How to Start a Sole Proprietorship in Maine

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by LLC.org Team
Last updated: June 13th, 2024
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Located in the heart of New England, Maine offers a promising environment for aspiring entrepreneurs seeking to establish a sole proprietorship. Whether envisioning a quaint café in Portland or a niche artisanal shop in Augusta, Maine’s diverse economy and business-friendly atmosphere present ample opportunities. This article serves as a comprehensive guide, offering essential information and valuable insights to navigate the process of starting a sole proprietorship in Maine.

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What is a sole proprietorship?

A sole proprietorship is a simple unincorporated business structure where an individual operates a business as the sole owner and is personally responsible for all aspects of the business, including finances, liabilities, and decision-making. Unlike other business entities, such as incorporations or partnerships, a sole proprietorship does not have a separate legal entity from its owner. This means that the owner receives all the profits, but also bears all the risks and obligations associated with the business.

Examples of a sole proprietorship

Any business can be run as a sole proprietorship, regardless of industry and the business model. Some examples could include a freelance writer, an independent consultant, local retail shops, home-based services like catering, and professionals like accountants.

What qualifies your business as a sole proprietorship? 

The only requirements to be considered a sole proprietorship are for a business to be owned and operated by a single individual, with no partners or shareholders involved. Any business activity, from services to retail goods, can fall into this category, so long as it is not established as another type of business entity. 

Sole proprietorship vs LLC

A sole proprietorship is a business structure where an individual operates and owns the business personally, being fully responsible for its liabilities and business profits.

An LLC (Limited Liability Company) is a business structure that offers personal liability protection to its owners (known as members), while allowing flexibility in management and taxation options.

Who is it best for?

A sole proprietorship is best suited for individuals who prefer to have complete control over their business and make all the decisions independently. It is an ideal choice for entrepreneurs who want to maintain a simple and straightforward business structure without the need for partners or shareholders. With no formal requirements or complex management structures, sole proprietors can make business decisions swiftly, responding to market changes and customer demands promptly

Sole proprietorships are particularly well-suited for individuals starting small-scale businesses or pursuing freelance work, as they offer a low-cost and flexible setup. Solo professionals, such as consultants, freelancers, or artists, often find sole proprietorships to be the most practical and suitable option to establish their ventures.

How to set up a sole proprietorship in Maine

While a sole proprietorship is simple to set up and requires no formal paperwork, it should still be treated as a legitimate business. This means you may make decisions for your business that do require you to file paperwork or meet other requirements at the state and federal levels. Below are some examples of considerations for your startup. 

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

A sole proprietorship is established simply by the business being operated by a single owner, with no requirement to file any business forms with the state. However, both local governments and the Maine Secretary of State may require some paperwork for things like business licenses and the use of a trade name.

Naming your business

Sole proprietorships are able to choose between two options for how the business is named: either using the owner’s legal name as the business name or setting up a DBA through Maine.

Using your own name

Since a sole proprietor and their business are considered the same entity, they share the same name by default. The business can continue to operate under this name with no additional requirements – this means that if your name is Jack Smith, your business is also called Jack Smith for legal and tax purposes.

Setting up a DBA

For many sole proprietors, there is a better option than their legal name for their business. This is often known as a doing business as or a DBA, which allows for the business to legally maintain the owner’s name and still publicly use their chosen name. When choosing a DBA, it is important that it follows Maine’s naming rules, including being unique from other businesses. 

Unlike many states, Maine does not require that sole proprietorships register their trade name with the Secretary of State. Instead, assumed names can be filed with the Bureau of Corporations, Elections, and Commissions in addition to the municipal county clerk in the location where the business operates. 

Maine licenses 

Maine does not have any requirements for general business licenses, however, most businesses will need a seller’s permit. This will allow businesses to register for state sales tax or service provider taxes collection and to pay them to Maine’s Department of Revenue. 

The nature of your business may also mean that you need additional licensing. For example, certain professional services will need to be licensed through the state. Your local government may also have their own requirements for licensing, permits, and zoning clearances. 

Hiring employees

While a sole proprietorship has to have only one owner, these businesses are able to hire employees to work for them, but this requires a few extra steps. As an employer, a sole proprietorship needs to withhold and remit federal taxes, which means they need to register with the Internal Revenue Service. The IRS website makes it easy to obtain an employer identification number, or EIN, which is used as the primary tax ID number for businesses and employers. 

Maine taxes

Since the owner of a sole proprietorship and the business are considered the same legal entity, taxes are only filed one time, under the owner’s own name and Social Security Number. As a part of filing individual tax returns, these small business owners can file Schedule C to reflect all business income and expenses, which are taxed at their normal tax rate. 

It is important to note that sole proprietors are considered self-employed and will need to pay the relevant self-employment taxes. These tax payments cover contributions for things like Medicare and Social Security that would otherwise be withheld from a paycheck. 

Pros

  • Easy and inexpensive to set up and maintain.
  • Complete control and decision-making authority.
  • Direct ownership of profits without sharing with partners or shareholders.
  • Flexible management structure with no formal requirements.
  • Minimal regulatory compliance and reporting obligations.
  • Simplified tax filing as business income is reported on the owner’s personal tax return.
  • Ability to offset business losses against personal income.
  • Privacy of business information as there is no public disclosure of financial details.
  • Easier dissolution or transfer of the business compared to other entities.

Cons

  • Unlimited liability for business debts and obligations and little legal protection, putting their personal assets at risk
  • Difficulty in raising capital or obtaining financing due to personal liability.
  • May be difficult to open a business bank account under your business’s name and obtain business assets.
  • Sole responsibility for all business decisions, which can be overwhelming or burdensome.
  • Lack of continuity or succession planning as the business is closely tied to the business owner.
  • Difficulty in separating personal and business finances, potentially leading to confusion or commingling of funds.

FAQs

Do I need to register my sole proprietorship in Maine?

No, there is no formal registration requirement for a sole proprietorship in Maine. However, if you choose to operate under a name other than your own, you may need to file a DBA form with your local government. 

What business taxes do I need to pay as a sole proprietor in Maine?

As a sole proprietor in Maine, you are responsible for paying both federal and state taxes. You will report your own business income and expenses on Schedule C or Schedule C-EZ of your personal income tax return. Additionally, you may be subject to self-employment taxes, including Social Security and Medicare taxes.

Are there any licenses or permits required for my sole proprietorship?

Depending on the nature of your business, you may need to obtain specific licenses or permits at the local, state, or federal level. It is essential to research and identify the licenses or permits relevant to your industry or profession and ensure compliance with applicable regulations.

Can I hire employees as a sole proprietor in Maine?

Yes, as a sole proprietor in Maine, you can hire employees for your business. However, employing individuals comes with additional responsibilities, such as payroll taxes, workers’ compensation insurance, and compliance with employment laws.

What are the advantages of choosing a sole proprietorship in Maine?

Some key advantages of a sole proprietorship in Maine include its simplicity and low cost of setup, direct control over decision-making, minimal regulatory compliance, and the ability to retain all profits. It is an ideal choice for individuals looking for independence, flexibility, and a straightforward business structure without the need for partners or shareholders.

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