How to Start a Sole Proprietorship in Wisconsin
Starting a sole proprietorship in Wisconsin is a relatively straightforward process. You can establish your business and start operating as a sole proprietor following a few key steps. This guide will walk you through starting a sole proprietorship in Wisconsin, from choosing a business name to obtaining the necessary licenses and permits.
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.
A step-by-step guide to starting your Wisconsin sole proprietorship
Choose a business name
In Wisconsin, registering a business name is not mandatory for sole proprietors. However, if you plan to operate your business under a name other than your legal name, you may need to register a fictitious name, also known as a “trade name” or “doing business as” (DBA) name.
Here are the steps for filing for a trade name:
- Choose a business name: Creating a memorable business name is crucial for effectively marketing your services. It can be a powerful tool to enhance your brand image and attract potential customers. A strong business name helps you establish your brand identity and build a loyal customer base.
- Check availability: After you have thought of a few names, confirm they are unique using the following government databases.
Here are the resources to check:
- The Wisconsin Department of Financial Institutions business search tool will allow you to search businesses in Wisconsin to see if they have the same name.
- The Secretary of State corporation and business entity search allows you to search Wisconsin and other states.
- We also recommend searching the Wisconsin OneStop Business Portal business database. Searching these three Wisconsin-specific databases will ensure that no other business in the state has your proposed name.
- Finally, use the United States Patent and Trademark Office’s Trademark Electronic Search System to make sure you are not infringing on pre-existing trademarks and 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: To register a fictitious name, you must file a Trade Name Application with the Wisconsin Department of Financial Institutions. The application form can be downloaded from the Wisconsin Register of Deeds Association (WRDA) website. There is a filing fee.
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’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.
Register for taxes
As a sole proprietor, you will report your business income and expenses on your personal tax return using Schedule C, Profit or Loss from Business.
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
- Wisconsin imposes various business taxes, including income tax, sales and use tax, and employer withholding tax.
- You must register for these taxes with the Wisconsin Department of Revenue. Visit their website for more information and to register online.
- Depending on your business activities, you may be subject to additional state and local taxes, such as property tax or special industry-specific taxes.
- Check with the relevant state and local tax authorities to determine if any additional registrations or filings are required.
Obtain Wisconsin business licenses, permits, and zoning clearances
- There is no general business license requirement for sole proprietors in the state of Wisconsin.
- While there is no general business license, it is more than likely that your business will need additional licenses and permits to operate.
- You must register your business with the Department of Revenue. Visit their “Starting a Business” webpage to register.
- The Wisconsin One Stop Business Portal is a useful tool that can aid you in working out what licenses you need to apply for.
- Any person or business in Wisconsin that sells taxable goods or services from a Wisconsin location must have a seller’s permit unless all their sales are exempt from sales tax. This includes individuals, partnerships, corporations, and other organizations that make retail sales, leases, licenses, or rentals.
- Check with your local governments to see if there are additional local licenses you need. Milwaukee and Madison each have web pages devoted to local licensing information.
- 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.
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
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 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 can protect you from claims of negligence or errors if you provide professional services, such as consulting or advising.
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
For some small businesses or startups, forming an LLC may be preferable to a sole proprietorship.
Here are some key advantages an LLC holds:
- Liability protection: LLCs legally separate your personal and business assets. Sole proprietorships do not.
- Credibility: An LLC’s structure appears more professional with customers.
- Growth potential: LLCs are better suited if you plan to expand your business.
- Tax flexibility: LLCs allow you to choose how your business is taxed. Sole proprietorships do not.
However, there are tradeoffs to consider:
- Complexity: LLCs require an operating agreement and annual reporting. Sole proprietorships have less paperwork.
- Cost: LLC formation and maintenance fees are higher than a sole proprietorship.
- Consult a tax professional to decide which structure best fits your business.
- Weigh liability protection vs. simplicity based on your goals and risk factors.
How long does it take to set up a sole proprietorship in Wisconsin?
Once you start the process, it typically takes 1-2 weeks to fully set up a sole proprietorship in Wisconsin.
Can I change my sole proprietorship to an LLC later?
Yes, as a sole proprietor, you can convert your business to a Wisconsin LLC at any time.
Can I hire employees as a sole proprietor?
Yes, as a sole proprietor, you can hire employees. However, remember that you must comply with federal and state employment laws, including withholding taxes, providing workers’ compensation insurance, and adhering to labor regulations. Information on employee taxes can be found on the Wisconsin Department of Workforce Development website.
Do I need a separate business bank account as a sole proprietor?
While not legally required, maintaining a separate business bank account is highly recommended. It helps track your business finances, simplifies tax reporting, and demonstrates professionalism to clients and customers.
Can I use my personal assets as collateral for business loans as a sole proprietor?
Yes, as a sole proprietor, you can use your assets, such as your home or personal savings, as collateral for business loans. However, it’s important to consider the risks involved and consult a financial advisor or attorney before making any decisions.
Do I need to renew my sole proprietorship registration in Wisconsin?
Unlike some other business structures, sole proprietorships in Wisconsin do not require renewal filings or fees. Once you start operating as a sole proprietor, your business is ongoing until you decide to close or change its structure.
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