How to Start a Sole Proprietorship in Georgia
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Opening a sole proprietorship offers a straightforward path to starting your business in Georgia. You retain complete control over your enterprise and its day-to-day operations as a sole proprietor. This simple and common business structure provides flexibility for first-time entrepreneurs looking to get off the ground quickly. This article will walk through the step-by-step process for launching a sole proprietorship in Georgia, from choosing your business name to obtaining licenses and registering for taxes.
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What is a sole proprietorship?
A sole proprietorship provides the most basic business structure – it is owned and managed entirely by one person responsible for its debts and liabilities. The simplicity of set-up makes sole proprietorships a go-to choice for many new business owners going solo. Unlike Limited Liability Companies (LLCs) and corporations, there is no legal distinction between a sole proprietor’s personal and business assets.
While this simplicity can be advantageous, sole proprietorships also have drawbacks. Most notably, they offer entrepreneurs little protection for the owner’s assets. Weighing these protections and limitations is important in deciding if a sole proprietorship is the right structure for your business.
A step-by-step guide to starting your Georgia sole proprietorship
Choose a business name
By default, the name of the sole proprietorship must be the same as the owner’s legal name.
If you want to use a different name, you must file a “Doing Business As” (DBA), also known as a trade name in Georgia.
Here is how you file a DBA:
- Choose a business name: When considering potential names, aim for something memorable and descriptive of your business. A name that captures what makes your products or services unique can help create a recognizable brand.
- Check availability: Before finalizing your name and filling in your DBA paperwork, check if it is available in Georgia. Visit the Georgia Secretary of State’s website and complete a name search to check for existing names.
When selecting your DBA name, your name must be unique and not already in use by another business in the state. Conducting some quick online searches can uncover if competitors have similar names. Exploring the US Patent and Trademark Office’s trademark database will also help guarantee you aren’t infringing on another company’s intellectual property.
- Check online availability: Verify if your business name and variations are available as a website domain and social media handles.
- Register the business name: Once you’ve confirmed the availability of your chosen name, you can finally register it as a trade name. Trade names are filed with the county clerk of the superior court in the County where your principal place of business is located. On your trade name form, you must include the following:
- Desired trade name
- Nature of the business
- Names and addresses of company owners
- Notarized signatures of company owner
- Form of payment for the filing fee and publishing a notice
Obtain an (Employer Identification Number) EIN
Sole proprietors without staff can use their Social Security Number (SSN) for federal tax purposes rather than registering for an Employer Identification Number (EIN).
However, there are several advantages to proactively obtaining an EIN from the IRS as a sole proprietor:
- Opens up business banking opportunities: An EIN facilitates the opening of dedicated business bank accounts, credit cards, and loans to keep finances separate from your funds.
- Helps establish business credit: Applying for credit under your new EIN rather than SSN allows you to build credit tied to your company’s financial profile.
- Eases hiring process: Obtaining an EIN is beneficial for adding employees in the future, as it distinguishes your business from your personal tax documents.
- Enhances business privacy: Your EIN replaces using your SSN on business paperwork, protecting your identity and personal information.
- Prepares for business growth: An established EIN can streamline transitions if you incorporate or change structure as your business grows.
You can apply for your EIN here.
Obtain Georgia business licenses, permits, and zoning clearances
When exploring licensing requirements, determine if your business needs state-level licenses based on industry regulations. Then research what licenses or permits the local government mandates for businesses operating in their jurisdiction.
- Georgia doesn’t require a general state-level business license.
- Depending on your business type, you may have to apply for industry-specific licenses. The Georgia first stop business guide provides a full list of industry-specific and professional licenses you may need to apply for in Georgia.
- Some businesses, such as Alcohol or Aviation, are regulated by the federal government. You can find out more information at the Small Business Administration, where you can find links to the federal agency you must apply with.
- Some Georgia counties require you to obtain some type of business license from the County where you will do business, for example:
- If your business is located in Atlanta, you will need a business license issued by the city.
- If you are in Savannah, all businesses require a business tax certificate – this is a business license issued by the city.
- We recommend contacting your local government to see what is required specifically where you do business.
Register for taxes
As a sole proprietor, your business taxes are filed alongside your personal tax returns using Form 1040. When submitting your annual Form 1040, include Schedule C to report your sole proprietorship’s income, profits, and losses for the year.
As a self-employed sole proprietor, you owe self-employment tax contributions for Social Security and Medicare, which you can calculate and report using Schedule SE.
Access the most current versions of Form 1040, Schedule C, and Schedule SE on the IRS website.
How to register with Georgia’s online Tax Center (GTC)
Sole proprietors must establish an account on Georgia’s online Tax Center (GTC) platform. Before registering, make sure you have the following:
- Social Security Number (SSN)
- Most recent federal adjusted gross income (FAGI)
- Your NAICS industry code
- The tax accounts you need to register for
For sole proprietors who have filed Georgia returns before:
- Sign up for a GTC log-in to access your individual income tax account.
- Once your log-in is created, register as a sole proprietor:
- Log into GTC.
- Under “I want to,” select “See more links.”
- Choose “Register as a sole proprietor.”
- Follow the prompts to complete the registration.
- After you have completed the registration process, select “See more links,” then choose “Register New Tax Account.” Pick the required accounts and register by following the instructions.
For sole proprietors without previous Georgia filings:
You’ll need to complete New Business Registration as a sole proprietor on GTC:
- Select “Register a New Georgia Business”
- Choose “sole proprietor” as the Business Type.
- Follow the steps to finish registering and creating a GTC account.
Additional state and local taxes
Visit the Georgia Department of Revenue website and the GTC to register for any additional state taxes required for your particular business activities, such as sales tax, income tax, or other business taxes.
For example, sole proprietors selling alcohol or tobacco must pay taxes on those products.
Additional steps
Completing your EIN application, federal tax registration, and securing necessary licensing checks the core boxes for establishing your sole proprietorship. With the legal basics covered, it’s wise to take extra steps to set up your new business for ongoing success.
Open business bank accounts
Keeping your business and personal finances separated is key for accurate recordkeeping and protecting your assets. Think about opening:
- Business bank account: A dedicated business account to manage income, expenses, and transactions maintains clear separation from your funds. This also lends credibility when working with vendors or applying for financing.
- Business credit card: Opening a card in your business’s name further segments spending and builds credit history specific to your company’s financial profile.
Get liability insurance
Sole proprietors carry unlimited liability for business obligations, so insurance is critical. Policies can shield against unexpected claims or events. Consider:
- General business liability insurance: Covers claims of property damage, bodily harm, or personal injury resulting from your operations.
- Professional liability insurance: For service providers, it protects against alleged negligence, errors, or omissions in delivering your services.
Maintain business records
Careful recordkeeping helps maximize tax deductions and organize your sole proprietorship’s finances. Be sure to track:
- Income
- Expenses
- Assets/liabilities
- Inventory
- Receipts
Using bookkeeping software, spreadsheets, or an organized system makes staying on top of documentation easier for tax filing and general financial health.
Sole proprietorship vs. LLC
For some businesses, forming an LLC may better serve long-term goals than a sole proprietorship. LLCs offer advantages like:
- Liability protection: Your personal and business assets are legally distinct with an LLC structure. Your business is a legal entity that files taxes separately from the business owner.
- Credibility: The formal LLC designation can boost your professional image with customers.
- Growth potential: LLCs are well-suited if you aim to expand your current operations eventually.
- Tax flexibility: LLCs permit you to select how your business income is taxed.
However, LLCs also come with tradeoffs to weigh:
- Complexity: LLCs require drafting an operating agreement and annual reporting obligations. Sole proprietorships involve less paperwork.
- Cost: Forming and maintaining an LLC has higher upfront fees and ongoing costs.
Tips:
- Consult a tax advisor to determine the ideal structure for your goals.
- Compare liability protection needs against the desire for simplicity.
Useful resources to help start your sole proprietorship in Georgia
FAQs
Do I need a registered agent for my sole proprietorship in Georgia?
No, a registered agent is not required for sole proprietorships in Georgia, though some choose to use one for privacy and legal advice. Registered agents are mandatory for LLCs.
What are the risks and personal liability of a sole proprietorship?
With sole proprietorships, unlimited personal liability means your personal assets are at risk for any business debts/lawsuits. An LLC or corporation provides liability protection.
Is a DBA the same as a fictitious name or trade name?
Yes, a DBA has many different names; in Georgia, it is most commonly referred to as a trading name.
How do I file taxes as a sole proprietorship in Georgia?
You report sole proprietorship income on your personal 1040 tax return using Schedule C. Quarterly estimated payments may also be required.
Is transitioning from a sole proprietorship to an LLC difficult?
It’s generally straightforward but requires filing articles of organization and having an operating agreement. An existing EIN can help simplify the process.
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