How to Start a Sole Proprietorship in 7 Steps (any state)

Starting a business is an exciting venture, but it can be tricky to know exactly what steps to follow for your specific business structure. 

If you’re thinking about adopting a new business framework, this article aims to show you the steps for achieving a well-planned sole proprietorship.

We’ll cover what a sole proprietorship is, who benefits from this structure, and how to start a sole proprietorship in just 7 steps. 

At the end of this article, you’ll find an FAQ section that addresses some common questions about this type of business, as well as how to get started. 

If you’re a brand new entrepreneur or are thinking about turning your business into a sole proprietorship, you’ll benefit from the knowledge contained in this post.

The 7 steps to setting up a sole proprietorship

Sole proprietorships are a type of unincorporated business structure that is owned and operated by one individual.

When it comes to legal matters, there is no difference between the individual and the business in this structure which assigns the individual to all profits and losses.

This includes all income, overhead expenses, and debts accumulated. 

Did you know that sole proprietorships make up most of the businesses in the United States?

According to the U.S. Census, that number is close to 70% (approximately 20 million businesses). 

Setting up a sole proprietorship involves multiple steps, which we’ve outlined below to help you to begin:

1. Choose a business name
2. Register your DBA business name
3. Purchase a domain name
4. Apply for an EIN
5. Obtain a business license or other permits
6. Open a business bank account
7. Get business insurance

1. Choose a business name

Have you thought about what you might want to name your business? If you’ve got a good name in mind, you’re already finished with step one.

Choosing a business name is a very personal decision, but here are some helpful tips.

The Kompani Group created the BrandMap™ that outlines the core of business planning and creation.

Once you’ve determined your business core, check out this PDF which should help you to narrow down the name you’ll use for your business.

2. Register your DBA business name

A “doing business as” (DBA) business name is essentially an alias for your business.

If you want your business name to appear differently than the name that your business is registered under, you can use a DBA name. 

As an example, if an individual wanted to open an ice cream shop with the name “Sprinkled Treats”, they can still do so even if their formal business name is something different. 

If you want to learn more about how to register, check out this website here.

3. Purchase a domain name

Next, you’ll want to purchase a domain name. Domain names are the name of a website or email service associated with an organization.

Domain names need to be registered, as all entities are required to have a unique one. 

Domain names can be purchased from a variety of retailers, such as GoDaddy.

From here, you can create websites and email addresses for your business.

4. Apply for an EIN

Employer identification numbers (EIN) are the same thing as tax ID numbers.

The Internal Revenue Service (IRS) collects taxes from individuals through a social security number and businesses through their EIN.

As per the calendar, we have included the most important dates to remember for sole proprietors related to taxation.

5. Obtain a business license or other permits

In order to operate your business, you’ll need a business license.

The U.S. government issues business licenses to enable organizations to operate within the country. 

Business licenses vary depending on the type of business that you’re running, such as a restaurant or a clothing boutique. 

It is important to obtain a business license through the state in which you intend to operate your sole proprietorship.

Check with your local government website for more information on how to file for your business.

6. Open a business bank account

You’re almost there! When handling the financial elements of your business, it is wise to open a bank account that is solely for the use of your business. 

Refrain from using a credit card in your name to operate your business, as tempting as it may be. 

You may want to compare bank accounts before picking one as there may be benefits to opening an account with a certain bank if you’re a restaurant owner, for example. 

Generally speaking, certain banks are more business-friendly than others.

7. Get business insurance

Business insurance is a great way to secure the hard work you’ve just put into creating your sole proprietorship.

Just as you might want life or car insurance, business insurance protects your organization in a number of ways. 

Business insurance protects your business’s liability and assets in case something goes wrong. 

Also, some business insurance policies offer employee protection clauses that cover injuries or illnesses that may occur over the lifetime of your sole proprietorship.

QuickStart: Use a business formation service like LegalZoom

There are an array of legal actions to take when establishing your business structure.

Thankfully, LegalZoom has expertise in all 7 of these above steps, plus other formalities. 

With LegalZoom, you can assuredly complete this process with the help of seasoned professionals.

Whichever way you go with your sole proprietorship, LegalZoom has your back.

Is a sole proprietorship right for me?

Now that you’re aware of the 7 steps needed to start a sole proprietorship, you should feel accomplished. 

You are taking a big step by formally registering your business as a sole proprietorship, both legally and professionally.

Hopefully, this guide has made the whole process clearer for you. Take care!

FAQs