Starting your new business as a sole proprietorship is the easiest and least expensive legal business structure you can use, as opposed to forming a corporation or limited liability company. As a sole proprietor, you are the sole owner of your business and generally have the flexibility to operate your business as you see fit, subject to the rules and regulations that apply to similar businesses in your state and local area.
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Business Name for a Sole Proprietorship
The legal name for your sole proprietorship is your name. Any legal documents that must be signed, such as a business license application, must be done in your name. Depending on your business, you may want to use a fictitious business name, often referred to as a "DBA," which stands for "doing business as." Your DBA is used to identify your products or services to the public, but is not your business's legal name. If you choose to use a DBA, you need to check the laws of your state as most states require you to register a DBA for your business with either a state or local government agency.
No Formation Requirements
Being a sole proprietor simply means you offer products or services as a for-profit business. Unlike corporations or limited liability companies that must file documents with the state in order to be created, you are not required to file any document with a state agency to create a sole proprietorship. By conducting business in your own name, you have created the sole proprietorship. However, in order to lawfully carry on your business, you are required to follow all rules and regulations applicable to your business, such as obtaining the necessary licenses and permits that pertain to the products or services you sell.
Registering to Do Business
State and local governments have their own rules and regulations regarding business conducted within their jurisdiction, which applies equally to all businesses regardless of type. For example, Nevada law requires sole proprietorships to apply for a State Business License or Notice of Exemption from the Secretary of State's office before starting business. In New York, depending on the type of products or services you sell, you may have to obtain a Certificate of Authority to collect sales tax for the Department of Taxation and Finance. Before starting your business, you should research whether similar rules and regulations apply in your state, as well as the city and county where your business is located.
Income and Self-Employment Taxes
Operating your business as a sole proprietor places you in the category of self-employed for tax purposes. Federal law requires you to report all income and expenses regarding your business whenever your net earnings exceed $400. You are also responsible for paying self-employment tax -- a combination of Social Security tax and Medicare tax. As a general rule, you are required to pay an estimate of all these taxes on a quarterly basis throughout the year.
References & Resources
- U.S. Small Business Administration: Register Your Fictitious or 'Doing Business As' (DBA) Name
- Nevada Secretary of State: Starting a Nevada Business as a Sole Proprietor
- New York State Department of Taxation and Finance: Quick Reference Guide for Taxable and Exempt Property and Services
- IRS: Self-Employed Individuals Tax Center
- IRS: Estimated Taxes
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