How to Start a Sole Proprietorship in Missouri
In the state of Missouri, anyone who starts a business becomes a sole proprietor without any additional paperwork. It’s simple – but that’s not the end of the story. After you open a business, there are more steps you need to take to establish your sole proprietorship in Missouri. How is it done? If you’re one of the many entrepreneurs in Missouri interested in starting a sole proprietorship, you’ve come to the right place; keep reading to learn more.
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What is a sole proprietorship?
A sole prop, also known as individual entrepreneurship or proprietorship, is a type of business owned by one person. In a sole proprietorship, there is no separation between the business entity and the person who owns the company. Although owned solo, the business owner can still hire additional members to work for them.
Examples of a sole proprietorship
- A locally-owned grocery store.
- A freelance writer working on a platform.
- An IT consultant working for themselves.
- A locally-owned boutique clothing store.
- A freelance graphic designer.
What qualifies your business as a sole proprietorship?
The qualifications for a sole proprietorship are simple. If you are a single owner, also known as the sole proprietor, and begin operating a business, it is automatically a sole proprietorship. There is no need for anything legal to establish yourself as a sole proprietorship in Missouri.
Sole proprietorship vs Missouri LLC
A sole proprietorship is a business run by one person and is considered an unincorporated business. The owner is responsible for actions, debts, liabilities, and more incurred in the company.
An LLC, otherwise known as a Limited Liability Company, is a type of business that uses articles of organization to set up, created to provide limited liability and pass-through taxation. It’s made to protect owners from business debt and liability.
Who is it best for?
A sole prop is best for business owners who want to start a company with their savings and understand the business is self-financed. It’s ideal for small businesses with low risk and lower profits than larger companies, leaving less room for issues of liability and loss.
Those who prefer a business structure and need more security in their company may want to opt for an LLC. It provides more of a safety net for small business owners who need a base below their feet.
How to set up a sole proprietorship in Missouri
A sole prop is typically a small business with the ability to hire employees. In Missouri, there are a few things you need to do to set up your sole prop, from giving it a name to creating a business bank account for all your expenses.
Is there any formal paperwork filed to establish this type of business?
While creating your business plan for the future, it’s helpful to know the legalities involved in establishing your business. In Missouri, you don’t need to file any legal paperwork to bring your sole prop to life.
Although formal paperwork isn’t necessary, it is helpful. It will help you establish a legal business name, file a fictitious name with the Missouri Secretary of State, apply for various licenses and permits, and request an employer identification number.
Name your business
After you plan your business, it’s time to come up with a fictitious name to register with the Missouri Secretary of State. You have two options for this stage, each with its benefits.
Using your own name
When you start a sole proprietorship, your legal name is automatically your business name. You can operate under that name if you don’t mind your full name being presented to potential customers as your company.
However, many prefer fictitious name registration to establish a different title for their company. In that case, you would need to register a Doing Business As, or DBA, name.
Setting up a DBA
A Doing Business As, or DBA name, is not required for a sole proprietorship, but it’s excellent for those who don’t want to use their first name for their business. You can pick a new business name so long as the name is not already in use by another business.
You must go online to the Missouri Secretary of State website and pay a filing fee for the new name, which is around $7 in Missouri.
A registered agent can be a helpful addition throughout this process. However, they are unnecessary to bring your sole proprietorship to life in Missouri.
How to Check if a Business Name is Taken
Obtain state licenses
Missouri businesses need various licenses to operate, and a sole proprietorship is no different if you want to complete the legal process. There are two core official documents you should look into for your sole prop.
First, you will need a business license. Missouri doesn’t require an official document, but your industry might. Research your job to determine if you need legal paperwork to operate in your field from a sole prop standpoint.
Request an EIN
It’s also a good idea to get an EIN or Employment Identification Number from the IRS. This number will help prevent identity theft and make hiring employees easy with payroll taxes. It serves as a tax id.
Consider opening a business bank account
While a business bank account isn’t required for a sole proprietorship, it can make it easier to pay taxes and keep your funds in order. Ideally, you’ll keep your personal finances separate from your business finances.
Do note that having a business bank account does not provide protection to your personal assets in a sole proprietorship; it is just for your convenience.
Missouri taxes
If you own a sole proprietorship, you still owe taxes to the IRS even though the funds are not automatically deducted from your check. The Internal Revenue Service will expect a sole proprietor to make proper payments at appropriate times throughout the year.
Business tax, income tax, employment tax, federal tax, and state taxes are all reported through the sole proprietor’s individual income tax return. You, the owner, are responsible for all actions and debts incurred in the business.
Pros
- Easy to set up and maintain over time
- Simple taxation method similar to individual taxation
- No annual report or filings
- No formal business structure
- Minimal paperwork and legal filings required
Cons
- Minimal legal protections for the owner
- Tricky to get capital as you won’t qualify for government grants or benefits
- Limited credibility
- If you don’t get an EIN, your social security number is given out to employees on tax forms.
FAQs
Does a sole proprietor need a business license in Missouri?
Someone establishing a business entity as a sole proprietor in Missouri does not need a general business license in Missouri. However, it’s critical to research your industry to determine if you need specific licenses for whatever you are doing. Counties and cities may have varying legal requirements depending on the line of work you’re in.
How do you establish yourself as a sole proprietor?
As a sole proprietor, you don’t need to do anything to create your business. However, a few additional steps you can take to establish yourself. You can make your business name, use your social security number to get an EIN, get necessary permits, find business insurance, open a business bank account, and more.
Do sole props need to be registered?
As a business owner, you don’t need to register your sole proprietorship in Missouri. However, it is vital to note you have personal liability in your company. Registering with the state of Missouri will make things more tangible, and some industries might need to register based on specific rules and regulations in the area.
What is the tax rate for sole proprietorship in Missouri?
When filing taxes, it’s helpful to know the tax rate. In Missouri, the tax rate for a sole proprietorship is 15.3%. You must file your taxes before April 15th each year to get accurate results to the IRS for personal and professional taxes.
Is it better to start as a sole proprietor or LLC?
If you want to limit your liability, starting an LLC or a Limited Liability Company (LLC), is better than a sole proprietorship. A member LLC is better if you have outside help to pay for the registration and need protection for your small business. But if you don’t want to file paperwork and it’s just you, stick with a sole proprietorship.
Do sole props need payroll?
Some sole props are only one person, meaning payroll isn’t necessary. However, there are some cases when a sole proprietor will hire other people to work. In this case, a payroll is ideal to properly pay employees, file and remit the payroll taxes, and ensure they meet proper regulations.
How much does a sole proprietor have to make to file taxes?
A sole proprietor in Missouri must make at least $400 to file taxes. If your business income totaled more than $400 for the fiscal year, you must file an income tax for the IRS to report your earnings.
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