If you started a side business as a hobby, or do freelance work as a photographer or writer, then you may already own a sole proprietorship without you even realizing it. Unlike LLCs or corporations, a sole proprietorship is a one-person business that is not registered with the state. Sole proprietors include those that provide work on a contract basis, independent contractors, or commission-only salespersons.
Although sole proprietorships are the easiest business entity to create, there are still business licenses, permits, and other local registrations that you may need to apply for in order to make your business legal and legitimate.
For example, even if you're running your business as a sole proprietorship, most counties or cities require that you register and obtain a business license. In addition, you may need to obtain an employer identification number (EIN) from the IRS if you have any employees.
Besides a business license or tax ID number, you may also need a certification or license for your specific profession. For example, contractors need a specific license for each type of work they perform and real estate agents need a real estate license. While these may be more obvious examples, it is always important to check your local city ordinances to make sure you don't need a special license to operate your specific business.
Lastly, if you are doing business under any name other than your own (e.g. "Custom Bikes" instead of "John Doe's Bikes") you need to register your "doing business as" name with the state of Utah. This is a relatively simple process and can be done online, however it does require a fee.
While the relative ease and low cost of starting a sole proprietorship may seem intriguing, it is still worthwhile to consider forming an LLC or corporation instead. The reason being is that a sole proprietor is personally liable for all of the business' debts and obligations whereas the owner of an LLC or corporation is generally shielded from any personal liability.
To best understand what business entity best fits your need, you can schedule a free consultation with J. Cutler Law. In your initial consultation, we will evaluate your unique situation and recommend a sole proprietorship, LLC, or corporation. And no matter what business entity you decide, we can help guide you along the process of making your business legitimate.