How to Start a Sole Proprietorship

How to Start a Sole Proprietorship

Follow the steps below to create a sole proprietorship.

While we don’t support sole proprietorship formations at this time, we can create LLCs and other corporation types. Get started below.

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Choosing the right business structure for your brand can affect the way it operates, the personal liability you’ll have as an owner, how you’ll handle business income and business expenses, and how you’ll pay federal taxes. If you’re one of the many business owners out there that wants to run a company solo, then a sole proprietorship should be considered.

Starting a sole proprietorship can be quite simple. In fact, it’s considered one of the easiest business entities to create. Although the specific steps needed to start this type of business varies by state, in most, these three steps are required to make it a legal entity.

Step 1: Name Your Sole Proprietorship

As a sole owner, you can name your business using your legal name. You can also include a description of your business activities. For example, if your name is Joe Smith and you plan to start a landscaping business, you can name the company “Joe Smith Landscaping” without registering your business name. However, if you prefer to call your business “Tree and Shrub Trimmers,” then you would need to apply for a “doing business as” (DBA) name.

Researching Business Names 

To determine name availability, you need to research business names. Searches can be conducted through your state’s Secretary of State website. Most include a searchable database. Try searching for as little of your chosen name as possible, as this will give you more results. We can also help you reserve a business name.

Registering Your Name and Securing a Domain

Once you’ve selected a name, you can register your DBA name. This can be done online through your local county. Fees will vary between states. Before doing this, though, it’s good to determine your business’s domain name as well. Most companies have at least some online presence outside of social media, and you don’t want to register a name and then discover it isn’t available to use for a website. If you haven’t already, secure your domain name

Trademarking Your Name

While going through the process of naming your business, you may wonder if you’ll need to trademark it. While not required, trademarking your name does provide additional protections that a DBA doesn’t. For example, someone else could register your name, causing confusion among your customers and forcing you to rebrand.

Here are some tips to avoid this:

The fees for registering a trademark vary depending on how you file and how many trademarks you need. You can find more information on filing fees on the USPTO website.

You can also apply to register a trademark at the state level. While federal registration of a trademark often comes with broader protections, which can help if you plan on doing business out of state, trademark registration is often easier and quicker at the state level. 

Applying for a DBA

To apply for a DBA, start by researching name restrictions and availability. In most states, these include:

Register for a DBA name with us. 

Step 2: File for an Employee Identification Number (EIN) if Necessary

For many sole proprietorships, obtaining an employer identification number (EIN) from the IRS isn’t necessary. You’re only required to get one if you hire employees or plan to open a retirement account. However, securing an EIN is a step you should consider.

If you plan on opening a business bank account to handle your business income, for instance, most banks prefer an EIN. Your EIN works as an identifier, much like a Social Security number.

If you do not have an EIN, you must use your Social Security number, which opens you up to potential fraud. Obtaining an EIN is also relatively simple. You can fill out the form through the IRS. This is a free service, and you’ll be able to use your EIN immediately. You can also apply for an EIN with us. 

Step 3: Obtain Any Necessary Business Licenses and Insurance

Obtaining proper licenses and insurance is a critical step in setting up any legal business entity. As a sole proprietorship with no liability protection, you have to make sure you’re doing business the right way and have insurance if the worst ever happens.

Business Licenses to Consider

Which business licenses you’ll need will vary largely on your business type, but some common ones include:

Securing Business Insurance 

As a sole proprietor, you’ll want to make sure to have business insurance to protect yourself. Your state may also require specific types of insurance. Even if you don’t have employees and aren’t required to pay for things like workers’ compensation insurance, there may be insurance requirements for specific industries.

Unfortunately, there is no one place to check and find the full list of what you might need. There are not only federal and state licenses and permits to check on but also local licenses and permits. Once you’ve obtained everything, you’ll need to keep track of which ones expire and when.

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With our streamlined business creation model, you can get your dream started. We can help you create a limited liability company (LLC) or a corporation. Our services can help you build your brand into the company you’ve always wanted. If you have a business idea that has the potential to become something big, then get started today!

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

Starting a Sole Proprietorship FAQs

  1. When does a sole proprietorship make sense for me?

    Setting up your business as a sole proprietorship makes the most sense for individuals starting a business by themselves with no plans to hire employees or bring on additional partners. It also makes sense for individuals starting a business they plan to self-fund. It is difficult to raise startup capital through investors or bank loans with a sole proprietorship.

  2. What’s the difference between a sole proprietor and an independent contractor?

    The key difference between a sole proprietor and an independent contractor is how they receive income. Otherwise, both are self-employed business owners, file income taxes using Schedule C, and pay self-employment taxes on their business income.

  3. Where should I form a sole proprietorship?

    It is usually best to form your sole proprietorship in the state where your business is located. There are ordinarily no great advantages to forming your sole proprietorship in any other state.

  4. Do I need a lawyer to form a sole proprietorship?

    No. You form your sole proprietorship yourself; there’s no paperwork to file with your state to create the business. For other aspects of running and growing your business, ZenBusiness has many services to help you.

  5. Can I change my EIN from a sole proprietorship to LLC?

    You can change your designation from a sole proprietorship to LLC. However, when you make that change, you will need to contact the IRS and receive a new EIN.

  6. Who assumes the risk in a sole proprietorship?

    While a sole proprietorship has many advantages, one of the disadvantages is the risk. Because you and your business are not considered separate entities, you will assume the complete risk.

  7. How do I close a sole proprietorship?

    As a sole proprietor, you maintain control over business decisions. If you decide to close, you can make that decision on your own and without paperwork. If you do close, you need to research what you can cancel, like trade names, DBA names, licenses, and registrations.

  8. Can a sole proprietor be tax-exempt?

    Unfortunately, no. Tax exemption is reserved for nonprofit organizations to help them raise more money. Sole proprietorships cannot be tax-exempt because there is no distinction between you and your business.

  9. Is freelancing the same as a sole proprietorship?

    Freelancers and sole proprietorships pay taxes in a similar manner. But freelance workers don’t have the legal ability to hire employees.

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