How to Starting a Sole Proprietorship
A sole proprietorship is very simple to get up and running. Because you don’t have to register your business with the state, there aren’t many formal steps. However, there are certain things you may want to apply for, depending on certain changes you might like to make to your business. Here are some steps you may want to take:
1: Change your business name.
If you want your business to legally be called a name other than your own, you will have to establish what is known as a DBA. In a sole proprietorship, the sole owner is legally required to use their personal name as their domain name unless they follow the process to change the name.
To change the name of the sole proprietorship to a brand name, you must file a doing-business-as application, which gives you the option of using a different name. You must file the doing-business-as (DBA) application with the state, often through the secretary of state’s office, though the specific agency can vary from state to state. A DBA application can cost between $5 and $100 depending on the state.
When choosing a name, you must make sure it doesn’t already belong to someone else. You also don’t want to pick a name that is too similar to someone else’s. To check whether the name you want is available, visit the U.S. Patent and Trademark Office site or search your state’s DBA registry.
2: Get an employer identification number.
As a sole proprietor, you will also need a federal employer identification number (EIN), which the IRS uses to identify your company when you pay taxes. Some banks even require an EIN to open a business bank account.
3: Open a business bank account.
Having a bank account that is separate from your personal one helps to keep your finances organized and less entwined with your private funds.
“This is a requirement to separate business money from your personal money,” said Julia Brookes, a Now Loans finance consultant. “This will also give you a clearer view of your profit and increases your credibility in the bank in case you needed to apply for a loan.”
However, as a sole proprietor, your business’s assets are not legally considered separate from your personal assets, as would be the case for an LLC, for example; there is no limited liability associated with a sole proprietorship.
4: Secure the proper paperwork needed in your state.
Depending on your industry, you may need certain business licenses, permits or zoning clearance to operate legally. Check your state’s requirements for building permits or regulations for your type of business so that you remain compliant with all applicable laws and regulations.