As the Wisconsin Bar Association puts it, choosing the form of your business is similar to buying a car. There are a certain number of models you can choose from with their own customized features. A sole proprietorship – a business with one owner who makes the management decisions – is the easiest type of business entity to establish. However, it's important to set up your sole proprietorship correctly, which might mean registering the name of the business and obtaining an Employee Identification Number (EIN) from the Internal Revenue Service for tax purposes.
Creation of Sole Proprietorship
"No legal formalities are required to bring this form of business structure into being, and there are no particular formalities necessary for operation," explains the State of Wisconsin. In essence, there is no legal separation between you and your business. All the profits go to you and all of the liabilities and obligations of a sole proprietorship are your responsibility as well.
In many states, you are required to register the name of your business if it is different from your legal name. So if your name is William Shakespeare and you want to open a business called William Shakespeare Books, you would need to file a DBA ("doing business as") name in the county or state where your business is located. However, in Wisconsin, registration for a DBA, called a "firm name," is optional. You can choose whether to file a Registration of Firm Names in the county or a trade name, another term for a DBA name, with the secretary of state, or neither. If you do file, you're required to pay a small fee and check county and state databases to make sure no one is already using the same name.
Employee Identification Number
If your sole proprietorship has employees, you'll need to obtain an Employee Identification Number from the Internal Revenue Service, which is accomplished by filing Federal Form SS-4 with the IRS. Even if you don't have employees, some sole proprietors obtain EINs because it often makes it easier to open a bank account for the business.
Although it's easy to set up a sole proprietorship, you might need more than a stripped-down, basic-model new car. In a sole proprietorship, you're personally liable for the debts of the business, which can enable a creditor to go after your home and all of your other assets. Another type of business structure, such as a limited liability company, can enable you to shield your personal assets. It also offers you the same tax advantages as a sole proprietorship.