An individual operating as a sole proprietor is a bona fide business entity.

I could not find a definition of a sole proprietorship under California law. I did, however, find one on the California Franchise Tax Board’s website where they describe it. The key component is that an individual may be a sole proprietor with or without filing a fictitious name. The key is that a sole proprietor must pick a name for tax reporting purposes, and obtain all the appropriate licenses, zoning, or permits required.

Therefore, an individual may operate a sole proprietorship if they obtain the appropriate license, presumably a business license, The business license, once registered, may be in the following forms:

  • Billy Bones, dba Bones Services
  • Billy Bones
  • Bones Services

A sole proprietor is an individual and establishes no distinct legal business form, separate from that of the individual. The individual is the business, and responsible for taxes, debts, etc.

So if the individual process server wants to continue to operate as an independent contractor, they must get a business license and operate as a business entity. If the process serving agency wants to continue offering services to and benefiting from the use of independent contractor process servers, they must contract with business entities. Otherwise, the individual process server that is not a business entity will be considered an employee.