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Getting Started as a Sole Proprietorship

Abstract and Body

A sole proprietorship is a small business owned by just one person. It is an unincorporated business that is not legally separate from the individual who owns it. Setting up the business properly is the vital first step in launching a business.

The Sole Proprietor Arrangement

When you begin a sole proprietorship, you should understand the legal implications of this business type. Unlike with a corporation, there will be no legal separation between you and your business. Some business owners choose this business type because it is easy to run and you, as the business owner, can do anything you like with the business funds. All income from the business will be treated as your personal income. Some entrepreneurs stay away from this arrangement, however, because it does make the business owner liable for any legal problems caused by the business.

State and Local Licenses

Because a sole proprietor has complete control over a business and takes on all legal responsibility for it, there are no additional licenses needed other than the local licenses required by law. To begin this process, contact your local courthouse and speak to someone in the small business department who can assist with business licensing. Depending on your business type, you will likely need nothing more than a simple business license from your county.

If you plan to do business in more than one state, you may also need a state or federal license to sell your product. If you plan to sell a specific items such as tobacco or food that you have cooked, you will need additional licensing and may need an inspection before you can begin business.

To file the paperwork, you will have to have a name chosen for your business. That name must be a unique one to distinguish it from other local businesses. If the county finds that there is another registered business with your chosen business name, you may have to start the process again. To avoid this, many entrepreneurs choose a personal or descriptive word as well as a word or two that describes their business. Consider names such as “Fred’s Fishing Stop” instead of “Metro Fishing Store.” File for all of the licenses required for your sole proprietorship. Then, purchase the domain name that corresponds to your business name.

ID Numbers

Your business will need at least one government ID number for your business, and you will need another if you plan to hire anyone for your business. Your first ID is a state ID number. This will allow you to participate in a Keogh retirement plan and to pay excise taxes if required. TO file for this number, contact your state’s Department of Revenue office.

If you plan to hire employees, you will also need to file for a federal employer identification number. To do this, go through the IRS website and apply for the number with Form SS-4. This is a free service, and the number is generated instantly.

Record Keeping and Taxes

Keep all of your licenses and permits in a safe place. You may need information from them for your tax preparation and for any inspections you may be subjected to. You will also need tax submission vouchers. This are provided by the IRS and must be used quarterly to pay any taxes that you anticipate will be due. Quarterly estimated tax payments are paid in January, April, June and September.


Because you are legally liable for damages caused by your business, you need insurance to help protect your assets. Business insurance, particularly liability insurance if necessary, is an important part of keeping yourself protected.

Starting a Business?
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