Alabama Sole Proprietorship Rules

By Elizabeth Rayne

A sole proprietorship is a common business structure because it is simple to set up and has few filing and tax requirements. As a sole proprietor, you are the sole owner and are personally responsible for the debts of the business. There are no registration requirements for starting an Alabama sole proprietorship, and you are not responsible for business tax. However, you may have additional filing and tax requirements depending on the type of business.

A sole proprietorship is a common business structure because it is simple to set up and has few filing and tax requirements. As a sole proprietor, you are the sole owner and are personally responsible for the debts of the business. There are no registration requirements for starting an Alabama sole proprietorship, and you are not responsible for business tax. However, you may have additional filing and tax requirements depending on the type of business.

Filing Requirements

You may form a sole proprietorship in Alabama without filing any paperwork with the state. You may do business with a different name than your own, and you are not required to register the name. However, you have the option to file for a state trademark to ensure that your business is the only one in Alabama using your name. You may apply for trademark registration with the Alabama secretary of state, which will be effective for five years.

Ready to start your LLC? Start an LLC Online Now

Licensing

Depending on the type of business you are running, you may be responsible for a number of licenses before you can open your doors to the public. All Alabama businesses must obtain a local business license in the city or county where the business is located. The local probate judge issues local business licenses. Additionally, if you deal with food in your business, you will likely be responsible for a license from the Department of Health. Anyone in professional occupations, such as doctors or accountants, must be licensed by the state in order to do business.

State Taxes

Sole proprietorships do not pay business income tax. Instead the income passes through to the owner, who pays taxes on her personal tax return. However, if your business rents or sells goods, you are required to collect Alabama sales tax. As a vendor, you must apply for a sales tax license from the Alabama Sales and Use Tax Division before you can collect sales tax. You are required to make monthly payments of collected sales tax to the state. Additionally, businesses that sell alcohol, tobacco, gasoline, or natural resources are responsible for additional tax. There are a number of other taxes your business may be responsible for, and you should contact the state Department of Revenue to ensure that you that you are in compliance with state law.

Employer Obligations

If you have employees or are responsible for any federal taxes on behalf of the business -- such as alcohol or tobacco tax -- you must apply for an employer identification number. An EIN is a unique number for the business which will be used on all federal tax filings. You may apply for an EIN online on the Internal Revenue Service website. You must also apply for an Alabama income tax withholding number from the Alabama Department of Revenue. As an employer, you must withhold state and federal taxes from employees' paychecks and report this amount to the state and the IRS.

Ready to start your LLC? Start an LLC Online Now
The Requirements of a Sole Proprietor in Pennsylvania

References

Resources

Related articles

Sole Proprietorship Laws in Illinois

For individuals looking to start a business without partners, a sole proprietorship is a common business entity because it is straightforward to set up and has minimal tax and reporting requirements. In Illinois, as in other states, you do not have to register your sole proprietorship with the state. However, you are required to register an assumed business name, if you use one, and depending on the nature of your business, you may also be required to obtain other permits and licenses.

Difference in Business License & Registering a Business

Starting a business can be complicated. In addition to hiring employees, finding a location and establishing clientele, new business owners must also ensure they properly register with government authorities and obtain all necessary government licenses. Without the proper registration and licensing, a business can face fines and penalties. Registration and licensing requirements vary between states and localities.

How to Register a Sole Proprietorship in Tennessee

Tennessee has no filing requirement to register a sole proprietorship. Instead, the entity is legally formed when a business transaction is completed. A sole proprietorship may remain unincorporated, and the sole owner of the proprietorship owns all of the business's assets and is personally liable for its debts. However, a sole proprietor should take a number of steps to comply with tax law and local business licensing requirements.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Form a Sole Proprietorship in Ohio

Many Ohio businesses are formed as sole proprietorships because this type of business is relatively simple to set up, ...

How to Start a Sole Proprietorship in Maryland

A sole proprietorship is a common business entity because it is relatively simple to set up and has few filing ...

Sole Proprietorship in Georgia

A sole proprietorship is a common business entity because it is relatively simple to set up and allows for a great deal ...

Kentucky Rules on Sole Proprietorship

Sole proprietorships are common business structures because they are relatively simple to set up and provide ...

Browse by category
Ready to Begin? GET STARTED