How to Start a Sole Proprietorship in New York

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by LLC.org Team
Last updated: June 13th, 2024
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If you’re a small business owner in New York or pursuing a new business, choosing the right business structure is a crucial decision. One popular option in New York is a sole proprietorship, known for its simplicity and easy setup process.

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What is a sole proprietorship?

A sole proprietorship is an unincorporated business entity structure available to small businesses in New York where a single person owns and operates the business.

It is designed to be a straightforward structure that offers maximum flexibility and control to the owner, making it an excellent choice for new businesses and professional service providers.

Examples of a sole proprietorship

Any business run by an individual who has full personal liability for the business is a sole proprietorship. This is often used for small providers of professional services, like an accountant, but there is no limit on the industry or type of business that can be a sole proprietorship. Small local retail shops and businesses with employees can also be considered this type of business structure.

What qualifies your business as a sole proprietorship? 

A business can qualify as a sole proprietorship without doing anything particular – in fact, you may be running a sole proprietorship without knowing it. To qualify, you must be conducting business activities under your own name and be the sole owner of the business. Business activity can be something as simple as writing a business plan, designing a website, or making a sale.

Sole proprietorship vs LLC

A sole proprietorship is a simple, unincorporated business structure that treats the business and its owner as a single legal entity. Owners receive tax advantages and flexibility but also take on unlimited liability.

On the other hand, a Limited Liability Company (LLC) is an alternative business structure commonly used by small business owners. In an LLC, the business is a separate legal entity from its owner or owners (called members), offering limited liability protection while allowing for tax benefits like pass-through taxation.

Who is it best for?

A sole proprietorship is best suited for individuals who seek simplicity and complete control over their business operations. It is an ideal choice for aspiring entrepreneurs who want to start a small business or operate independently. Sole proprietors can quickly establish their businesses without the need for complex legal processes or extensive paperwork. This business structure is particularly beneficial for those in professional services, freelancers, consultants, and small businesses who want to control their finances.

Moreover, a sole proprietorship is suitable for individuals who prioritize flexibility and autonomy in their business decisions. As the sole owner, they have the freedom to make choices without consulting partners or shareholders. This independence allows for swift decision-making, adaptability to market changes, and the ability to tailor the business to personal preferences. 

How to set up a sole proprietorship in New York

Although you don’t need to worry about formation paperwork for a New York sole proprietorship, other processes and regulations may require consideration. Here are some common things you may choose to do and step-by-step instructions. 

Is there any paperwork filed to form a sole proprietorship?

Starting other business structures (like an LLC or S corp) and full incorporation in New York require paperwork to be filed that registers your business with the New York Department of State. A sole proprietorship is different and does not require any specific paperwork to be filed – it is formed simply by existing.

However, you may need to file paperwork for things like an assumed name and some business licenses.

Name your business

Choosing a name for your business can be an important decision and is actually required to file formation paperwork on most business structures. But in a sole proprietorship, this is not the case. Instead, you have two options for business names: the default of your own name or a fictitious name. 

Using your own name

A sole proprietorship is the same legal entity as its owner – this means they share all legal and tax identification, such as a legal name and a Social Security Number. As soon as a sole proprietorship exists, it is named this by default. For example, if your name is Bill Smith, your business is also called Bill Smith. This is especially helpful for businesses that need to start quickly or will not be doing a lot of marketing. 

Setting up a DBA

If you do want to use a name other than your own, you can follow the process to set up a fictitious name. Also known as a DBA or “doing business as”, this allows your business to use a different name for all operations. To do this, you need to file an application with the county clerk’s office where your business operates and pay the associated filing fee. You will then be issued a certificate of assumed name and can use the name moving forward. 

arrowHow to Check if a Business Name is Taken

Check into New York business licenses 

Though there is no single general business license in New York state, the vast majority of businesses will need to obtain a Certificate of Authority. This serves as a sales tax certificate and allows the business to collect sales and use tax and pay it to the Department of Taxation and Finance. You can obtain this through New York Business Express at NY. gov. Some professions and industries will need to have specific licensing as well; for example, cosmetologists, barbers, and professional waxers will all need licensing. 

There are also many local licenses that could be relevant for your business. New York City has many of its own regulations surrounding this, but any locality can set its own requirements for licenses, permits, and zoning clearances. Be sure to check with the local county clerk’s office where your business operates to be sure you remain in compliance with these rules in both NYC and the rest of New York.

Pros

  • No cost to low cost formation and annual upkeep
  • Simple and fast to establish
  • Owners maintain complete control of business operations
  • Owners receive all business profits
  • Taxes are done as a single entity for lower rates and a simple process
  • No financial disclosures are required

Cons

  • Unlimited personal liability means the owner could risk their own personal assets to cover business obligations
  • It can be difficult to raise capital and find investors
  • Business bank accounts may not be accessible at all banks
  • A single owner may not have the expertise or bandwidth to run all aspects of the business
  • No continuity – if the owner dies or quits, the business stops existing as well

FAQs

Can I convert my sole proprietorship into a different business structure later on?

Yes, it is possible to convert your sole proprietorship into a different business structure in the future. For example, you may choose to form a Limited Liability Company (LLC) or incorporate your business as a corporation. However, you will need to follow the process and requirements for that new structure in New York.

Are there any specific permits or licenses required for home-based sole proprietorships in New York?

If you are running your sole proprietorship from your home, you may need to comply with certain local regulations and obtain specific permits or licenses. Some municipalities have zoning restrictions or home occupation regulations that apply to businesses operated from residential properties.

Can I hire independent contractors or freelancers as a sole proprietor?

Yes, as a sole proprietor, you can hire independent contractors or freelancers to assist you in your business operations. When working with independent contractors, it’s important to ensure that they are properly classified as independent contractors under state and federal guidelines. This distinction is crucial for tax purposes and determines the legal obligations and responsibilities associated with the employment relationship.

Can I hire employees as a sole proprietor?

Yes, as a sole proprietor, you have the option to hire employees to assist in running your business. However, it’s important to note that you are personally responsible for complying with federal and state laws. This includes obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS), withholding and remitting payroll taxes, and providing workers’ compensation insurance.

Can my sole proprietorship have business insurance?

Yes, a sole proprietor can have insurance. While a sole proprietorship does not provide personal liability protection, it is still possible to obtain insurance coverage to mitigate certain risks. Business insurance options for sole proprietors can include general liability insurance, professional liability insurance, property insurance, and workers’ compensation insurance.

How does a sole proprietorship pay taxes? 

In a sole proprietorship, you are considered the same legal entity as your own business, which means you only need to file taxes one time to account for personal and business taxes. When filing your personal tax return, you will need to include all business income, expenses, and liabilities on the Schedule C form.

What other taxes are sole proprietors responsible for?

Sole proprietors are also considered to be self-employed, so you need to pay self-employment taxes. These taxes represent both the employer and employee portions of common taxes used to contribute to Medicare and Social Security. Depending on your level of business income, you may need to file these taxes quarterly rather than on an annual basis. 

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