Transfer Business Ownership in California

Transfer business ownership California is the transfer of the assets and business activities of one entity to another in that state.3 min read

Transfer business ownership California is the transfer of the assets and business activities of one entity to another in that state. As a business owner in California, you must know the legal and tax implications of transferring ownership of your California business to another individual or business to avoid legal ramifications.

Change in Ownership

In the event of a business change of ownership, the parties involved must decide the fate of the company's historical date. Their decision plays a major role in the company's experience rating. For experience rating, Section II, Rule 3 of the California Workers' Compensation Experience Rating Plan-1995 defined a change in ownership as:

  • A portion or the entirety of an entity's ownership is sold, transferred, or moved from one individual to another.
  • An entity becomes inoperative or dissolved, resulting in the creation of a new entity.
  • Two or more business entities consolidate or merge to become one.
  • All or most of one entity's intangible and tangible assets are conveyed, transferred, or sold to another entity.
  • When an owner or a court-appointed receivership or trusteeship becomes the operator of an entity.

Once the change of ownership has occurred, you must determine whether the change is material by identifying the names and ownership interests of the business owners before and after the date the change of ownership took effect.

How to Transfer Ownership of a Sole Proprietorship

It is impossible to sell a sole proprietorship. Only its business assets are transferable because the sole proprietorship and its owner are not separate entities under the law. The sole proprietor owns the company's assets and makes all business decisions. A sole proprietor might use some assets, such as their car and cellphone, for business operations. If you intend to sell your sole proprietorship's assets, make a list of the assets you are selling to the new owner. Draft a contract to reflect what is being transferred and what you are keeping.

How to Choose a Name for Your Sole Proprietorship

A sole proprietorship might operate under your name or a fictitious name, also called "doing business as" (DBA), registered with your local government. If the new owner wants to continue using your DBA, contact your local authorities to transfer it. Often, it requires you canceling the name and the buyer applying for it. In some counties, different businesses can use the same DBA, so the new owner can claim the name before you cancel it.

The buyer might also want to continue performing the obligations of your ongoing business contracts. In this case, you can assign your contractual duties to a third party, making it easy to transfer them to the new business owner. However, some contracts' provisions might prevent the transfer of duties. If your contracts have such clauses, you should inform the buyer about them before selling.


Goodwill is an abstract but critical business asset. It covers things such as:

  • The positive reputation of your business.
  • The company's current commercial relationships.
  • The company's community status.

These might be worth more than your actual business assets. However, it's difficult to place a monetary value on goodwill. If you wish to also sell your company's goodwill, you might hire an expert such as a business attorney to reach a fair valuation.

Once you are clear about the assets to sell and the price, have your attorney draft an agreement. The agreement should provide details of assets being sold and the terms of the sale, such as cash on signing, the down payment, and how to pay the balance. The closing agreement can also include provisions such as noncompete clauses. Then both parties will sign the agreement, and the transaction is complete.

Tax Requirements After Selling Your Sole Proprietorship

The IRS treats a sole proprietorship's sale as a series of independent transactions. It considers each asset sale as a separate transaction when calculating your tax returns. The tax requirements for inventory sales differ from those of vehicles or manufacturing equipment. Your profit or loss on each sale depends on relevant IRS rules and each asset's purchase price and sale price.

If you need more information about how to transfer business ownership in California, you can post your legal need on Legal Marketplace's marketplace.

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