If you’re currently self-employed in the state of New York, or if you’re looking to enter the world of one-person business ownership, you’ve probably looked into becoming a sole proprietor.
The sole proprietorship is the simplest business ‘format’ in America, but that doesn’t mean that there aren’t rules and regulations to follow when you operate one. In addition, there are some limits to the functionality of a sole proprietorship.
In this guide, we’ll help you determine whether or not the sole proprietorship is a good choice for your business.
What Is a New York Sole Proprietor?
As opposed to a corporation or limited liability company (LLC), the sole proprietorship is not a legal business entity. The sole proprietorship is a one-person business that is not considered to be a distinct entity from the person who owns it, and it is frequently operated using the owner’s personal name.
Here are the three main things you need to know:
Because there’s no distinction between the owner and the business itself, sole proprietors don’t need to file business tax returns ― they instead simply claim any business profits or losses on their personal tax returns.
Sole proprietors are allowed to sign contracts using their personal name, and along those same lines, customers can write checks to the business by using the sole proprietor’s name.
The other big difference between sole proprietorships and more formal business structures is the fact that sole proprietors are allowed to commingle business and personal assets as much as they want to. With LLCs and corporations, ownership is required to keep their assets separate from those of the company. The downside of this aspect for sole proprietors is that if your business is sued, creditors are free to pursue your personal assets like your house, car, personal bank accounts, etc. For corporations and LLCs, creditors are limited to your business assets.
How to Become a New York Sole Proprietor
When it comes to being a sole proprietor in the state of New York, there is no formal setup process. There are also no fees involved with forming or maintaining this business type. If you want to operate a New York sole proprietorship, all you need to do is start working.
However, just because it’s so easy to get started doesn’t mean there aren’t some additional steps you should take along the way. While these parts of the process aren’t strictly required, many sole proprietors find that they are in their best interests.
A doing business as (DBA) name is a crucial part of many sole proprietorships, as it enables you to use an assumed name for your business, rather than your own personal name. The advantages of acquiring a DBA start with image ― most customers feel that an assumed name is more professional and trustworthy than doing business with a company that uses its owner’s personal name instead.
That said, sole proprietors can sign up for a business bank account using their DBA name, which is another step that goes a long way toward making customers feel more comfortable doing business with you.
Before filing for a DBA in New York, you must first confirm the name is available. While you may use the Corporation and Business Entity Database as a preliminary check, confirming the name is available for use will require that you submit a written request to the Department of State, Division of Corporations (located at One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231) stating that you wish to determine the availability of the name(s) included.
When you receive confirmation that your selected name is available, you may claim it by filing a Business Certificate with the County Clerk’s office of the county in which the sole proprietorship operates.
Determine Taxation Requirements
Sole proprietors without employees usually don’t need to acquire a federal tax ID number (EIN), because as a one-person business, you can typically just use your own social security number for most things an EIN is used for. Still, if you would rather not use your SSN for privacy purposes, it would be a good idea to get an EIN regardless.
Beyond that, the nature of your business will determine which taxes apply to you as a sole proprietor.
Most businesses that sell tangible property and services and/or purchase goods or services from outside the state will be required to pay both sales and use tax. Sales tax rates will vary depending on location; to see your local sales tax rate, look up your jurisdiction with the Department of Taxation and Finance here. For a list of additional taxes your sole proprietorship may be subject to paying, check out this list of other taxes and reporting requirements.
It should be noted that New York sole proprietorships do not pay any corporation or franchise taxes. The income of the business will be taxed as the owners personal income. For more information on state taxes and how to file them, visit the New York State Department of Taxation and Finance website.
Obtain Business Licenses and Permits
There isn’t a requirement in New York for sole proprietors to acquire a general business license, but depending on the nature of your business you may need other licenses and/or permits to operate in a compliant fashion.
New York has over a thousand licenses that may or may not apply to your sole proprietorship. A comprehensive list of the licenses and who they apply to can be found here in the Licensing section of the New York State government’s website.
When you’re ready to start your business, you’ll want to use New York’s Business Express to determine which licenses and permits you’ll need. Using the system, you may enter details about your sole proprietorship and receive specific licensing instructions.
In addition, you should check to see if your business needs any licenses or permits on the local level.
In addition to meeting state licensing requirements, your sole proprietorship may need licensing on a local level. For example, New York City often has its own mandatory permits and licenses. To discover which may be applicable to you, visit New York City’s business service, which allows you to get a customized list of licensing requirements for your business.
While the sole proprietor is such a simple business classification that New York doesn’t even require a business registration process or any type of fees, depending on how you use your sole proprietorship and what industry you operate in, you still might have some important steps that need to be taken.
When it comes to issues of taxation, licenses and permits, or even the name you want to call your sole proprietorship, you do need to be vigilant to make sure you’re not overlooking anything.
We hope this guide helped you answer any questions you had for sole proprietorships in New York, and we wish you success with your business!