How to Start a Sole Proprietorship in Arkansas
One of the best ways to start making money on the side is by starting a business. Whether you are a freelancer who helps clients with tasks on the side or have solid business ideas that could work in Arkansas, becoming a legit business owner or sole proprietor is not as hard as you think. In this article, you will learn everything you need to know about starting a sole proprietorship in the state.
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What is a sole proprietorship?
A sole proprietorship is an unincorporated business structure that has one owner paying personal income tax on profits they earn from the business. Because this type of business entity does not require you to file separate business tax forms, all the business activity, business assets, and business profits will fall under your own name and social security number.
What qualifies your business as a sole proprietorship?
There is no official application process or registration that must be done to become a sole proprietorship. As a small business owner, you become a sole proprietor with your first sale.
There is one small qualification, you must be the sole owner of the company.
Sole proprietorship vs LLC
If you are wondering whether a sole proprietorship or limited liability company (LLC) is best for your business, note that each of these options has its own sets of advantages and disadvantages. As a new business owner, you should probably know the difference between these two business entities.
Who is it best for?
Sole props are best for first-time entrepreneurs who want to experience running a business immediately without registering with the state. It is also an ideal choice for small businesses that have lower capital, or someone who wants to start a business on the side.
Since you don’t need a lot of money to start, it is an excellent way to pave your way to becoming a full-fledged businessman or woman.
How to set up a sole proprietorship in Arkansas
Is there any formal paperwork filed to establish this type of business?
No. If you selected an LLC or a corporation as a business structure, you would file official formation documents with the state. Sole proprietors, however, do not file any formal paperwork with the state.
The only time you’ll file paperwork with a government entity is if you plan to create a business name. If you plan to do that, you’ll file a DBA with the county clerk. A business name is not required for operation, though.
Ready to get a sole proprietorship started? Here are the steps to follow:
Choose a business name
Do you want to establish a business name? You can do so if you’d like, but it’s optional. You can simply run your business under your own name, and you’ll pay taxes, as usual, using your social security number.
File for a DBA name
Want to opt for a customized business name? Choosing a name for your business is one of the most exciting parts of starting a sole proprietorship. A lot of sole proprietors choose to have a trade name to look more legitimate and have more privacy.
If you want to select a business name, you’ll file a DBA form (also known as a trade name) with the state.
First, you should check the Arkansas business name database to see if the name you want is available. If it’s not already in use, you need to visit the local county clerk’s office in your area to file the proper business forms.
You can check this list to find out where the nearest office is.
The next step is to download and fill out this form before visiting.
The filing fee costs $25.
How to Check if a Business Name is Taken
Get the necessary business licenses and permits needed
If you want to know the necessary permits you need to operate your business, you can check this page. It includes everything you need to know about licenses, permits, and individual tax requirements.
Additional steps to consider
Once you gathered everything, here are more optional steps that could solidify your business:
Get an EIN or Employer Identification Number
You can easily get an EIN for your business once you have an assumed name certificate. Just go to the IRS website and fill out a couple of forms and wait for your EIN. Having one will enable you to hire employees and would be useful for tax purposes. However, you can still hire a freelancer or independent contractor if you don’t need full-time assistance.
Open a business bank account
Having an assumed name will also enable you to open a business bank account under the name of your business. This will allow you to get paid directly to your business bank account instead of your personal one, allowing you to keep track of business profits, spending, and more.
Arkansas taxes
As a sole proprietor, you’ll pay income taxes on the profits you generate through the business on your personal tax returns. The concept is called “pass-through” taxation, where business profits are paid for via personal income tax returns.
You’re still subject to federal taxes and state taxes unless you live in a state that doesn’t levy a state income tax.
If paying taxes as a business owner feels like a challenge, you can always seek help from an accountant. As your business grows, the financial advice of an accountant is always helpful.
Pros
- It is easy to set up and inexpensive to start
- There are very few government regulations on sole proprietorships
- You don’t need to register with the Secretary of State
- It is easy to maintain
- No need for annual reports
Cons
- You have personal liability for the business
- It might not make you a lot of money unless you expand
FAQs
Is a DBA required in Arkansas?
A DBA is not required in Arkansas unless you want to operate under a different name. For example, instead of using your name, you can think of a more suitable name for your business– which can attract more potential customers.
Can you start a business in Arkansas without registering?
As an owner of a sole proprietorship, you do not need to register your new business. You will have complete control of your business if it’s a sole prop. However, you would have unlimited liability, no legal protections, or any liability protection.
Can you get funding for a sole proprietorship in Arkansas?
Funding a startup or sole proprietorship does not require a large capital. However, you can still get funding if you need it from private lenders or pitch your idea to friends and family members and see if they are able to help.
How do you file for taxes if you have a sole proprietorship in Arkansas?
Tax payments for people who own sole proprietorships are quite simple. Instead of filing for a separate legal entity or separate business tax form, you can file with your own social security number. The tax rate would be a little higher depending on how much the business is making, which is similar to self-employment tax.
What’s the biggest perk of a sole proprietorship?
Because government regulation is a little relaxed on sole proprietorships, it is one of the easiest types of business entities to start with, and one of the most popular options for people who are the sole owners of a business.
Do you need a business plan to get started?
A business plan isn’t required, but it’s a good idea. A business plan is helpful to the owner, but if you plan to seek any kind of investments or loans, you’ll likely be asked to present your business plan.
How long does it take to start a sole proprietorship in Arkansas?
Depending on the nature of your business, you can start immediately. Fictitious business names in Arkansas are optional, meaning you don’t need to register for a trade name to start a sole proprietorship.
If you need business licenses and permits for your nature of business, the process will take longer. Let’s say you need a trade name, a couple of permits, and other optional steps– it would probably take around 1 to 2 weeks to start your sole proprietorship in Arkansas.
How much will it cost to start a sole proprietorship in Arkansas?
The fees of starting a sole proprietorship in Arkansas will vary depending on what type of licenses you need, averaging around $200. If your business doesn’t need any licenses and you chose not to register a trade name, you can start a business without paying anything except for your capital.
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