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Forming a sole proprietorship, advantages of registering a business name

Forming a Sole Proprietorship

A sole proprietorship is the simplest type of business structure to establish. You are considered a sole proprietor just by doing business without partners. For example, if you do paid carpentry work in your spare time, you are a sole proprietor. You should only consider a sole proprietorship if you want to pay taxes from your business earnings on your personal income tax return and you are not concerned about personal liability. Otherwise, if you are sued or you cannot pay your business debts, your house and wages could be at risk.

As a sole proprietor, you must pay taxes from your company’s earnings on your personal income tax return.
More importantly, you are personally liable for all business-related obligations, such as debts and court judgments.

To Do List:
If you operate under an assumed name (DBA)

Required Form X-201
-You can buy the form from most stationary stores or from the web
-You should have 3 copies of the forms:For the County Clerk's office, Bank and for your office location.

Important

-The address of the business cannot be a P.O. Box.

-The forms that are filled out should be notarized.

-The County Clerks office will have a computer where you can conduct a business name search.

File the forms and send them to your County Clerk's office


Brooklyn__________________________________
Supreme Court Building, 360 Adams St., Room 189
Brooklyn, NY 11201 (347) 404-9750

Bronx____________________________________
851 Grand Concourse, Room 118,
Bronx, NY 10451 (718) 590-3682

Manhattan________________________________
Supreme Court Bldg, 60 Centre St., Room.103B,
New York, NY 10007 (646) 386-5955

Queens___________________________________
88-11 Sutphin Blvd., Room 106,
Queens, NY 11435 (718) 298-0600

Staten Island______________________________
130 Stuyvesant Place, 1st Floor,
Staten Island, NY 10301 (718) 390-5396

The Fee for registering the Form X-201 is $100 plus $10 for each certified copy.

Call your local County Clerk's Office to get most current information.

After Registration

-Getting a Tax ID: Though it is possible to use your Social Security Number when you are a sole proprietor, generally businesses get a Tax ID. You may need a Tax ID for your business if you plan:
-To purchase goods at wholesale prices
-To hire employees
-To file any of the following tax returns: Employment, Alcohol, Excise, Tobacco and Firearms

- Business Bank Account Once you register the business and get your Tax ID you can go to a bank and open a business checking account. This will help you separate your business and personal expenses.

- Retail Tax Autorization If required for your business you should obtain Retail sales tax Authorization this is also called a "Certificate of Authority"

- Obtain any licenses or permits your business may require.

Example:
You are the owner of a small store in SoHo selling designer clothes. You experience a sudden spike in sales and order $25,000 worth of new merchandise. Unfortunately, demand drops and you cannot pay your supplier. In this case, you are personally liable for repayment of the debt. Not only are your business assets at risk, but also your personal assets, such as your house or your car.

If you are a new entrepreneur then sole proprietorship is a great choice. You just register the business name at the county clerks office, use your social security as a Tax ID and open bank acount.

You can get a seperate Tax Id for your sole proprietorship, this is a good idea since you probably do not want to give your own social security number to various supliers and clients. Check the Tax ID section for more info.

How to get started

Because you are required to file little or no paperwork, it is easy to establish your business as a sole proprietorship. The simple act of launching a business without partners will make your company a sole proprietorship. Nevertheless, you will still have to get all of the necessary licenses and permits prior to starting your business. If you are conducting retail sales, you will need a sales tax authorization.

If you plan to hire employees you will also need an employer identification number (EIN) from the IRS. In addition, many sole proprietors operate as a DBA, “doing business as.” For example, “John Smith doing business as Johnny’s Restaurant.” These business owners have registered at the New York County Clerk’s office under a business name.

Things to remember:

  • Sole proprietorships are easy to set up and to manage; you may need to get licenses to do business. You can register your sole proprietorship documents in your local county clerk's office and get a business certificate
  • You will report your business gains or losses on your personal income taxes. The form that you need is your usual IRS Form 1040 with a schedule C added
  • There is not a separation between your business assets and your own assets; you are personally liable for business debts or court judgments. If you think that your business is risky you would want to form one of the more advanced business types: LLC or Corp

If it turns out that your business is growing and you want to change your business structure it is easy to transform your sole proprietorship into and LLC or a Corp. However once you have an LLC or a Corp it is much harder to change since you would have to disolve them and re-form the new business, this will cost time and money.

Partnership

If you are planning on doing business with another person but do not want to form an LLC or a corporation you will form a partnership. You can read more on this in the Partnership section

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