One of the advantages to operating a business as a sole proprietorship is the lack of formal organizing requirements. A photographer, personal trainer or anyone who runs a one-person operation can start doing business as a sole proprietor without necessarily filing any paperwork with the government. Operating a business this way can be disadvantageous, however, when the proprietor wants to prove the existence of the business as a distinguishable entity. When an owner wants to open a credit account, set up services in the name of the business or otherwise separate business operations from his personal affairs, it helps to have some written documentation that verifies the company's status.
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In the large majority of states, sole proprietors are not required to register their businesses with the state business registrar. Unlike corporations -- which must file articles of incorporation with the state before starting operations -- a sole proprietorship does not have any formation document that needs state approval. A handful of states, however, either require a sole proprietorship to register with the state and obtain a state business license or make such a filing optional. Nevada, for example, requires sole proprietors to obtain a state business license, and Washington makes a state filing optional. Obtaining a statewide business license is the easiest way to put a sole proprietorship on paper if the business is located in a state that offers that option.
City Licenses and Permits
Many major cities, such as Las Vegas, require all businesses that operate within city boundaries to obtain a city business license. Other cities require all businesses that sell products or services that require the addition of sales tax to obtain a reseller's license from the state tax department. Some cities require licenses and permits from every business that has a physical location or conducts certain activities -- for example, a liquor license to serve liquor or a health department permit to prepare or serve food. Obtaining any of these licenses or permits is a way to formalize the existence of a sole proprietorship.
A sole proprietor must operate his business under his own name so people know who is responsible for business activities, unless the business registers a fictitious business name, also known as an assumed name or "doing business as." An effective way to put a sole proprietorship on paper is to register a DBA. Most states register DBAs through the county clerk's office, but some register DBAs at the state or city level. DBA registration provides the sole proprietor with proof that the business is authorized to operate under that name.
Another effective way to formalize a sole proprietorship is to apply for an employer identification number from the Internal Revenue Service. A sole proprietor can operate the business under his own Social Security number and is not required to obtain a separate EIN for the company; however, he has the option to obtain an EIN for the business. An EIN is needed if the proprietor wants to open a business bank account under a DBA. The IRS sends the EIN applicant a letter to assign the number. This letter is one of the best ways to prove the existence of the company as a distinct operation.