How to Setup a Sole Proprietorship

A sole proprietorship is a business represented by a single individual. The individual alone is responsible for the business financially and legally. It is the easiest and simplest form of business to operate because the start-up costs are typically low, no employees or payroll are required and tax preparation is usually much simpler. Independent contractors, commission-only sales and freelance writers and photographers are all examples of sole proprietorships.

Instructions

Difficulty: Moderately Easy

Setting Up a Sole Proprietorship

1. Decide whether you will be selling merchandise or offering a service.
2. Determine if you need a name for your business or if you will be operating the business under your own name. If you will be using a name other than your own you need to register it by filing a “doing business as” (DBA) form with your county government. In some states you will be required to file the DBA with your city and/or state governments. If you are using your own name you do not need to file any forms.
3. Acquire the proper licenses to operate your business. You do not need any special licenses to run a sole proprietorship, but if your line of business requires certain certifications you must obtain them. For example, if you are running a hair salon out of your garage you will need to have a cosmetology license.
4. Apply for an employee identification number (EIN) with the federal government. This is not a requirement, but it will be very valuable when it comes time to file your taxes.
5. Separate your finances. Once again, this is not mandatory. Yet, it is extremely helpful to keep two different bank accounts for yourself and the sole proprietorship. Pay yourself out of the sole proprietorship account. This makes managing all the finances much simpler.

Tips & Warnings

• The great thing about a sole proprietorship is that if you are operating a business under your legal name, you don’t have to file or register anything with the government. You just set up the business and start operating it.
• The downside of a sole proprietorship is that it can be extremely risky for the individual. Legal responsibilities and assets are not protected by a sole proprietorship business.