How to Start a Sole Proprietorship in Louisiana
If you want to become a business owner and discover opportunities to make more money on the side, you came to the right place. If you are thinking about starting a business and becoming one of the newest small business owners in Louisiana, starting a sole proprietorship might be the best option for you and this article will tell you everything you need to know. But before we begin, let’s define what a sole proprietorship is first.
What is a sole proprietorship?
A sole proprietorship is an unincorporated business, which is owned and operated by the sole business owner. Unlike any other business structure, a sole proprietorship and all of its business activities are managed by one person, who is usually the owner of the business.
The owner is entitled to unlimited liability for business profits, business debts, and business taxes. Since you will have to pay business taxes under your own social security number, a sole proprietorship doesn’t need to be registered with the state or with the IRS.
Example of a sole proprietorship
Any type of business that is owned and operated by one person can become a sole proprietorship. Some examples are law practices, barbershops, freelance services, and more. However, if your startup is starting to grow and some investors are interested in buying a stake in your business, you can expand and start an LLC, corporation, or general partnership.
What qualifies your business as a sole proprietorship?
If you want to provide services, sell products, or open a small business in Louisiana, you can qualify as a sole proprietorship. You can qualify your business as a sole proprietorship if you are a freelancer, independent contractor, or someone who wants to sell products.
As long as you are the sole owner of a business or have a business idea in mind that doesn’t require shareholders and other types of investors, your business can qualify to become an owner of a sole proprietorship.
Sole proprietorship vs LLC
There are not many regulations for sole proprietorships. The owner has complete control over the business but with unlimited liability. The owner is liable for all business debts with no legal protections.
On the other hand, LLCs or limited liability companies have limited protection. If the company goes bankrupt due to unforeseen events or changes in the economy, it will not affect your personal assets that much.
Who is it best for?
A sole proprietorship is best for startups that want to open and operate a small business without going through long processes of incorporation. If you have a business idea that you can operate and finance all on your own, a sole proprietorship might be the best business structure.
If you decide to expand one day, hire employees, and even open more locations for your small business, you can always get incorporated or start an LLC in the future.
How to set up a sole proprietorship in Louisiana
If you are convinced that a sole proprietorship is the right legal entity for your business, you can start creating a business plan that works for you. Aside from securing your capital and creating a viable plan for your business, here are some of the next steps to set up your sole proprietorship:
Is there any formal paperwork filed to establish this type of business?
Starting a new business in Louisiana does not require paperwork or business forms for sole proprietorships. However, there are many optional steps that could be good for your business. Although these steps do require obtaining licenses that may require you to do paperwork, it isn’t as complicated as other business entities.
As a legitimate business entity, you can file a DBA (doing business as) or a trade name, which allows you to do business under a different name. Although there is paperwork involved when filing for a trade name, it can be worth it.
Depending on the type of your business, you might be required to get a business license, which means there will be paperwork involved. However, all of these requirements can be completed online or at the local county clerk’s office, which makes it a lot easier than filing for incorporation or as a limited liability company.
Naming your business
Although sole proprietorships use the owner’s name for tax purposes, you can still use a different name for your business. When coming up with a business name, you want to choose one that fits your business and gives potential clients an idea about the nature of your business.
Using your own name
If you don’t need or want to do business under a different name, you still have the option to use your own name.
Setting up a DBA
If you want to create a business name, and many entrepreneurs do, you need to check on name availability first. You can go to the Louisiana Secretary of State’s website to use their business name search tool to check for availability.
If you checked the name you want and there are no exact or highly similar matches in the results, then you are free to use that name and file for a DBA.
Although registering a sole proprietorship is not required in this state, you need a DBA if you want to have a different name for your sole proprietorship.
Filing a DBA name is easy, just download this form and get it notarized before filing it at your local county clerk’s office. The filing fee is $75, and you only need to renew it every ten years.
Not all sole proprietorships need state licenses and permits. However, if your small business sells tobacco and liquor, you will need mandatory licenses. Depending on your business, you may need to get multiple licenses and permits.
Luckily, you can find everything you need and learn all about business licenses when you create a GeauxBIZ account on the Louisiana Secretary of State website.
Paying taxes as a sole proprietor is less complicated. Since a sole prop’s business assets and business income falls under your individual tax, you can file and pay taxes under your personal income tax return. Instead of using a W-2, sole props file taxes using self-employment tax.
- It is very affordable
- It is quick and easy to set up
- Filing taxes is easy
- There is no need for annual meetings and reports with your shareholders
- There is no need for a lot of paperwork, and you can do most of the work online
- You are personally liable for all business debts
- There are fewer opportunities to make more money
- The owner does not have any personal liability protection
Can a sole proprietorship in Louisiana hire employees?
Yes, if you get an EIN from the IRS, you can now hire employees and give them benefits. However, hiring employees is not common with this business entity, and they usually hire part-time workers or freelancers.
Can you get funding for a sole proprietorship in Louisiana?
If you have a business idea and need capital, you can obtain funding from friends and family. You can also get loans from lenders or go a different route and use funding websites like Go Fund Me or Kickstarter. These are crowdfunding sites that allow people to fund your business if they are interested in your products and future plans.
Can a sole proprietorship open a separate bank account?
Yes, if you have a DBA for your sole prop, you can open a separate business bank account. This will allow you to send and receive money with a separate account from your personal bank account, making it easier for accounting purposes.
Is there liability protection for sole proprietors in Louisiana?
No, there is no liability protection for sole proprietorships in Louisiana. However, you can apply for business insurance to be ready in case of emergencies and unforeseen events in the economy that could affect your business finances.
How much does it cost to start a business in Louisiana?
Aside from your capital, you can start a business in Louisiana as a sole proprietorship for $0. However, if you need a DBA and business license, the cost could range anywhere between $75 to $300. It could be more if your business requires more licenses than usual.
Should a sole proprietor get an EIN?
An EIN is an employer identification number issued online by the IRS. It’s not necessary for a sole proprietor to get an EIN, however, there are a handful of times you’ll need one. If you open business bank accounts, for example, or hire employees.
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