Rules and Regulations for a Sole Proprietorship

By Joe Stone

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.

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.

Ready to start your LLC? Start an LLC Online Now

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.

Ready to start your LLC? Start an LLC Online Now
How to File a DBA in Idaho


Related articles

How to Open a Sole Proprietorship

More than 22 million people run sole proprietorships in the United States, making it the most popular form of American business. One reason for this popularity is that sole proprietorships are the simplest type of business to form and start operating. Formal business requirements for a sole proprietorship are minimal, and a sole proprietor has the option of transforming her business into a partnership, LLC or corporation later on.

Advantages & Disadvantages of Filing for a Fictitious Business Name

The name you use to conduct business can greatly affect the success of your endeavor. While you're required by state laws to use your business' legal name, you're also allowed to register a business alias -- called a fictitious business name -- to help establish awareness in the marketplace, distinguish a brand or for any other reason. The pros and cons of registering a fictitious business name depend on your circumstances and the legal structure of your venture.

Business Registration for a DBA in Illinois

A business may elect to operate under a DBA ("doing business as") name that is different from its legal name. When this occurs, it is important that the public be informed that the two names represent the same entity. To file a lawsuit against the business, for example, you must know its legal name. The Illinois Business Code requires businesses to follow certain procedures to register a DBA name.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Create a Sole Proprietorship in South Carolina

If you are starting a business in South Carolina and want to operate it as a sole proprietorship, it isn’t necessary to ...

What Forms Need to Be Filed for a Sole Proprietorship?

A sole proprietorship is one method of organizing and operating a business. A sole proprietorship operates as an alter ...

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 ...

How to Get a Sole Proprietorship

For an independent entrepreneur, a sole proprietorship is a common business structure because it is relatively simple ...

Browse by category
Ready to Begin? GET STARTED