Read below to learn the steps on how to set up a Texas Sole Proprietorship.
Unlike corporations and LLCs, which are state-registered business entities, you are not required to file any state formation papers for a sole proprietorship. If you're currently running a business on your own and have not registered it, you have a sole proprietorship. The steps below will help you if you would like to run under a DBA (name other than your own) or if you need an EIN.
Choose an assumed business name (DBA – doing business as)
> In Texas, you may use your own legal name. If you choose to create a name, it must be different than a name used for another company on record. You can run a search here.
File an assumed business name (DBA) with the county clerk's office
> If the business name is different than your legal name, Texas requires you to register the name with the county clerk in the county in which you plan to do business. Fill out an Assumed Name Certificate and mail it to the County Clerk’s Office. The filing fee ~$25 but may vary.
Obtain licenses, permits, and zoning clearance
> If required for your line of business.
Obtain an Employer Identification Number (EIN)
> Sole Proprietors who plan to have employees must obtain an EIN which is a 9-digit number issued by the IRS. In Texas, sole proprietors also may be required to show an EIN when paying state taxes. Sole proprietors without employees are not required to obtain an EIN because they can file taxes under their social security number but you may still want to get one as some banks require an EIN to open a business account. You can obtain an EIN here.
Obtain a Texas Sales & Use Tax Permit (if needed)
> If you plan to sell goods in Texas, you will need a Sales & Use Tax permit. Permit application is found here. (Reminder: once you receive your permit, you will be responsible for filing sales tax reports)
Sole Proprietorships are good for small businesses with an individual or a married couple as the owner. This type of entity is unincorporated which makes them easy to set up and manage, but you must make sure this is the right type of entity for you. If someone sues your business, you have the most to lose as a sole proprietor. These types of entities also generally have a difficult time getting business loans and paying higher taxes. They are great for side businesses or small service companies including freelancers, consultants, virtual assistants, photographers, graphic designers, etc. If you have a sole proprietorship, you will still be required to file taxes. This type of entity is considered a pass-through entity which means you, as the owner, will report the business income on your personal tax return by attaching a schedule C to your 1040 tax return.
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