Putting a Sole Proprietorship on Paper

By Terry Masters

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.

State Licenses

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.

Ready to start your LLC? Start an LLC Online Now

Name Registration

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.

Tax Registration

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.

Ready to start your LLC? Start an LLC Online Now
How to Set Up a Sole Proprietorship Using a DBA
 

References

Resources

Related articles

How to Set Up a New Sole Proprietorship in Indiana

Sole proprietorships are owned by a single individual who operates the business as an extension of his personal affairs. In Indiana, sole proprietorships and general partnerships are classified as informal associations; they are not required to file formation documents with the secretary of state to obtain permission to do business. A sole proprietor, such as a professional photographer, can start his business and operate it within the state at his own discretion. However, if a sole proprietor wants to use an assumed business name, operate in a state-regulated industry, collect sales taxes, hire employees or is located in certain areas of the state, he may have to submit special registrations to conform with requirements in those areas.

The Requirements of a Sole Proprietor in Pennsylvania

Sole proprietorships are common business entities because they are simple to set up, and have relatively few filing requirements. By definition, a sole proprietorship is owned by one person, who remains personally liable for the debts of the business. Most states, including Pennsylvania, do not require sole proprietors to register the business. However, depending on the business type, a business owner may be required to file for licenses, permits and tax registration.

What Does DBA Mean in Business?

In the business world, DBA - which stands for "doing business as" - is a vitally important acronym to know. It signifies that an individual or company is doing business under a fictitious name. One common example would be a chain store franchise, operated under a commercial name familiar to everyone but actually run by an individual or firm owning the local franchise. State laws govern the creation and use of DBA fictitious names.

LLCs, Corporations, Patents, Attorney Help

Related articles

Difference in Business License & Registering a Business

Starting a business can be complicated. In addition to hiring employees, finding a location and establishing clientele, ...

Cancelling a DBA

A "doing business as" name, also known as a trade name and a fictitious business name, is the name under which a ...

How to File a DBA in Idaho

In Idaho, you can operate your business as a sole proprietorship -- meaning there is no legal difference between you ...

How to Operate an LLC Under a Personal Name

A limited liability company, or LLC, must register with a state. Part of the process of registering is selecting a ...

Browse by category
Ready to Begin? GET STARTED