How to Start a Sole Proprietorship in Delaware

Avatar photo
by LLC.org Team
Last updated: June 13th, 2024
We might receive compensation from the companies whose products we review. We are independently owned and the opinions here are our own.

Northwest Registered Agent will scan all documents you receive for your business so that you can easily see them in your online account. There, you’ll have unlimited cloud storage as well as strong business data protection, and help from their friendly customer service staff when you need it. First year is free (plus state fees), then $39/year (plus state fees).

See the full Northwest review here

The focus of ZenBusiness is on forming new companies. They help simplify the process of starting a business, using powerful online tools. ZenBusiness plans are ongoing and help customers grow their businesses. They provide many services and resources, and can also help connect entrepreneurs to other relevant services.

See the full ZenBusiness review here

If you have a feasible startup idea, you could turn that into a legitimate money-making business. Even if you are happy with your job and it is enough to pay the bills, starting a sole proprietorship is an excellent way to make extra income on the side to save for the future. And lucky for you, this article will let you in on everything you need to know. Before we begin, you should know what a sole proprietorship is first.

Jump to

What is a sole proprietorship?

A sole proprietorship is an unincorporated business with one sole owner, hence the name. Many entrepreneurs started sole proprietorships before expanding them into LLCs or corporations. And it is ideal to start a business as a sole proprietorship because it does not require a lot of paperwork and capital. With that said, starting a sole proprietorship has lower risks financially when you start one. 

Examples of a sole proprietorship

Any small business that can be owned and operated by one person can be a sole prop. Some examples are small convenience stores, accounting firms, freelance services, and more.

What qualifies your business as a sole proprietorship?

If you have a business idea and don’t want to incorporate it, you can qualify as a sole proprietor. As long as you are the sole owner of a small business, you can start operating as a sole proprietorship. Having more than one owner and shareholders means a business can no longer operate as a sole prop. Instead, you can file for a different structure. 

Sole proprietorship vs LLC

A sole proprietorship is a small business that is owned by one person. The owner of a sole proprietorship is entitled to all business assets, taxes, liabilities, and profits, meaning they are liable for everything that happens to their business.

A limited liability company, unlike a sole prop, offers limited liability and insurance for business debts and more. But just like sole proprietorships, LLCs also have their own sets of pros and cons.

Who is it best for?

A sole proprietorship in Delaware is best for small businesses that want to start operating immediately without needing a large capital. Forming other types of business structures will take a lot more time and paperwork before you can start running it. Starting a sole proprietorship is still the best way to start a business, especially if you are a first-time small business owner who wants to test out the waters and see if your business can become successful. 

Assuming you already went through the brainstorming phase and already come up with an idea for a good business plan, all you need to do is use this article as your guide, and you will be able to run your own business in no time. 

How to start a sole proprietorship in Delaware

Setting up a sole proprietorship in Delaware is very easy. Once you have all the business aspects sorted out, you can start operating almost immediately. Here is a step-by-step guide that could help you start your sole prop:

Is there any formal paperwork filed to establish this type of business?

Sole proprietorships can start operating almost immediately when you have all your business activities in order. However, there are optional steps you can take as a sole proprietor before doing your business activities, such as filing for a trade name, opening a business bank account, acquiring an employer identification number, creating a website, and more.

These optional steps do involve business forms, but having all the requirements will make it easier and quicker to file.

Naming your business

Sole proprietors can use a business name or do business under a chosen business name.

A business name or trade name gives the owner of a sole proprietorship the opportunity to select a more appropriate name for their business. 

For example, if you are thinking about starting a hot sauce business, thinking of a name that represents your business is ideal from a marketing standpoint, compared to using your legal name. Instead of the business name being John Doe, you can use a fictitious name for your business and operate as “Flaming Hot Sauces.”

Using your own name

Using your legal name to operate your business requires less paperwork. You simply sell goods or services, and it is assumed that your business name and legal name are one and the same.

Setting up a DBA

If you want to refer to your business as a company name, you need to file a DBA, or doing business as, with the state.

Having a DBA has its advantages. It adds a layer of legitimacy to your business, making it appear more trustworthy in the eyes of potential customers, which can make your business more trustworthy.

Before you can go ahead and file for a DBA name, you need to check if the name is available. In the state of Delaware, two businesses cannot have the same name. All business names registered need to be unique. So if you have selected a name for your business, the best way to check for its availability is by searching the Delaware business database using this search tool

If you try searching for a name and no exact matches appear, that means the name is up for grabs. And you can move on to the next step, filing for a DBA or trade name.

Once you have a business name in mind, you can now file for a DBA at your local county clerk’s office. 

For more information on how to file for a DBA in Delaware, you can go to this website. The filing fee is $25, and you can get your DBA certificate in less than a week.   

State licenses

Although you don’t need to register a sole proprietorship, some businesses need a business license and other permits to operate legally. Depending on the type of business, your incorporation might need to get special licenses. 

For example, some professions need a license before they can offer their services to customers, such as barbers, accountants, fishing coaches, and more. Other licenses you might need are liquor and tobacco licenses if you plan on selling them in your store. 

Luckily, you can get these requirements all in one place on Delaware’s One-Stop Website.

This website contains everything you need, from learning about starting a small business in the state to tax payments, legal protections, and licensing. 

Delaware taxes

If you have a sole proprietorship, you don’t need to file a separate income tax return. You can pay the taxes of your business under your personal tax return, but instead of a W-2 form that regular employees use to file their taxes, you can file using a self-employed business tax form, known as a Schedule C.

Pros

  • Easy and cheaper to setup compared to LLCs
  • Easy to file an income tax return
  • No need for annual reports
  • No need to register with the state
  • The owner is in complete control of the business entity

Cons

  • Limited opportunities for more income
  • You are liable for business debts
  • No personal liability protection

FAQs

Do you need to register a business in Delaware?

No, you don’t need to register a sole proprietorship in Delaware. However, you might need specific licenses based on the nature of your business. 

How much does it cost to start a sole proprietorship in Delaware?

Depending on what business licenses and permits you need, starting a sole proprietorship in Delaware costs anywhere between $0 to $100 in filing fees, minus the capital. 

Can sole proprietorships in Delaware hire employees?

Yes, by obtaining an EIN, your sole proprietorship in Delaware can legally hire employees. However, there is an option to hire a freelancer if you don’t need full-time help. 

Can a sole proprietorship hire employees in Delaware?

If you plan on hiring employees, you can get an employer identification number from the IRS on their website and it is very easy to apply. An EIN is sort of like a social security number but for your business.

How does a sole proprietorship work in Delaware?

In Delaware, as the sole owner of a business, you have unlimited access to resources of your business, such as business income, assets, and more. However, because of this, you also have unlimited liability over your company, meaning everything that happens to your company will reflect on your name and individual tax records. 

Can a sole proprietorship open a business bank account?

Yes, if you filed for a DBA, you can open a business bank account with the same name as your DBA certificate. A business bank account can help sole proprietors separate business and personal finances. 

Find out how to start a sole proprietorship in your state

Click below to get started