Many people who decide to work for themselves are confused about what it means to �go into business.� They think they have to �set up a company.� Or they have to incorporate. Or they must notify ten different government agencies. Well, indies, here�s how to do it. Hold onto your socks!
As soon as you sell or attempt to sell your service or product in pursuit of making a profit you have �formed� a sole proprietorship.
A sole proprietorship is the most simple business entity. Other entities are partnerships and corporations. Did you have a lemonade stand when you were a kid? Or, did you babysit or do yardwork? If you were doing it to make money then you were a self-employed in business and your business structure was a sole proprietorship.
You are a sole proprietor even if you make no money -- as long as you intend to make a profit. You don�t need a business name. You don�t need to rent an office. You don�t need a business bank account. You need do nothing by way of notification. There are no papers to complete, no agency to contact. You simply engage in your business activity.
You don�t need an accountant, a lawyer, a banker, an insurance agent, or a marketing consultant to become a business. Depending upon the kind of venture you are engaging in � if you�re a solo trucker shipping hazardous materials across state lines, for instance � or as your business grows or tax laws change, some or all of these professionals may be useful to your business, but they are not necessary for the early and instant formation of your business as a sole proprietorship. Some independent professionals, depending upon �
� The product they sell.
� The service they provide.
� The location of their business.
� Whether they use a name other than their own as their business name.
� Whether they have employees or hire subcontractors.
May have to ...
� Obtain various permits from state and local governments to comply with zoning or health code regulations.
� Obtain various licenses, perhaps registering the business with the state
� Show proof of insurance.
� Register to collect and/or pay state sales or gross receipts tax.
� File for the use of a trade name. Often referred to as a DBA � �doing business as.�
� Contact a Federal agency about Federal regulations for various kinds of businesses; for instance, a weaver who raises his own sheep must comply with textile regulations, and the maker of Mom�s Beef Pot Pies must observe regulations on the preparation of meat products.
� Obtain a Federal Identification Number, also called an Employer Identification Number, EIN.
Incorporation?
Occasionally � although not often -- there are good reasons why a self-employed should incorporate, but if advised that you must do it, find out why. Be sure the professional explains to your satisfaction � and also to the satisfaction of a savvy friend, colleague or relative -- what makes incorporation necessary. Often, a sole proprietorship under the legal entity of an LLC will serve you better than a corporation. If you don�t understand that last sentence, then by all means, do not incorporate or form an LLC until you completely understand why it is necessary. Ask a lot of questions and be sure you completely understand the answers you get.
Facts � to stifle some old husbands� tales:
All business structures
� allow you to deduct business expenses
� allow some or all deduction of medical insurance
� allow for contributions to pension plans
� allow you to hire employees or subcontractors
� allow the other guy to sue you
� do not allow you to hide income
� do not allow you to write off personal non-business expenses
