A sole proprietorship is an entrepreneur’s simplest business structure in Texas. While there are benefits to consider in the strengthened protection of a limited liability company or a corporation, people starting “side-hustles” often begin with a sole proprietorship. This simple method allows the new business owner to dip their feet into the pool. Some–through inertia or strategy–may simply continue the structure as the business grows.
The sole proprietorship initiation process lacks the layers of legal requirements standard in other business structures, but it does involve several steps that business owners should follow. A local law firm, like Ritter Spencer, can help new entrepreneurs successfully start a sole proprietorship in Texas. Read below to learn how to take the first step in your sole proprietorship.
What is a Sole Proprietorship?
A sole proprietorship is the most basic form of business established in Texas that does not require legal documentation. To engage in business as a sole proprietor, an individual must start selling a product or service. Depending on the type of business, product or service offered, there are certain taxation requirements and other licenses, certificates or permits that may be necessary.
How to Start a Sole Proprietorship in Texas
There are a few essential action items necessary to start a sole proprietorship in Texas. Even though the business process is simple, sole proprietors must still adhere to laws and tax regulations. A large portion of creating a sole proprietorship is planning, determining a name, starting a business strategy, and budgeting. The following steps help business owners enjoy a smooth legal process that does not omit any details.
Choose a Business Name
Sole proprietors may use the individual’s name, or an assumed business name. Consider “Emily Jones” versus “Cupcake Central.” One is a person’s name, while the other is one she created for business and advertising purposes. The chosen name must be distinguishable from other recorded names, and it is a good idea to get it trademarked.
In the case of an assumed business name, it must be registered as a “doing business as” (“DBA”) name with the county clerk for the county in which you intend to do business. A business owner can search to see if a name is already used at the Texas Comptroller of Public Accounts, the Texas Secretary of State’s Office, or the U.S. Patent and Trademark Office. An owner should also search the assumed name records in the Official Public Records of the county in which the business will be conducted. An experienced business attorney can assist with any questions about when and how to register a business name in Texas.
Obtain Permits and License
While the State of Texas does not require a general business license, an owner may need to obtain other licenses, permits, or zoning clearance depending on the type of business involved. The 2020 Texas Business Licenses and Permits Guide highlights specific information for different types of businesses. For example, a pest control professional must apply for pesticide application licensing, while a funeral home director must adhere to medical waste regulations.
Register to Pay Taxes
If a business owner is working on their own, they may file for taxes using their social security number. However, a sole proprietor who has employees needs an Employer Identification Number (“EIN”) issued by the Internal Revenue Service (IRS). Business income is taxed, so a business owner should consider starting a bank account separate from their personal one and make checks payable to the business.
A sole proprietor should also consider business liability insurance. They are personally liable for all legal judgments and settlements, unlike an LLC or other form of business. Separate insurance will help if they need to shield personal assets in the event of any legal or financial issues. Obtaining an umbrella policy covering any claims related to the business will also assist in protecting the owner’s assets.
Depending on the business type, the sole proprietor may need specific licenses and registration to pay sales or use tax. Owners can apply for a sales tax permit with the state of Texas online. In some cases, an EIN may be a requirement to open a business bank account or credit card
From here, the entrepreneur can determine the purpose of the business and create a market analysis, marketing plan, operations, management information, and a financial proposal.
Frequently Asked Questions About Sole Proprietorships in Texas
Does a sole proprietor in Texas need a business license?
No, a sole proprietor does not need to register for a business license in Texas.
Can a sole proprietor in Texas hire employees?
Yes, a sole proprietor can hire employees.
Can a sole proprietor in Texas have two owners?
No, a sole proprietorship can not have two owners. The business does not exist separately from its owner.
Does a sole proprietor in Texas need an EIN?
A sole proprietor may pay taxes using their social security number, but he or she may need an EIN from the IRS if they have employees.
Does a sole proprietor in Texas need a DBA?
A sole proprietor does not need a DBA in Texas if they use a personal name, but if the proprietor has a separate name, he or she should register an assumed business name in the county where the business is to be conducted.
Does a sole proprietor in Texas need liability insurance?
While not a general requirement for most businesses in the state of Texas, it is recommended that a sole proprietor get liability insurance.
The attorneys at Ritter Spencer can help with any business questions you have. Contact Ritter Spencer today when you are ready to start your sole proprietorship in Texas.