Delaware Sole Proprietorship

How to Become a Delaware Sole Proprietor

In Delaware, setting up as a sole proprietor is quite simple. You’ll need to get a business license and pay a small fee, but it’s not too complicated, especially if you’re the only one running your business.

However, even though starting is easy, there are some extra steps you might want to consider. While not mandatory, many sole proprietors find them helpful.

DBA Acquisition

A Delaware DBA  name is a crucial part of many sole proprietorships, as it enables you to use an assumed name for your business, rather than your own personal name. The advantages of acquiring a DBA start with image ― most customers feel that an assumed name is more professional and trustworthy than doing business with a company that uses its owner’s personal name instead.

That said, sole proprietors can sign up for a business bank account using their DBA name, which is another step that goes a long way toward making customers feel more comfortable doing business with you.

You can begin the process of obtaining a DBA in Delaware by running a trade, business, and fictitious names search to see if your desired name is already taken. If your desired DBA is available, you must then submit a Registration of Trade, Business, and Fictitious Name Certificate with the county in which you plan to do business.

If you require a more detailed explanation of the process of obtaining a DBA in Delaware, you can take a look at our article dedicated to the subject.

Determine Taxation Requirements

Sole proprietors without employees usually don’t need to acquire a federal tax ID number (EIN), because as a one-person business, you can typically just use your own social security number for most things an EIN is used for. Still, if you would rather not use your SSN for privacy purposes, it would be a good idea to get an EIN regardless.

Beyond that, the nature of your business will determine which taxes apply to you as a sole proprietor.

Businesses in certain industries, such as motor vehicles, rental properties, or retail, will need to register for industry-specific taxes, so you should ensure that you understand your sole proprietorship’s tax obligations. Luckily, the State of Delaware makes this process rather easy with its One Stop Business Registration and Licensing, which allows you to register your business with the Delaware Department of Revenue and automatically sign up for any taxes that you need to pay.

Obtain Business Licenses and Permits

There isn’t a requirement in Delaware for sole proprietors to acquire a general business license, but depending on the nature of your business you may need other Delaware licenses and/or permits to operate in a compliant fashion.

In Delaware, all businesses – including sole proprietorships – must register for a general business license with the State of Delaware. This license is valid for up to one year, and it expires on December 31st of each year regardless of when you initially file. The standard filing fee for this general license is $75, but if you obtain your license mid-year, that fee will be prorated. You can apply for this permit when you register your business on the One Stop Business portal, or you can download, fill out, and mail the pdf to the Delaware Division of Revenue.

In addition to this general business license, you may also need industry-specific licenses or permits to operate your sole proprietorship in a compliant fashion. Delaware has several of these licenses and permits, so you should use the One Stop Business Registration and Licensing system to determine whether any of these will apply to your sole proprietorship.

In addition, you should check to see if your business needs any licenses or permits on the local level.

Cities such as Wilmington, Dover, and Newark often require businesses to obtain local business licenses and permits.

What Is a Delaware Sole Proprietor?

As opposed to a corporation or Delaware limited liability company (LLC), the sole proprietorship is not a legal business entity. The sole proprietorship is a one-person business that is not considered to be a distinct entity from the person who owns it, and it is frequently operated using the owner’s personal name.

Here are the three main things you need to know:

Tax Responsibilities

Because there’s no distinction between the owner and the business itself, sole proprietors don’t need to file business tax returns ― they instead simply claim any business profits or losses on their personal tax returns.

Contracts

Sole proprietors are allowed to sign contracts using their personal name, and along those same lines, customers can write checks to the business by using the sole proprietor’s name.

More Flexible

The other big difference between sole proprietorships and more formal business structures is the fact that sole proprietors are allowed to commingle business and personal assets as much as they want to. With LLCs and corporations, ownership is required to keep their assets separate from those of the company. The downside of this aspect for sole proprietors is that if your business is sued, creditors are free to pursue your personal assets like your house, car, personal bank accounts, etc. For corporations and LLCs, creditors are limited to your business assets.