Kentucky Sole Proprietorship

How to Become a Kentucky Sole Proprietor

Becoming a sole proprietor in Kentucky is simple. There’s no official setup process or fees involved. To start a Kentucky sole proprietorship, just begin working. But even though starting is easy, there are some extra steps you might want to consider. While they’re not necessary, many sole proprietors find them helpful.

DBA Acquisition

A Kentucky doing business as (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.

To acquire a DBA in Kentucky, you should start by doing a business name availability check, and once you determine that your desired name is available, you can fill out the Certificate of Assumed Name.

For more on registering assumed names in the state of Kentucky, check out our full article on the topic.

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.

For example, if you sell goods or products, you will definitely need to register for sales and use tax. The state of Kentucky makes determining your tax requirements quite easy, as their One Stop Registration with the Department of Revenue automatically signs you up for any taxes you need to pay.

Obtain Business Licenses and Permits

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

Kentucky has hundreds of permits that apply to specific industries, so you should run the permits and licenses search on the Kentucky One Stop Business Portal to determine whether any of them apply to your sole proprietorship.

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

For example, the cities of Louisville, Lexington, Bowling Green, and Paducah each have their own permitting requirements.

What Is a Kentucky Sole Proprietor?

As opposed to a corporation or Kentucky 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.