How to Get a Sole Proprietorship

By Elizabeth Rayne

For an independent entrepreneur, a sole proprietorship is a common business structure because it is relatively simple to set up and allows for a great deal of flexibility in management. As a sole proprietor, you are personally liable for the business, but you also retain all of the business's profits. Although there are some similarities for all sole proprietorships, business formation is determined by state law where the sole proprietorship is formed.

Formation

Most states do not require sole proprietorships to register with the state in order to operate. Instead, a sole proprietorship is automatically formed as soon as an individual starts doing business on her own. A sole proprietorship is essentially the alter ego of the owner, who remains personally liable for the business's debts and obligations. Unlike an incorporated business, the assets and income of the sole proprietorship are not distinguishable from the owner's.

Licensing

The state or county where your sole proprietorship is located may require the business to obtain professional or occupational licenses or permits based on the type of business involved. Some cities or counties require local businesses to register to obtain a business license or tax registration certificate. Additionally, if you work as a professional, such as a doctor, accountant or architect, the state imposes additional licensing requirements before you may work with the public. If you sell alcohol, firearms or other regulated goods, you must pursue additional licensing at the state or federal level.

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Tax Registration

If your business plans to hire employees, or collect sales tax, you must register with the state tax authority. As an employer, you must register for an Employer Identification Number with the IRS. Some sole proprietors apply for an EIN for federal tax purposes, even if they do not have employees, so they don't have to operate the sole proprietorship under their Social Security number.

Assumed Business Name

If you want to operate your business under a different name than your own, you must obtain an assumed business name, also known as a fictitious business name. Depending on where your business is located, you should register a fictitious business name with either the state or local county clerk. However, not all states require sole proprietorships to register assumed business names. Contact your state's business registrar to determine how to register yours.

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How to Start a Sole Proprietorship in Maryland
 

References

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