How to Start a Sole Proprietorship in Oklahoma
A sole proprietorship is one of the most common business structures entrepreneurs choose in Oklahoma and most states because it is the easiest to set up and the most inexpensive way to start a business. So if you have a startup that a single individual can run, here is a guide on how to start a sole proprietorship in Oklahoma.
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What is a sole proprietorship?
Before learning how to start a sole proprietorship in Oklahoma, you might want to know what a sole proprietorship is exactly. For those of you who are new to business structures, a sole proprietorship is the simplest form of business organization where a single individual runs and operates a business.
Without forming a separate legal entity, any entrepreneur, freelancer, or independent contractor can start a sole proprietorship. The cost of starting a sole proprietorship is low, and it is the default business structure for individuals who want to start a small business quickly.
Examples of a sole proprietorship
Sole proprietorships are found in many industries. Some great examples would be freelancers, writers, graphic designers, local bakeries, local grocery stores, and any local business owned and operated by a single person. The flexibility and simplicity of this business structure make it a popular choice for new Oklahoma business owners.
What qualifies your business as a sole proprietorship?
There are only a few basic requirements for a business to qualify as a sole proprietorship. First, you must be the sole owner of the business, meaning you cannot take in shareholders and get incorporated. But with that said, you will have complete control over the business and be the decision-making authority.
Second, you cannot register the business as any type of legal entity, such as a corporation, a limited liability company (LLC), or a general partnership. Basically, any business that is unincorporated and owned by a single individual can be qualified as a sole proprietorship.
Sole prop vs LLC
We all know by now that a sole proprietorship is an unincorporated business that is easy to form. But unlike sole proprietorships, Oklahoma LLCs provide personal liability protection, meaning the owner’s personal assets are generally separate from the business’s debts and liabilities. Establishing a member LLC also requires more formalities and paperwork but can offer increased protection and flexibility.
Who is it best for?
A sole proprietorship is an ideal choice for entrepreneurs who value simplicity, control, and low startup costs. It is suitable for small-scale businesses, freelancers, and self-employed individuals who do not anticipate substantial liability risks or the need for significant capital investment.
How to set up a sole proprietorship in Oklahoma
By now you are probably convinced that a sole proprietorship is the right option and business structure for your new small business. If that is the case, you can start creating your sole proprietorship and start making money. Starting one is easy, and here are some of the steps you need to take in order to do so:
Is there any formal paperwork filed to establish this type of business?
One of the best things about starting a sole proprietorship is that there aren’t many requirements or paperwork involved. Unlike other business structures, like forming an LLC, there isn’t any formal business registration with the Oklahoma Secretary of State or the Oklahoma Tax Commission.
Name your business
Some might say that naming the business is not a top priority. However, the business name is one of the most crucial aspects of any business. Although a sole proprietorship uses the owner’s name by default, and there is no legal distinction between the owner and business, you can still use a different name if you’d like. Here are your options:
Using your own name
If you decide to use your own name, you don’t need to file any paperwork.
Using your own name is a good idea if you want to start immediately without taking additional steps.
If you decide to build a personal brand, you don’t need to name the business and can use your legal name to ensure people recognize your personal brand. However, not everyone wants their business name and legal name to be the same. If you want to pick a business name, you need to file a DBA.
Setting up a DBA
A DBA or “Doing Business As” is a certificate that allows sole proprietorships to operate under a name of your choosing. But before filing for a DBA, make sure you choose a name that is unique and relevant to your business. No two businesses in Oklahoma can have the same name, so make sure you check the Oklahoma business database on their Secretary of State website to see if the name you want is available.
Now that you have a unique business name, you can go ahead and file for a DBA online here or complete the Trade Name Report form and submit the application by mail. Filing for a trade name costs $25, and the information you need to fill out is quite straightforward.
How to Check if a Business Name is Taken
State licenses
Now that you have a DBA, the next step is to ensure that you have all the necessary business permits and licenses to legally operate your new Oklahoma sole proprietorship. Not all businesses are required to have licenses.
However, businesses that involve professions like hair stylists, accountants, and plumbers need specific permits to operate their businesses. The permits you might need will depend on the type of business you are opening.
If you are not sure what licenses you need, you can go to the Oklahoma business page on the state website to learn more and continue to file for the licenses.
Oklahoma taxes
It’s easy to file taxes as a sole proprietorship. You won’t file separate business taxes. Instead, your new business will file one income tax return with the IRS under your social security number.
The income that you generate through your business entity will “pass-through” to your personal tax return. You’ll pay taxes on the income you’ve earned and pay the Internal Revenue Service as you normally would.
Part of your income taxes will include a Schedule C, which you’ll find in addition to your individual tax return (Form 1040). You’ll also pay self-employment taxes, which include Social Security and Medicare taxes.
Every small business owner pays federal taxes, but each state has its own tax rules. Some states don’t levy an income tax. It’s best to speak with an accountant to understand what forms you should file and which taxes are applicable to your business.
Pros
- You have full control over the business
- It is inexpensive
- It is easy to set up
- There is minimal regulatory compliance
Cons
- You have unlimited liability
- Funding is hard to secure
- There is limited potential for growth
FAQs
What are the biggest challenges of starting a sole proprietorship in Oklahoma?
Starting a sole proprietorship in Oklahoma does not pose significant challenges. However, understanding and fulfilling the licensing requirements specific to your industry and complying with tax obligations can be complex.
Can sole proprietorships in Oklahoma open a business bank account?
Yes, sole proprietors in Oklahoma can open a business bank account. It is recommended to separate business activities from personal to maintain accurate bookkeeping and simplify tax reporting. It also benefits the business and adds an extra layer of legitimacy and trust from potential customers.
Can sole proprietors in Oklahoma hire employees?
Yes, sole proprietors in Oklahoma can hire employees. However, it is important to comply with employment laws, including payroll taxes, workers’ compensation, and other relevant regulations. You also need to obtain an EIN or federal employer identification number from the IRS, which serves as a tax id.
Are sole proprietorships easy to manage?
Sole proprietorships are generally easy to manage due to their simplicity. However, managing all aspects of the business independently, including financials, operations, and marketing, can be demanding for a single individual.
Is a DBA required to become a sole proprietor in Oklahoma?
A DBA is not required if you operate your sole proprietorship using your legal name. However, if you want to use a business name other than your legal name, filing a DBA is necessary to establish the assumed name. Doing so doesn’t offer any personal liability protection; it simply gives you permission to operate under a business name.
Is there a list of items a sole proprietor should look into?
Yes. There are some optional and mandatory operating requirements that you can do to help your business, such as getting a fictitious name, opening a business bank account, getting an employer identification number, and researching business licenses, sales tax rules, and insurance policies.
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