How Do I Form a Sole Proprietorship?
A sole proprietorship is usually considered the most basic type of business structure, because you automatically have one after you start a company of which you are the sole owner. In some cases, you do not have to take any further steps to start running your business, but you are advised to check with your local government to find out if you need a business license or permit to run your particular company. If you intend to create a company name, rather than just using your own name, you need to register it to ensure no one else uses it. In addition, you are advised to consider the financial aspects, such as a business checking account and tax rules, when you form a sole proprietorship.
Some types of businesses — such as companies that sell liquor, lottery tickets or firearms — need a permit or license to operate. Service businesses — such as those offering car repair, tax help or medical care — often need to be licensed, because these are usually regulated by the state. Real estate, insurance and cosmetology businesses also tend to fall into this category, so inquire about licenses for these industries, too. If you are in business as a writer, photographer or wedding planner, for example, you likely do not need any special permits or licenses to do business. You still are advised to contact your local small business agency to find out for sure before you form a sole proprietorship.
Once you have obtained any necessary permits, you need to decide what to name your business. If you plan to use your own name, you do not need to take any further steps; if you want to create a different name, you need to register it. This involves checking with your local small business agency to ensure the name you want is not already taken, and then telling them you are doing business as (DBA) the name chosen. Once you register the name, no one else can use it, but if you want some extra protection, you may consider getting a trademark for it when you form a sole proprietorship.
The financial aspect of your business is another important factor to consider when you form a sole proprietorship. You are advised to open a business checking account to keep your personal finances separate from your business income, and you can typically do so by taking your DBA paperwork, as well as any required permits or licenses, to your bank. You also can open a business credit card, which should only be used for expenses related to your sole proprietorship. Finally, find out more about how taxes work when you form a sole proprietorship. For example, in the United States, you have to pay self-employment taxes in addition to your typical personal taxes, so be sure to budget for this expense.
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