How to Start a Sole Proprietorship in Missouri
Starting a sole proprietorship in Missouri offers an accessible business structure for new entrepreneurs. As a sole proprietor, you retain flexibility and control over your enterprise. This guide will take you through the key steps for establishing a sole proprietorship in Missouri, including choosing a business name, obtaining licenses, and registering with the state.
What is a sole proprietorship?
A sole proprietorship is the simplest type of business entity. It is owned and operated by a single individual responsible for the business’s finances and debts. They are easy to set up and, for this reason, are popular amongst solo entrepreneurs and small business owners. Unlike other business structures like Limited Liability Companies (LLCs) or corporations, there is no legal separation between the business and the owner.
While a sole proprietorship offers simplicity and flexibility but has some drawbacks. The main disadvantage is the lack of asset protection. As a sole proprietor, your personal assets, like your car, home, and savings, are at risk if your business runs up debts or has any legal obligations.
A step-by-step guide to starting your Missouri 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 fictitious name in Missouri.
Here are the steps to filing your DBA:
- Choose a business name: When selecting a business name, consider using words that reflect your business’s values, products, or services. Brainstorm different name options that resonate with your target market and industry. It’s always a good idea to come up with a few different names in case your preferred name is already in use.
- Check availability: Once you have a few potential business names, it’s important to check their availability.
There are two key resources to check:
- You can use the Missouri Secretary of State’s Business Entity Search Station to ensure that another business in Missouri is not already using the name.
- It’s recommended to check the US Patent and Trademark Office’s Electronic Search System to avoid trademark infringement.
- Check online availability: Businesses need to establish an online identity. Ensure your desired domain name matching your business is available. Securing a domain of your business name enhances brand visibility and accessibility for future customers. Matching social media handles will also drive traffic to your business.
- Register the business name: Once you’ve confirmed the availability of your chosen name, you can complete your fictitious name registration. Your name can be filed online or by mail. File online with the Missouri Corporations Online Portal, or complete the Registration of Fictitious Name form. Remember to submit a filing fee with your application.
Obtain an (Employer Identification Number) EIN
Sole proprietors without employees don’t need to register for a federal tax ID number. They can use their Social Security Number (SSN) for tax purposes.
However, we recommend obtaining an EIN from the Internal Revenue Service (IRS) for several reasons:
- Opens up business banking opportunities: An EIN is often required to open a business bank account. This can help separate personal and business finances.
- Helps establish business credit: With an EIN, you can apply for business credit cards and loans separate from your credit. This can help you build credit for your business, which may be useful for future financial opportunities.
- Eases hiring process: If you plan on hiring employees in the future, you must have an EIN. It must report taxes and other documents to the IRS and set up payroll because it helps distinguish employees from employers.
- Enhances business privacy: An EIN can also replace your social security number in business paperwork, protecting you from identity theft and adding an extra layer of privacy.
- Prepares for business growth: Even though a sole proprietorship does not legally require an EIN, having one can simplify the transition if you decide to incorporate or restructure your business.
You can apply for your EIN on the IRS website.
Obtain Missouri business licenses, permits, and zoning clearances
- Missouri does not require a general state business license.
- Even though various agencies typically issue licenses, you can ascertain most of your business license needs by heading to the Register My Business Page on the Missouri Business Portal.
- Visit the Missouri Division of Professional Registration to understand what professional licenses you may need for your business. Licenses can range from accountants to wrestlers, so make sure you have checked that your new business is compliant.
- Contact your local city or county office to ask about local business licenses.
- If your business involves activities regulated by federal agencies, such as selling alcohol or firearms, you may need to obtain specific federal licenses. The U.S. Small Business Administration’s website provides more information on federal permits and licenses.
Register for taxes
As a sole proprietor in Missouri, you are responsible for reporting your business income on your tax return. You will use Schedule C to report business income and expenses on Form 1040.
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.
Additional state and local taxes
- State taxes for your sole proprietorship are payable to the Missouri Department of Revenue. The good news is that the state’s Online Business Registration System simplifies figuring out your tax obligations.
- Once registered on this platform, it’ll guide you on your due taxes, such as sales tax, and methods to meet them.
- Some cities and counties in Missouri may impose local taxes, such as local sales or business taxes. Contact your local government authorities to determine if you have any additional tax obligations at the local level.
Once you have obtained your EIN, registered for any federal taxes, and obtained the correct licenses, you have completed all the steps needed to start your sole proprietorship. Below we will outline some extra steps to stay compliant and organized as a small business.
Open business bank accounts
Separating your personal and business finances is essential for keeping accurate records and protecting your assets. Consider the following:
- Business bank account: Opening a business bank account to manage your business finances separately will help you track income and expenses, simplify tax reporting, and can help establish credibility.
- Business credit card: A business credit card can also help keep personal and business expenses separate. This will make it easier to track business-related expenses and build credit for your business which can be useful further down the road.
Get general 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:
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.
- Consult a tax advisor to determine the ideal structure for your goals.
- Compare liability protection needs against the desire for simplicity.
Can I use my name as the business name for my sole proprietorship in Missouri?
Yes, you can use your own legal name as the business name for your sole proprietorship in Missouri. If you prefer a different name, you can file a DBA.
Are there any general business license requirements for sole proprietors in Missouri?
No, Missouri does not have a general business license requirement for sole proprietors. Certain professions may require specific professional licenses. It’s important to check with the Missouri Division of Professional Registration for profession-specific permit requirements.
What records should I maintain for my sole proprietorship in Missouri?
Maintaining detailed records for your sole proprietorship, including income, expenses, assets, liabilities, inventory, and receipts, is crucial.
Do I need a registered agent for my Missouri business?
Sole proprietors do not need registered agents, but Missouri LLCs do.
How much paperwork is there to change my sole proprietorship into an LLC?
Typically, you must file Articles of Organization, obtain an EIN from the IRS, and draft an operating agreement.
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