A sole proprietorship is a business that is operated by an individual under his own name and without a separate and distinct legal structure to protect the owner from personal responsibility for business operations and debts. Sole proprietorships are often the easiest type of business to start because there is no formal structure required and they are inexpensive and easy to expand because of the lack of formality.
All states allow sole proprietorships to operate under the name and personal responsibility of the owner, and most states do not require a sole proprietor to register with a state agency in order to conduct business under his own name. However, if a sole proprietor wants to expand into a state that does require sole proprietorships to obtain a business license or register with the state, the sole proprietor must register before conducting any kind of business in that state.
If a sole proprietorship is using a business name different from the owner’s name — called “doing business as” or "DBA” — it must register that name, if required. The owner must register that DBA name in each state and local jurisdiction where he is conducting business and where registration is required. For example, if John Smith operates his business as “Smith’s Computer Repair,” he will likely have to register in his own state and any other state where he does business. Some cities and counties require registration even when the state does not.
Depending on the type of business a sole proprietor operates, he may have to obtain state or local occupational or professional licenses as required in the jurisdictions where he operates. For example, many states require barber shops to have a specific state license to operate; a sole proprietor wishing to open a barber shop in another state must also obtain the new state’s license in addition to his original license. Some licenses may transfer from one state to another, depending on the state and type of profession.
In addition to licenses, sole proprietors must obtain state tax permits, if required, and collect any and all sales taxes required by the new state for business conducted in the jurisdiction. The sole proprietor must also pay any income taxes required by the new state as well as the old state, though the rules about tax payment vary between states. If the states in which the sole proprietor operates require workers' compensation insurance or other employment taxes, the sole proprietor must pay such expenses in all states where he operates.