Requirements for Forming a Sole Proprietorship

Choosing the best structure for your business is critical to your success. A sole proprietorship is the easiest business structure to form. A sole proprietorship is a business owned by one individual. As owner of a sole proprietorship, you are legally liable for everything that happens in your business.

Features

For tax purposes, your business is automatically classified as a sole proprietorship if you don't have partners, aren't incorporated, and your business isn't a limited liability company. There aren't any special forms or detailed paperwork to complete.

Significance

If your name is the same as the business name, you may not have to register your business. If you have a business name, you must register with the state you're operating your business in. For example, Illinois requires you to file DBA or Doing Business As paperwork.

Time Frame

A sole proprietorship is formed the moment you make your first sale or perform some other business transaction. If you're getting a DBA from your state, it may take three to five business days.

Considerations

Be sure to obtain any licenses required to run your business. If you're starting a barber shop, make sure you've obtained a barber's license to cut hair.

Warning

A major drawback of sole proprietorships is the issue of legal liability. If your business gets sued, your personal possessions may be jeapordized.

Resources

• Entrepreneur.com