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How do I start a sole proprietorship?

Starting a sole proprietorship is an easy process. If you do not set up a corporation, LLC, or other formal business structure, then the moment you start offering goods and services on your own, you become a sole proprietor. 

There may be state or local registration or permitting requirements, depending on your area and industry. If you hire workers, you may want to obtain an Employer Identification Number (EIN) to avoid using your Social Security number on your employee tax documents. Paying taxes is also fairly simple, as you pay them as on your personal tax return using a Schedule C form, since there's no distinction between you and your business.

Knowing how to start a sole proprietorship is only half the battle. You may want to ensure that you have all the necessary state and local permits and licenses to operate a business of your chosen type. As a self-employed person, you may have to spend a fair amount of time and effort on researching the regulations for your type of business. To save time, or confirm your own research, you may want to ask a lawyer.

A sole proprietorship is a business like any other. To thrive, apart from meeting all the regulations and paying taxes on time, a Business Plan with short and long term goals can make the difference between success and failure. 

Organization is the key, especially when you are your own employer, or employing others. An Employee Handbook and other policies can both protect your business, and make sure you keep things running smoothly. You may want to have employment documents, or vendor and service contracts, and billing and invoicing forms ready.

When do sole proprietors want to change business structure?

Even though a sole proprietorship is the easiest business type to set up, it may not be the best choice when it comes to liability protection, business financing options, taking on partners, and more. 

When a business starts growing, whether that involves higher revenues or hiring more workers, business owners may want to incorporate or form an LLC. Doing so can protect their personal assets, such as their home and personal bank account, if something goes wrong with their business. Sole proprietors may also want to change their business structure if they plan to sell all or part of their business, take on investors, get bank financing, or are just looking to boost their business's reputation.

If you have more questions about starting a sole proprietorship or leveling up to an LLC or corporation, reach out to a Rocket Lawyer network attorney for affordable legal advice.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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