How To Start a Sole Proprietorship

How To Start a Sole Proprietorship

There are three legal forms of business ownership, and a sole proprietorship is just one of them. This type of business is sometimes called a proprietorship, sole tradership, or individual entrepreneurship. There are also many advantages of having a sole proprietorship, like being your own boss. In this article, we will look at what a sole proprietor is and how to start a sole proprietorship

What is a sole proprietorship?

A sole proprietorship is an unincorporated business that one person owns. With a sole proprietorship, there is no legal distinction between that person and the business. This type of business is the simplest type of business to start, and there could be some advantages of starting this business as well as a few disadvantages. 

sole proprietorship

How to start a sole proprietorship

As mentioned earlier, a sole proprietorship is one of the most common and most simplistic types of business to start. To start a sole proprietorship, there are some steps you have to take into consideration before you begin. Let’s take a look at these steps.

start a sole proprietorship

1. Decide what type of business you want to start

In the United States, one of the first things you have to do is start your business; you must first establish what type of entity you want to start. These could be an LLC, corporation, or sole proprietor. However, as a sole proprietor, one of the documents you will need is a DBA; you can get this document from your local courthouse. 

2. Find a company name and register it with the state

Many people have always been managing businesses to make money, and being a sole proprietor is one of the most uncomplicated business entities to start. Finding a business name is significant, and it may be very frustrating choosing a name but having a good company name does matter. 

The IRS and the government make it easier for people to start small businesses by charging a small fee. To register for your DBA (Doing business as), go to your county clerk and mention that you want to start your proprietorship, and a form will be handed to you in which you will have to fill out; you can choose your name and see it’s availability after that pay a small fee. 

3. Research your competition

Researching your competition as a sole proprietor is essential to find out what they offer that you don’t. That could be the competition’s pricing as well. There can be various ways you can do so, like by calling a few of your competitors and visiting a few websites. This could help you find out what services they’re offering. 

4. Create a logo for your business and design a website if needed

Creating a logo for your business and designing a website is also necessary because everybody uses the internet in today’s world, and it’s easier to find your business there. There is no need to go door to door to sell stuff to your customers as a sole proprietor; customers can just visit your website, which makes it a lot easier and saves time. It’s also to your advantage to use your website to display your products and services at their best, and customers will order at their convenience. So there are lots of benefits of getting your logo and website. 

Create a logo for your business

5. Write up an operating agreement or LLC agreement (depending on which type of business you decide on)

Writing an operating agreement or LLC agreement is significant as a sole proprietor, some state doesn’t require them, but others do. One of the primary purposes of having one is to uphold the limited liability that an LLC provides. It’s also recommended to get help from an attorney to get it done. 

There are some things that are included in an operating agreement that is important. Some of these things include:

  • Your business name or business purpose and address
  • Is your business member-managed or manager-managed
  • Taxing information
  • Members of the business
  • Any contributions that you’ve made to the business
  • Liquidation and dissolution of the LLC
  • The transferring of ownership of the company if you may need to
  • How amendments can be made in the agreement
  • Proof that you own the LLC

6. Register yourself as self-employed with the IRS, pay taxes quarterly, and file tax returns annually.

As we mentioned earlier, you should register your business with your state. If you’re a private electrician, for example, you may also need to register with your state to receive your business permit or license. The IRS requires business owners who make at least over $1000 a year to pay quarterly in addition to their annual income yearly. To do so you have to visit the IRS website and register your business. If you don’t do so, there can be some penalties or interest that you will have to pay.

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