How to Start a Sole Proprietorship in Mississippi
If you are thinking about starting a new business in Mississippi, it may be easier than you think. Like many other states, you can start a sole proprietorship without having to file many legal documents. To learn more about the startup for a sole proprietorship in the state of Mississippi, keep reading.
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What is a sole proprietorship?
A sole prop is the easiest business entity you can form. Essentially, a sole proprietorship is a small business that is typically owned and operated by only one person, which is perfect for entrepreneurs.
Examples of a sole proprietorship
- A person who makes and sells jewelry on Etsy.
- A freelance writer or editor.
- A local clothing store owner.
- Freelance graphic designers.
- IT Consultants not working for a company but for themselves instead.
What qualifies your business as a sole proprietorship?
A business is typically considered to be a sole proprietorship when you decide to go into business for yourself. This can mean that you decide to either sell products or services to customers and collect money from them.
There are no major qualifications for someone to start a business as a sole proprietor since this type of business does not include any differences between the individual and the business itself.
The bottom line for qualification purposes is that if you begin selling products or services, you have already started a sole proprietorship.
Sole proprietorship vs LLC
A sole proprietorship is a small business that is owned and operated by one person and is considered an unincorporated business.
An LLC, or Limited Liability Company, is a business incorporation structure designed to protect small business owners from personal liability.
Who is it best for?
A sole proprietorship business structure is best for those individuals who choose to start working for themselves. This means that they are putting together their business model intending to only operate it themselves with an individual bank account for the business itself.
If you plan to take on a partner or two, a sole proprietorship is not the business structure for you. This is because a sole proprietorship is exactly as it sounds, it is intended to be for only one owner and operator.
How to set up a sole proprietorship in Mississippi
Setting up a sole proprietorship in Mississippi is easy; although there is no legal requirement to file any business forms with the state, there are a few steps that you should follow. These will help you to establish a business that is professional and attractive to potential customers.
Is there any formal paperwork filed to establish this type of business?
When it comes to qualifications for filing formal paperwork to start a sole proprietorship, there are typically few requirements. In the state of Mississippi, you do not have to file paperwork with the Secretary of State to begin your sole proprietorship.
However, depending on the county and city you live in, you may have to file some paperwork with them before you begin your business. Even when this is the case, it is much easier to file than when you form an LLC or other business legal entity.
Name your business
One of the most important steps when setting up a small business is to find a name that fits what your business is about. There are several choices that you should consider before making your final decision.
The biggest decision you will need to make when it comes to naming your business is whether or not you wish to use your own name or something else.
Using your own name
Many people in the state of Mississippi choose to use their own name as the business name. Choosing this option is one of the easiest decisions since it is not likely that someone will have the same name for their business, and no formal paperwork is required to start.
Setting up a DBA
Another option you can choose is to create a unique trade name for your business that either you like or that fits with what you will be doing. The best advice when choosing a name in Mississippi is to search the Mississippi Department of State’s website for business names that already exist.
Keep in mind that before you file your DBA, or Doing Business As, you will need to ensure that the name you choose is not already being used, does not mislead individuals, and does not use any governmental abbreviations.
Once you have found the name that fits your business and the criteria listed above, you will file your fictitious name status with the Secretary of State through the Mississippi Corporations Registered Filers.
How to Check if a Business Name is Taken
Obtain state licenses
Depending on the type of business you are forming, you may need to check with state regulations for specific state licensing requirements. For certain businesses, there are either licenses, permits, or other requirements that you may need to take into account before starting a business.
For the most part, this is regulated through the Mississippi Department of Business and Professional Regulation. In other instances, there may be other state licensing agencies that you may need to contact.
While most small businesses will not require a specific license to operate, certain professions require them, such as accountants, health professionals, or hairstylists.
Mississippi taxes
For those who create a sole proprietorship for their own business, tax preparation is a simple process. This is because this type of business does not require you to file your taxes as the business itself, according to the IRS.
When you are a sole proprietor, for tax purposes, you will file your business taxes on your individual tax return. You will report both your business profits and losses on a Schedule C form as you prepare your personal income tax return, just as you normally would with the addition of a self-employment tax.
Any tax payments that are required to be made to the IRS come from the individual owner of a sole proprietorship and are usually done through a business bank account. This is because this is where your business income comes from and can typically be used to cover taxes.
Pros
- Complete control of the business and decision-making processes
- Easier setup including fewer fees and paperwork
- Less complicated personal tax return preparation process
- Business is set up as a separate legal entity
Cons
- Much more difficult to secure funding
- No separation between business assets, business debts and liabilities, and personal assets.
- The business can fail easily due to increased liability.
FAQs
Do you have to register a sole proprietorship in Mississippi?
In the state of Mississippi, you are not required to register your sole proprietorship with the Secretary of State. All you need to do is start selling your products or services. However, if you choose to name your company something other than your own name, you will need to file a DBA, or fictitious name, with the Secretary of State.
What are the costs of starting a sole proprietorship in Mississippi?
Depending on the type of business you are starting, you may need to spend a small amount of money on supplies and other equipment. Other than that, you will need to consider filing fees for any permits or licenses, including your DBA status.
What if you want to have a partner, can you still be considered a sole proprietor?
No, if you choose to have more than one person as the owner, you no longer have a sole proprietorship. If this is the case for your business, you will need to set it up as a Partnership, which is also an informal business structure but allows you to have more than one owner.
Can you have employees when you have a sole proprietorship?
Yes, a sole proprietorship Is allowed to have employees, and there is no limit to the number you can have working for you. Keep in mind that if you choose to employ others, you will need to apply for an EIN or Employer Identification Number and take into consideration taxes and Medicare and social security deductions.
Should you create a standard operating agreement for your sole proprietorship?
The state of Mississippi does not require you to have an operating agreement for your sole proprietorship. This requirement is more for those operating LLCs and/or corporations such as an S Corp. This does not mean, however, that you should not create a business plan before starting your company.
Is it better to start a sole proprietorship or an LLC?
When it comes to starting a business, you should consider your personal assets and needs before deciding which structure to have. A sole proprietorship does not come with any personal liability legal protections, although it is much easier to set up. An LLC can provide owners with personal liability protection if things go wrong.
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