How to Start a Sole Proprietorship in Oregon
Sole proprietorships are popular for individuals looking to start their own business in Oregon. This business structure offers simplicity and flexibility, allowing you to operate as the sole business owner and make all the decisions. If you are thinking about starting a sole proprietorship in Oregon, this guide will take you through the necessary steps to get your small business up and running.
What is a sole proprietorship?
A sole proprietorship is probably the most straightforward type of business you can establish. The business and the owner are considered the same legal entity in a sole proprietorship. This means that you have complete control over your business, but you hold personal liability for any debts or obligations of the business. Due to their ease of setup, they are popular with entrepreneurs and startups.
A step-by-step guide to starting your Oregon sole proprietorship
Choose a business name
Choosing a business name is the first step in establishing your sole proprietorship in Oregon. While you can use your own name, many individuals prefer to use an assumed name or “doing business as” (DBA) name for their business.
Here are the steps to filing your DBA:
- Choose a business name: Be creative as you brainstorm names communicating what your business does. Try to incorporate words related to your field that will resonate with your ideal target audience.
- Check availability: You must validate that your proposed business name is unique before establishing it.
There are two key resources to check:
- The Oregon Secretary of State’s business name search tool to check that no other businesses in the state are using your proposed name.
- Use the US Patent and Trademark Office’s Trademark Electronic Search System to confirm that you are not infringing on any preexisting trademarks or intellectual property.
- Check online availability: Verify your desired business name is available as a .com domain and social media handles. Locking down matching sites links your name to your online identity, boosting brand awareness.
- Register the business name: Once you have selected a name, you may need to file an Assumed Business Name registration with the Secretary of State. The registration can be done online or by completing the Assumed Business Name – New Registration Form and submitting it with the required filing fee.
Sole proprietors don’t have to be registered with the Oregon Business Registry unless they use an assumed business name. If the business name does not include the owner’s full legal name, the business name must be registered with the Business Registry. The registration lets the public see who is doing business under that name.
Obtain an (Employer Identification Number) EIN
As a sole proprietor, you may not be required to obtain an EIN, especially if you have no employees. In such cases, you can use your Social Security Number (SSN) as your tax ID. However, obtaining an EIN can provide privacy benefits and help streamline certain business operations.
- Opens up business banking opportunities: Obtaining an EIN enables the opening of dedicated business bank accounts, credit cards, and financing.
- Helps establish business credit: An EIN allows building business credit rather than relying solely on personal credit history.
- Eases the hiring process: Getting an EIN distinguishes the business finances and tax documentation from the owner’s finances.
- Enhances business privacy: Using an EIN instead of an SSN on business documents enhances privacy protections.
- Prepares for business growth: An established EIN can simplify future transitions to more structured business entities.
You can apply for your EIN from the Internal Revenue Services (IRS) website.
Obtain Oregon business licenses, permits, and zoning clearances
- There is no general business license requirement for sole proprietors in Oregon.
- While there is no general business license, it is more than likely that your business will need additional licenses and permits to operate.
- The Oregon Business Xpress License Directory provides information on specific state licenses and permits.
- You may need to apply for local licenses. There is a list of local contact information in Oregon’s major cities on the state license requirements webpage.
- You may need specific federal licenses if your business engages in any activities regulated by federal agencies. Visit the U.S. Small Business Administration’s website for more information.
Register for taxes
If you operate a sole proprietorship in Oregon, you must include all your business financial details on your personal tax return.
Alongside your personal income tax Form 1040, submit Schedule C, which elaborates on your business’s financial performance, and Schedule SE, which calculates your self-employment taxes like Social Security and Medicare.
Additional state and local taxes
- Oregon does not have a general sales tax or use tax.
- There may be other state-level taxes that apply to your business. You should consult the Oregon Department of Revenue‘s website for information on specific business tax obligations and registration requirements.
- You may also be required to collect and remit other taxes, such as the transient lodging tax or marijuana tax, depending on the nature of your business.
After you’ve secured your EIN, registered for federal taxes, and received the necessary licenses, you’ve completed the essential steps to establish your sole proprietorship.
We suggest a few more tasks to help your new business stay aligned with rules and well-organized.
Open business bank accounts
To maintain clear financial records and separate your personal and business finances, it is essential to open a dedicated business bank account.
Having a separate business bank account offers several advantages, including:
- Simplified bookkeeping and record-keeping: Separating your personal and business finances allows for easier tracking of income and expenses.
- Facilitates accurate tax reporting: With a dedicated business bank account, you can easily identify and report business-related transactions on your tax returns.
- Demonstrates professionalism: Having a separate bank account adds credibility to your business and enhances your professional image when dealing with clients, suppliers, and financial institutions.
Get liability insurance
As a sole proprietor, you shoulder complete responsibility for any business debts or obligations, making insurance an essential part of your business strategy. It safeguards you from unexpected claims or events. Consider exploring the following:
- General business liability insurance: This coverage handles allegations of property damage, bodily injury, or personal harm tied to your business operations.
- Professional liability insurance: Particularly vital for service providers, this insurance defends against allegations of perceived negligence, errors, or lapses in your services.
Maintain business records
Keeping records is essential for maximizing tax deductions and organizing your sole proprietorship’s financial matters. Ensure you document the following:
- Assets and liabilities
Utilizing accounting software, spreadsheets, or setting up an organized method can simplify the task of paperwork management.
Sole proprietorship vs. LLC
While a sole proprietorship may seem attractive due to its simplicity and minimal legal requirements, it is important to consider the potential downsides and explore alternative business structures, such as a Limited Liability Company (LLC).
Here are some factors to consider when deciding between a sole proprietorship and an LLC:
- Liability protection: One of the significant advantages of forming an LLC is its limited liability protection. Sole proprietors are liable for any debts or legal claims against your business, which means your assets are at risk. In contrast, an LLC provides a legal separation between your personal and business assets, shielding your personal assets from business liabilities.
- Credibility: An LLC may enhance your credibility in the eyes of clients, partners, and potential investors. Forming an LLC demonstrates more professionalism and commitment to your business.
- Growth potential: If you plan to expand your business or attract external funding, an LLC offers more flexibility and growth potential than a sole proprietorship.
- Tax flexibility: One of the advantages of a sole proprietorship is its simplicity in taxation. You normally report business income and expenses on your personal tax return through a Schedule C. On the other hand, an LLC also offers tax flexibility, as it can be treated as a sole proprietorship, a general partnership, or a corporation for tax purposes.
It is important to note that forming an LLC involves additional steps and legal requirements, such as filing Articles of Organization and paying filing fees.
Do I need a registered agent for my business?
Sole proprietors do not need registered agents; however, all Oregon LLCs are mandated to have a registered agent.
What is the difference between a trade name and an assumed name?
There is no difference; they are both monikers for a DBA name. Trade name is the most commonly used, but in Oregon, they are referred to as assumed names.
Should I get business insurance?
You’re liable for business debts or obligations as a sole proprietor. Consider general business and professional liability insurance to protect against unexpected claims.
How is a sole proprietorship different from an LLC?
An LLC offers limited liability protection, separating personal and business assets and potentially more tax flexibility. Sole proprietorships are easier and quicker to set up but do not offer these protections.
Do I need to register my sole proprietorship with the state of Oregon?
No, no formal registration is required for a sole proprietorship in Oregon. However, you may need to file an Assumed Business Name registration and let the Business Registry know if you operate under a trade name.
Can I hire employees as a sole proprietor?
Yes, sole proprietors have the flexibility to hire employees. If you have employees, you must register for state and federal payroll taxes and comply with employment laws and regulations.
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