Getting a business off the ground with minimal headache can be a challenge. Luckily, those eager to start operations without a lot of up-front filing requirements can do so as a sole proprietor. This business structure acts as an alter ego of the owner, meaning that all profits as well as debts and liabilities are tied to the owner. This feature provides for ease of startup and operations with no separate tax filing required for the business. However, some conditions apply to businesses operating in certain regulated industries and to owners desiring to use a company name different from their own.
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Formation of a Sole Proprietorship
For most companies, once an owner starts doing business under his own name, a sole proprietorship is formed. This is because both profits and liabilities are tied to the owner and most states do not require registration so long as the company continues to use the same name as the owner. Nonetheless, it is important to look at state and local rules regarding tax registration and licensing to ensure that the business is indeed official before beginning operations.
Licensing Requirements for Certain Businesses
While the formation of a sole proprietorship generally happens automatically, businesses in certain industries are required to obtain specific professional or occupational licenses through the state in order to be considered official. Morticians, for example, are required in some states to obtain a funeral establishment permit before operating a mortuary. In addition, certain local governments may require a local business license for all companies, with no exception for sole proprietorships.
When Tax Registration is Necessary
Depending on the type and amount of business activity being conducted by the sole proprietorship, registration with the state tax authority may be required. This requirement comes into effect if the company provides any goods subject to state sales tax or if the owner decides to hire employees. However, while only certain companies must register, all owners of a sole proprietorship must report income produced through business operations on their personal tax return.
Overview of Fictitious Business Names
Fictitious business names, also known as "Doing Business As" names, are any names other than a business owner's that are used in conjunction with the operation of a business. By default, a sole proprietorship takes the name of the owner, which may not be desirable to the owner. If the owner wants to use a fictitious name, registration with the county clerk's office or state government, depending on where the business is located, is required. It is also important to choose a name that has not been taken.
References & Resources
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