Docstoc

Forming a Sole Proprietorship Step by Step Guide

Document Sample
Forming a Sole Proprietorship Step by Step Guide Powered By Docstoc
					This is a step-by-step guide on how to form a sole proprietorship. A sole proprietorship
is where an individual is running their own business by selling goods or services. This
guide will assist in learning the advantages and disadvantages of a sole proprietorship
and answers some frequently asked questions. This guide is ideal for individuals or
married couples who are engaging in a business without a formal organizational
structure.
Table of Contents
How to use this guide .......................................................................................................... 3
Do I need a lawyer to form a sole proprietorship?.............................................................. 3
How do I find a reputable law firm? ................................................................................... 3
Frequently Asked Questions ............................................................................................... 4
  What is a sole proprietorship?       4
  How do I create a sole proprietorship?           4
  Are sole proprietors personally liable for their business debts? 4
  How are sole proprietors taxed? 5
  Do I need to register my sole proprietorship?                5
Steps in creating a sole proprietorship ................................................................................ 6
Advantages and Disadvantages of Sole Proprietorship ...................................................... 7
   Advantages 7
   Disadvantages                7




© Copyright 2011 Docstoc Inc. registered document proprietary, copy not                                                     2
          A GUIDE TO FORMING A SOLE PROPRIETORSHIP

HOW TO USE THIS GUIDE
          A sole proprietorship is the simplest type of business to own. Most often the business is
owned and operated by a single owner or married couple. If someone is running their own
business and selling goods or services they are probably running a sole proprietorship and not
even know it. While it is simple on its face, there are issues that can arise. This guide will assist
the reader in learning the advantages and disadvantages of sole proprietorship and answer some
frequently asked questions. This guide is for information purposes only and is not intended as a
substitute for sound legal advice. Should you have any questions you should contact your
lawyer.


DO I NEED A LAWYER TO FORM A SOLE PROPRIETORSHIP?
          No, you do not need a lawyer to create a sole proprietorship. As in any business there are
issues that can arise, however, where legal advice would be helpful. Should you have any
questions or concerns regarding the creation or maintenance of your business you should contact
a lawyer.


HOW DO I FIND A REPUTABLE LAW FIRM?
          If you have decided to retain a lawyer, you will want to find a firm and lawyer with
plenty of experience and a great track record. Make sure that you find a lawyer that specializes
in corporate law. The legal field is vast, and a lawyer needs to be specialized in a particular
field. Some lawyers may take any type of case just to keep the money coming in, but they are
not necessarily well versed in one particular subject.


          Check your phone book, the internet, your local bar association or word of mouth to get
the names of a few good lawyers. Most will meet for you the first time for free. Use this time to
interview them. What is their experience, how much do they charge, and what can you expect to
get for your money by hiring them.




© Copyright 2011 Docstoc Inc. registered document proprietary, copy not                  3
FREQUENTLY ASKED QUESTIONS


What is a sole proprietorship?


         A sole proprietorship is an unincorporated business that is owned by a single person, who
has unlimited liability in the business. In some states this can be called a DBA (doing business
as). As mentioned above, there are many people working for themselves that are operating as
sole proprietors and don’t realize it.




How do I create a sole proprietorship?


         Creating a sole proprietorship is inexpensive and simple.        There are no filings or
registrations per se as with other types of business entities. It is as simple as an individual going
into business for themselves. There may be permits and licenses (a local business license, for
instance) required, so a sole proprietor should check local laws to make sure they are in
compliance.


Are sole proprietors personally liable for their business debts?


         A sole proprietor and the business are legally one in the same, so the owner is personally
liable for all business debts. If you are a sole proprietor and find yourself in trouble with
creditors, the creditors can come after your personal assets. This of course is the flipside of a
corporation and other types of business structures, where the company becomes its own entity,
and the owner enjoys protection from personal liability.




© Copyright 2011 Docstoc Inc. registered document proprietary, copy not                  4
How are sole proprietors taxed?


         Because the owner and the business are one in the same the profits or losses of the
business go directly on the owner’s personal income tax statement.


         Also, because you are in business for yourself, as sole proprietor will be responsible
withholding and paying all taxes out of your income. This means that you will have to pay a
self-employment tax, which is Social Security and Medicare, as well as pay estimated taxes
throughout the year.


Do I need to register my sole proprietorship?


         While you do not have to file any special forms or pay any filing fees to begin as a sole
proprietor, there are general registration requirements that need to be met.


         In most counties new businesses are required to register and pay a minimum tax. When
doing so you will receive a Business License or Tax Registration Certificate. If you are selling
tangible goods you may need to apply for a Seller’s Permit or license, as well as apply for an
Employer Identification Number with the Internal Revenue Service.


         If you are doing business under a name other than your own, you will need to file a
Fictitious Business Name Statement at your county courthouse. This is a simple process where
you complete a form, and file it with the county. Then you are required to publish notice in a
local newspaper that you have filed this document and state the name you are doing business
under. Usually it is required to publish the notice one a week for 4-6 weeks. After publication is
completed the newspaper will send you a Proof of Publication which you will also file the
County.




© Copyright 2011 Docstoc Inc. registered document proprietary, copy not               5
STEPS IN CREATING A SOLE PROPRIETORSHIP


         1. Decide on your business structure. There are many ways to go here. It is best to look
              into all of your options.


         2. If you decide to opt for a sole proprietorship, file a Fictitious Business Name
              Statement with the county. Once you file your statement, some states will require
              you to publish notice in the local newspaper.


         3. Pay estimated taxes quarterly throughout the year. This is required if you anticipate
              earning more than $1,000.00 in federal taxes.


         4. Report your profits and losses on your income tax return. Report your taxes on Form
              1040, and file Schedule C or C-EZ. There is a special IRS publication that might be
              useful, Publication 334.


         5. If you sell goods, obtain a State Sales Tax Certificate.


         6. Check into licensing requirements. Licensing takes place at the local and state level.
              Most states require a General Business License. Check with the county clerks office
              for forms and information;


         7. Pay self employment taxes, which include Social Security and Medicare.


       
				
DOCUMENT INFO
Description: This is a step-by-step guide on how to form a sole proprietorship. A sole proprietorship is where an individual is running their own business by selling goods or services. This guide will assist in learning the advantages and disadvantages of a sole proprietorship and answers some frequently asked questions. This guide is ideal for individuals or married couples who are engaging in a business without a formal organizational structure.
This document is also part of a package Independent Contractor Starter Kit 21 Documents Included