Sole Proprietorship, which is one of the easiest forms of business in the United States since it isn’t governed by any specific laws, has very minimal and easy to fulfil compliance. It refers to a business carried out by one individual who manages and makes the final decision on behalf of the business.
If you are thinking about setting up your own firm with being the solo owner, you have come to right place. Sole proprietorship also goes by different names, such as sole trader, individual entrepreneur which indicates that there is no distinction between the owner and the business entity.
Let’s get into the article to check out the process of registering a proprietorship business in the United States.
Process of Proprietorship Firm Registration
Be Sure About Your Business Structure Decision
Before beginning the process of registration, it is important to be sure of the decision you make about which business structure to choose. For this, it is essential you have proper knowledge and understanding about all kinds of business structures such as LLC, Partnership, Sole Proprietorship etc., and then make your decision wisely.
The business structure you choose will influence your day-to-day operations, taxes and risk evaluation of the assets. While going solo or with LLC, are the two most common business structures in USA but very different from each other.
Get Proper Advice
Once you are sure about the choice of business structure, now is the time to reach out to your nearest Small Business Development Center or Business Development Agencies in order to get a better understanding of the steps to follow in order to establish your business in the city, state or county and to learn how to operate legally.
Choose a Name
The next step is to choose a name that represents your businesses’ product and services. You need to do a lot of research on choosing a suitable name and then verify if the name has already been trademarked or not.
To learn whether the name has already been taken up or not, you need to search the United States Patent and Trademark Office (USPTO). If you are lucky, start the filing process of the name at the USPTO to get the name trademarked so no one else can operate under the same name.
Register Under DBA
As a sole proprietor, the owner and the business entity are the same. However, if you wish to operate globally, you need a different name such as ‘Global Real Estate Services’. In such a case, you need to register a fictious of ‘Doing Business As (DBA)’ name.
A DBA is necessary when you open a business account and start using a separate business credit card. Your state might require you to do follow-up steps after registration. After the DBA registration, you need to publish your business name publicly and provide proof to the local government, which ensures that no one else in your country is using the same name.
Build a Website
After choosing the name for your business, it is now time to go online and widen the horizon of your business. You need to purchase a domain and for an easy client experience, your domain name should be the same as your business.
Check the ICANN accredited database to search for unique names which have not been taken it already. Even if you are not ready to build your website yet, it is better to purchase a domain beforehand to get the first mover’s advantage.
Permits & License
Even sole proprietors require a business license to run their operations in most cities. There are various heavy fines on operating without a legal license. You require a business license to open up a business bank account as well.
Ensure that you the right federal and state licenses and permits which might include:
- Health Permit for food business
- Federal License for transporting animals
- Health & Safety Training for opening a day-care
- Certification for finance related business
- Zoning permit to operate from home
- State Tax Authority Registration for employees or collection of sales tax
The fees you need to pay to get these permits and licenses is nothing compared to the fines you will incur of operating without these permits.
File for Employee Identification Number (EIN)
If you are the only one working in the business, you might not require the EIN and can continue operating and filing taxes under your social security number.
However, as soon as you start employing staff or start to set up the retirement plan, you must file for a Federal Employer Identification Number which is free of cost and can be obtained online.
Set Up Business Bank Account & Credit Card
It is crucial to keep your personal and business expenses separate to avoid risking your personal assets in case of losses incurred by the business. Therefore, opening up a business bank account ensures safety of your funds and allows the customers to pay with a credit card, making cheques payable while building a good credit history.
A good credit history helps in getting a personal loan without much hassle. While credit cards help you out in the early days of your business when the cash flow is low, the interest adds up quickly becoming overwhelming.
One of the biggest risks in sole proprietorship is that the solo owner bears all the liabilities, therefore, having an insurance is a must. It is important to have a property and liability coverage, auto insurance, health coverage and disability coverage at the very least.
It helps in protecting you and your personal assets from lawsuits and setbacks, if they ever occur.
Ensure Paying Taxes
You need to pay income tax on the net income of your business. File these income taxes using Schedule C on Form 1040, adding the income or losses your business has incurred. Use the business losses to offset other sources of income such as salary from job or spouse.
You should make sure you prove your business is not just a hobby in order to lower your taxes. Once the business becomes profitable, it is then time to file for a corporate status to become a S corporation.
Even though the risk is great, the reward of becoming a sole proprietor is huge and the best part. After your registration is complete, you are on your journey to build a strong foundation to ensure long lasting success.