Start a Sole Proprietorship and Get an EIN the Same Day

If you’re wondering how to start a sole proprietorship, it’s simple, you simply start a business in your name and you’re a sole proprietorship. You don’t need to register it with the state.

However, there are many other steps involved if you want to learn how to start a sole proprietorship the right way.

Here are the steps you need to follow to start a sole proprietorship:

• Choose a Business Idea: First, choose a business that you’re interested in and has a good profit potential. Consider the market dynamics and competitors to make a decision.
• Make a Business Plan: Make a strategy for how you will market and grow your business. Choose your sales and distribution channels and make a pricing strategy for your products and services.
• Understand Tax Considerations: Before you decide to start a sole proprietorship, consider the tax benefits it offers over other entities and other tax considerations, such as self-employment taxes.
• Apply for a DBA: When you start a sole proprietorship, you don’t need to register an official business name or form a legal entity. However, if you use an assumed name, you will need to apply for a DBA.
• Get an EIN: If you plan to hire employees and pay payroll taxes, then you will need a federal Employer Identification Number. Our partner EIN-Tax-ID-Form.com can help you get one quickly by filing a simple online application on their website.
• Open a Bank Account: After you start a sole proprietorship, you should open a separate bank account for your business. This will help you track your business income and expenses accurately.
• Get Licenses and Permits: Even if you don’t need to register your business, you still need to get the required licenses to operate a business in your state. Find the requirements and get the needed permits.
• Get Your Business Insured: When you start a sole proprietorship, you bear its profits and losses. So, it’s prudent that you protect your business from unforeseen circumstances by getting it insured.
• Create a Business Website: Lastly, get a domain name that matches your business name and create a business website. You can do it yourself using a website builder or outsource to a web designer.

The first thing you should know when learning how to start a sole proprietorship is that it’s not a legal entity, so you don’t need to register it with the state. Since there is no registration, there's also no state filing fees. So, it costs nothing to start a sole proprietorship, in terms of registration costs.

Of course, you still need to invest in starting a new business, whether it’s inventory costs or other business expenses. How much it costs to start a business depends on the type and scale of the business.

For example, you could potentially start an online business completely free. A retail business where you also manufacture the products, on the other hand, may require substantial capital.

If you start a sole proprietorship, you are the sole owner with complete control over the business and its operations.

However, it also means that the business profits and losses will be borne by you. If the business fails, you’ll suffer the losses but if it’s successful, you get all the profits. You will have no personal liability protection in case the business is in financial or legal trouble.

If you form an LLC, you get a share of profits and losses, if there are multiple owners and all of it if you’re the only member. However, you will get some liability protection in case the business fails or faces a lawsuit.

If there are multiple members, then you’ll have to mutually agree on how the company will be run. You’ll also need to register your business with the state and provide your personal information, so you no longer have complete privacy.

Sole proprietorships have certain advantages, especially if you are the only business owner. Here are some reasons why you should start a sole proprietorship:

• Easy to Start: It is extremely easy to start a sole proprietorship as you can just start a business under your name and don’t need to register it with the state. The lack of government paperwork simplifies the process.
• Complete Control: As the sole proprietor, you’ll have complete control over how your own business is managed. There are no external guidelines or interference from the state authorities or anyone else.
• Easy Tax Filing: Since the profits or losses pass directly to you, you only need to file your personal income tax returns. You don’t need to file for any corporate taxes separately, which makes things simple.
• Full Profit Retention: If you choose to start a sole proprietorship, you get to keep all business profits. Since there are no other owners, you don’t need to share business profits with anyone.
• Extremely Affordable: It costs nothing to start a sole proprietorship, at least in terms of government fees. Of course, there are startup and running costs, but those are minimal compared to those of other business entities.
• Complete Privacy: As a sole proprietor, you don’t need to divulge your information to the state authorities. There are no business registration and annual report filings, so your information will remain private.

If you start a sole proprietorship, you can do without an EIN in most cases. However, you need an EIN if:

• You plan to hire employees for your business and pay payroll taxes.
• You need to pay excise tax returns or file taxes for pension plans.
• A bank asks for it to open a business bank account.
• You need to secure business funding and having an EIN will lend more credibility to your business.
• You often work with independent contractors and file Form 1099-NEC for non-employee compensation.
• You want to protect your personal identity by using an EIN instead of your social security number for all business dealings.
• You want to make your business look more professional and credible to vendors, suppliers, investors, banks, etc.

Once you start a sole proprietorship, assess your requirements and then decide if you need an EIN.