How to Start a Sole Proprietorship in New Hampshire
New Hampshire is a great place to start a sole proprietorship. With its favorable business climate and robust support system, you can pursue your passion and realize your vision. In this guide, we’ll walk you through the essential steps and intricacies involved in launching a successful new business on your own in New Hampshire.
What is a sole proprietorship?
A sole proprietorship is a common type of business structure in which a single person is responsible for owning and operating a business. That person, the sole proprietor, is considered to be the same legal entity as the business, sharing a name and Social Security Number. With little setup time or cost, a sole proprietorship is often simple to establish, making it a popular choice.
There is an unlimited liability in a sole proprietorship, meaning that the owner’s personal assets are at risk if there are business debts or obligations they must meet.
Examples of a sole proprietorship
Examples of businesses that commonly operate as sole proprietorships include freelance writers, consultants, photographers, independent contractors, online shop owners, small retail stores, home-based businesses, and personal service providers such as hairstylists, tutors, or therapists. These businesses often have a single owner who manages all aspects of the operation, though they are able to hire employees. Sole proprietorships can be found across a wide range of industries and sectors, catering to diverse customer needs and offering specialized products or services.
What qualifies your business as a sole proprietorship?
A business qualifies as a sole proprietorship when it is owned and operated by a single individual. While other business structures, including an S corp or full incorporation of a business, create a separate legal entity, that is not the case for sole proprietorships. Someone independently conducting business activity under their own name is considered a sole proprietorship, even with no formalization of the business.
Sole proprietorship vs LLC
A sole proprietorship is an unincorporated business structure that is common due to its ease of establishment and flexibility. The owner and the business are the same entity, sharing all business assets and all liability.
An LLC (Limited Liability Company) is a business structure that provides some limited liability protection to its owner or owners. This offers legal protection to owners while still allowing pass-through taxation and low regulation.
Who is it best for?
A sole proprietorship is well-suited for businesses that fall into specific categories. Often, service-based businesses thrive as sole proprietorships. Freelancers, consultants, photographers, writers, and other professionals who offer services directly to clients can benefit from the simplicity and ease of operating as a sole proprietor. These businesses typically have low startup costs, require minimal equipment or inventory, and can be operated successfully with a single individual.
Additionally, small-scale retail and e-commerce businesses can also flourish as sole proprietorships. Independent online stores, boutique shops, artists selling their crafts, and local specialty stores often find flexibility and direct control over their business operations to be advantageous. Sole proprietorships allow these businesses to maintain close customer relationships, adapt quickly to market demands, and make swift decisions without the need for extensive bureaucracy.
How to set up a sole proprietorship in New Hampshire
To establish a sole proprietorship in New Hampshire, all you have to do is operate a business independently – many people are already running this type of business without knowing it. While the formation process is that simple, running your own business does have other requirements you may need to be aware of before moving forward.
Is there any formal paperwork filed to establish this type of business?
New Hampshire does not require any business forms or filing through the Secretary of State to form a sole proprietorship. Operating as an independently-owned business creates a sole proprietorship with no action needed. However, you may need to file paperwork to conduct certain activities, such as collecting sales tax or certain services that require more licensing. These requirements will depend on state-level and local requirements, as well as your type of business.
Naming your business
Like any business, you are able to choose the name you use for your sole proprietorship – but the structure is unique because this is not required and will not be the legal name of your business. Instead, you can either use your own name or the DBA process.
Using your own name
There is no formal process to establish a sole proprietorship, so there is no time when you would file a name for the business. Instead, your legal name is considered the same as the business’s legal name without any steps being taken. You can operate a business under your name this way without using another.
Setting up a DBA
If you do want to use a more public-facing business name or keep your legal name more private, a good option is to set up a trade name (sometimes called a doing-business-as) through the New Hampshire Secretary of State. You will need to make sure the name is available and not in use by another business, and you can then submit a Trade Name Registration Form and pay the $50 filing fee.
New Hampshire licenses
There is no statewide general business license required in New Hampshire. The state also does not have any sales tax, which means no seller’s permit is necessary for businesses. The only state-level requirements are those imposed on certain professions, like medical practitioners or accountants, who must maintain licensing.
Certain local governments may also have additional requirements. It is important to check with the city or county clerk anywhere you conduct business activities to ensure that there are no additional regulations you must meet.
New Hampshire taxes
Sole proprietors are not considered separate from their business for tax purposes. When a business owner files their personal tax returns, they include business income and expenses on Schedule C (Form 1040) as a part of these returns. Any net business profit or loss is taxed at their individual tax rate, along with personal income and deductions. The IRS will use the owner’s Social Security Number as a tax ID.
Depending on their income level and if they have another job, sole proprietors are also considered self-employed and may need to pay self-employment taxes. These account for contributions to Social Security and Medicare that an employer would typically handle.
- Fast, inexpensive setup and operation
- Complete control over all business decisions and flexibility
- No profit-sharing
- Tax reporting is simple and often more advantageous for entrepreneurs
- No public reporting or annual reporting required
- Less regulatory compliance
- Easy to close and dissolve business if needed.
- Unlimited personal liability for business debts and obligations, risking personal assets
- Can be difficult to raise capital or access business bank accounts
- Complete reliance on the owner’s expertise and resources
- No continuity if the owner dies or retires
- Some customers or employees may feel the business is less credible
Do I need to collect and remit sales tax as a sole proprietor in New Hampshire?
New Hampshire does not have a general sales tax. However, if you sell certain taxable goods or services, such as meals and rooms, you may need to collect and remit specific taxes. Contact the New Hampshire Department of Revenue Administration to determine your obligations for sales tax payments.
Are there any specific licenses or permits required for a sole proprietorship in New Hampshire?
The specific licenses and permits required for your sole proprietorship in New Hampshire will depend on the nature of your business. Check with the New Hampshire Division of Economic Development or your local city or town clerk’s office to determine if any specific licenses or permits are needed.
Are there any specific regulations for operating a home-based sole proprietorship in New Hampshire?
If you plan to run your sole proprietorship from your home in New Hampshire, check local zoning regulations and any homeowners’ association rules that may apply. Some areas have restrictions or require permits for home-based businesses.
Do I need a separate bank account for my sole proprietorship in New Hampshire?
While it’s not legally required to have a business bank account for your sole proprietorship in New Hampshire, it is recommended. Maintaining separate business and personal accounts helps with record-keeping, personal income tax reporting, and distinguishing business finances from personal finances. However, some banks will require you to have an employer identification number to open an account.
Are there any ongoing reporting or renewal requirements for a sole proprietorship in New Hampshire?
In New Hampshire, there are generally no annual reporting or renewal requirements specifically for sole proprietorships. However, you should ensure that you meet any obligations related to your trade name registration, permits, licenses, and business taxes. It’s a good practice to review your business requirements periodically and stay informed about any changes in regulations.
Find out how to start a sole proprietorship in your state
Click below to get started