A complete guide on “How to Start a Sole Proprietorship in the USA?”

“How to Start a Sole Proprietorship in the USA?”, Types of Sole Proprietorship Business and Advantages of Setting up a Sole Proprietorship


In the United States, sole proprietorships are the most frequent type of small business. They do not have the same particular filing needs as more complex business structures, and they are easy to get started with. In this article information on “What is Sole Proprietorship in the US?”, Types of Sole Proprietorship Business in the USA, “How to start a Sole Proprietorship in the USA?” and Advantages of Setting up a Sole Proprietorship is mentioned.

What is Sole Proprietorship in the US?

The simplest and most typical structure for starting a business is sole proprietorship. It is an unincorporated business run by a single individual, with no distinction made between the business and the owner. Sole Proprietorship owner is entitled to all earnings and is accountable for any debts, losses, and liabilities incurred by your company.


Profits from a sole proprietorship are taxed as the owner’s personal income, and despite their name, sole proprietorships are allowed to recruit employees as long as they obtain an EIN (Employee Identification Number). They are the most straightforward to set up. As a result, they are the most popular.


In contrast to an LLC (limited liability company) or a corporation, a sole proprietorship is not a separate legal entity from its owner. Many sole proprietors, on the other hand, later convert their enterprises into limited liability companies (LLCs) when they’re ready to expand.

Types of Sole Proprietorship Business

  • Franchisee

Sole proprietors are another type of franchise owner. In exchange for royalties paid to the franchisor, the franchisee gains access to the brand, business model, and other resources.

  • Independent Contractor

A self-employed sole entrepreneur who works on projects under contract with clients is known as an independent contractor. Although they are free to select the clients they work with, they are frequently bound by the procedures and standards set by the client.

  • Business Owner

Like contractors, business owners are also sole proprietors that work for themselves, but unlike them, they have much more control over how clients’ work is carried out, and their operations may even be more complicated with regards to personnel and/or intellectual property.

How to Start a Sole Proprietorship Business in the USA?

Below is the step by step guide on “How to start a Sole Proprietorship Business in the USA?”

  • Choose Business Name

The majority of sole proprietors decide to operate under their legal name since it strengthens their credibility and capitalizes on their reputation. You can, however, choose to conduct business under a different name by submitting “doing business as”.


You can register your company name as a trademark with the U.S. Patent and Trademark Office if you want to ensure that no one else can use it elsewhere in the country.

  • Get License and Permission from the government authorities

It is essential that you follow all regulations and acquire the necessary company licenses and permissions. You run the danger of paying significant fines if you do not have the necessary licenses or permissions.


The kind of licenses and permissions you need will vary depending on the kind of business you are running, the state, and the locality you are in. For instance, if you are starting a daycare, you need to complete health and safety training. Similar to that, if you want to make or serve food, you need health department permission.

  • Get EIN (Employer Identification Number)

If you work alone, you might not require an employee EIN (Employer Identification Number) and can instead use your social security number to operate and file taxes. However, you need to apply for a federal employer identification number as soon as you recruit an employee or establish a retirement plan. You can get it online for free.

  • Open your Business Bank Account

Running a lone proprietorship requires that you keep personal and company costs separate (especially if you get audited). Opening a business bank account gives your company’s funds some level of safety, enables customers to pay with credit cards and write checks to your company, and helps your company establish a solid credit history.


Prior to launching your Sole Proprietorship Business, it is a good idea to establish a solid credit history. While credit cards might be helpful in the early stages of your business when cash flow is short, the interest becomes too much to handle.

Advantages of Setting up a Sole Proprietorship Business in the USA

  • One of a Sole Proprietorship’s primary benefits is that it enables you to scale up your business far more quickly and with less government paperwork on the line.
  • If you own a sole proprietorship, you do not need to bother about some of the other elements of an LLC or corporation, such as company officials or registered agents.
  • Saving money on registration fees is one of the biggest advantages of operating a business as a sole proprietor.

Know More: Sole Proprietorship in the US


The risks facing sole proprietorships are substantial. These are only a few of the difficulties that sole proprietors encounter, along with increased personal liability, trouble getting financing, and a perceived lack of professionalism. However, the financial advantages might outweigh the dangers. Additionally, it is possible that you can apply for corporate status or turn your company into a S corporation if it starts making more profit.

Zarana Mehta: Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.
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