Steps in Formation of Sole Proprietorship in Wisconsin

By Jeffry Olson, J.D.

Steps in Formation of Sole Proprietorship in Wisconsin

By Jeffry Olson, J.D.

With many forms of business to choose from, a sole proprietorship is popular because it is the simplest type of business to create. When an individual creates a business and begins operation without taking any further legal business formation steps, the business is a sole proprietorship by default. The entity is owned and operated by one person and that person makes all management decisions for the business. However, it is important to establish the business properly, not relying on the "default settings" provided by Wisconsin law. Taking a few simple steps ensures the future success of your sole proprietorship.

Man resting his chin on his hand writing in a notebook

1. Choose a name.

If a sole proprietor names the business something other than the name of the owner, they must take steps to properly create a fictitious business name. When operating under a fictitious name, first check with the Wisconsin Department of Financial Institutions for name availability.

While not required, the State of Wisconsin also allows you to file a trade name with the County Register of Deeds in the county where the business has its primary office. You must pay the appropriate filing fee. Failure to do so results in rejection of your application.

2. Apply for an employer identification number if needed.

Businesses with employees must obtain an employer identification number (EIN) from the Internal Revenue Service.

For a sole proprietorship with no employees, an EIN is not necessary. Instead, use the Social Security number of the sole proprietor for tax purposes. However, it is often easier to use an EIN for activities such as opening a bank account even when not required to obtain an EIN.

3. Obtain licenses and permits and open a business bank account.

Depending on the nature of the business, a sole proprietorship may need to obtain appropriate licenses and permits for your jurisdiction. Do this prior to beginning operation of your sole proprietorship to avoid potential legal conflict.

A sole proprietorship should also open a business checking account separate from the personal checking account of the business owner. This simplifies accounting for the business. You may open this account using the Social Security number of the owner or with the business's EIN.

4. Obtain liability insurance and pay required taxes.

One of the advantages of a sole proprietorship is flow-through taxation. This means the owner reports income of the business on their personal income taxes. However, a sole proprietorship provides no liability protection. Any liabilities of the business are liabilities for the owner. For this reason, owners of a sole proprietorship may want to consider obtaining liability insurance to protect themselves and their business.

Depending on the nature of the business, state law requires a sole proprietorship to collect and pay sales and use tax. Collect these taxes and pay in compliance with Wisconsin law.

Forming a sole proprietorship is a simple process, requiring almost no effort beyond starting your business. However, taking these few simple steps when forming your business helps your business operate smoothly, avoiding potential legal complication in the future and increasing your chances of business success. For further assistance forming a sole proprietorship in Wisconsin, consult an online service provider.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.