How to Start a Sole Proprietorship in New Hampshire
Starting a sole proprietorship in New Hampshire can be an accessible first step for aspiring business owners. As a sole proprietor, you retain full control and responsibility for your company’s operations and liabilities. This guide will take you through the key steps for launching your sole proprietorship in New Hampshire, including choosing a business name, obtaining licenses, and registering your business.
What is a sole proprietorship?
A sole proprietorship is the simplest form 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 startups. 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 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 New Hampshire sole proprietorship
Choose a business name
By default, the name of the sole proprietorship must be 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 New Hampshire.
Here is how you file for a DBA name:
- Choose a business name: Consider potential names for something memorable and descriptive. A name that captures your business’s uniqueness can help create a recognizable brand.
- Check availability: Before finalizing your name and filling in your DBA paperwork, check if it is available.
There are two key resources to check:
- Visit the New Hampshire Secretary of State’s website and complete a name search to check for existing names.
- Check the U.S. Patent and Trademark Office’s Electronic Search System to ensure you are not infringing on trademarks or intellectual property.
- Check online availability: Verify if your business name and variations are available as a website domain and social media handles. Securing consistent domains and handles links your name to your digital identity. This boosts brand visibility and ensures your business is easily searchable online.
- Register the business name: Once you’ve confirmed the availability of your chosen name, you can register it as a trade name. File a Trade Name Registration form with the New Hampshire Secretary of State’s office along with a filing fee.
Obtain an (Employer Identification Number) EIN
Sole proprietors without employees don’t need to register for a federal tax I.D. 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 personal 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’s required to 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 here.
Obtain New Hampshire business licenses, permits, and zoning clearances
- New Hampshire does not require a general state business license.
- However, specific licenses and permits may be needed based on your industry, location, and business activities.
- The New Hampshire Employment Security website lists licensing requirements for specific professions. Each profession will link you to a useful pdf document and contact information on how to get your license.
- The NH.gov business website also has a licensing page that provides additional information as well as how to apply for your licenses online.
- Contact your town or city clerk’s office to inquire about local business licensing, zoning approvals, or permit requirements for your specific business activities and proposed location.
Register for taxes
As a sole proprietor in New Hampshire, you report your business income and expenses on your personal tax return. When you file your annual Form 1040, attach Schedule C to report details on 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.
Additional state and local taxes
- New Hampshire has no sales tax, but you are required to pay both; business profits tax and business enterprise taxes.
- Contact the New Hampshire Department of Revenue Administration for more details on what taxes you may need to pay.
- New Hampshire has a simple-to-use e-filing system that will allow you to determine and pay the taxes you may be liable for.
- Check with your local city or town clerk’s office to determine if local licensing fees, property taxes, or other taxes apply.
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 personal assets. Consider the following:
- Business bank account: Opening a 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 company 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
Because sole proprietors have no liability protection for all debts and obligations of the business, they should consider taking out an insurance plan. A business liability insurance policy can help offer financial protection against unforeseen events.
- General business liability insurance: This insurance covers property damage, bodily injury, and personal injury claims against your business.
- Professional liability insurance: Professional liability insurance protects you from claims of negligence or errors if you provide professional services, such as consulting or advising.
Maintain business records
New Hampshire requires new businesses to maintain complete and accurate accounting records. Detailed record-keeping helps maximize tax deductions and organize your finances.
We recommend keeping records of the following:
- Income earned
We recommend using bookkeeping software, spreadsheets, or an organized filing system to stay on top of your record-keeping. This will ensure you have all the necessary documentation come tax time.
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 articles of incorporation, operating agreements, and annual reporting obligations. Sole proprietorships involve less paperwork.
- Cost: Forming and maintaining an LLC has higher upfront fees and ongoing costs.
Do I need a registered agent?
No, sole proprietors do not need a registered agent. New Hampshire LLCs are mandated to have registered agents.
Is it mandatory to have business insurance for my sole proprietorship?
No, it’s not mandatory to have business insurance for a sole proprietorship, but it’s recommended for protection against liabilities.
What is the difference between an LLC, a single-member LLC, and a sole proprietor?
An LLC provides liability protection to its members. A single-member LLC has one owner but retains this protection. A sole proprietorship has one owner without the liability shield of an LLC.
What is pass-through taxation?
Pass-through taxation means profits or losses of an entity are taxed at the individual owner’s level, avoiding double taxation.
Can I convert my sole proprietorship to an LLC in the future?
Yes, you can convert your sole proprietorship to an LLC anytime. The process involves filing a certificate of formation with the New Hampshire Secretary of State and complying with additional LLC requirements.
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