Pennsylvania Sole Proprietorship

How to Become a Pennsylvania Sole Proprietor

Starting a sole proprietorship in Pennsylvania is simple. There’s no formal setup process or fees involved. To operate one, just start working.

However, despite the ease of starting, there are some extra steps you might want to consider. While not strictly necessary, many sole proprietors find them beneficial.

DBA Acquisition

A Pennsylvania 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.

In Pennsylvania, DBA names are often referred to as “fictitious names”. To obtain a fictitious business name, you’ll first need to confirm that the name is available by searching it on the Pennsylvania Business Name Search. Afterwards, you may claim it by completing the Registration of Fictitious Name either as a PDF file or online using Penn File.

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.

Depending on what goods or services your sole proprietorship offers, you may need to pay state tax, sales tax, use tax, hotel occupancy tax, employer withholding tax, and others. You may register for these taxes (and others) when you register with the Department of Revenue and Department of Labor and Industry by filing the PA-100 Enterprise Registration Form which can be found here.

Additionally, if your sole proprietorship has employees, you’ll need to pay Pennsylvania unemployment compensation tax, state and federal withholding taxes. More information on unemployment compensation tax and other employer taxes can be found on Pennsylvania’s Office on Unemployment Compensation website.

Obtain Business Licenses and Permits

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

For example, Most Pennsylvania business licenses are distributed and regulated by the Pennsylvania Licensing System which is a branch of the Pennsylvania Department of State.

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

Each town or city may have its own license and permit requirements, so you’ll need to visit your local government’s website to discover your sole proprietorship’s licensing standards. For example, Philadelphia and Reading have their own location-specific license requirements.

What Is a Pennsylvania Sole Proprietor?

As opposed to a corporation or Pennsylvania 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.