How to Start a Sole Proprietorship in Oregon
One of the easiest ways to start a business in Oregon is to start a sole proprietorship, as you don’t need to file much paperwork to get started. Read on to learn everything you need to do to start a sole proprietorship in Oregon.
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What is a sole proprietorship?
A sole proprietorship is an unincorporated business that is composed of a single business owner.
The business owner is indistinguishable from the business. Since there is no separation between you and the business, as the owner, you’re personally responsible for all risks and liabilities taken by the business.
So, let’s say you sell homemade cupcakes from your home, and someone claims they made them sick. As a result, they sue you to cover their medical bills. You, as the owner, are personally and financially responsible for legal fees and any kind of payout. Your personal assets, like the money in your savings account, aren’t separate from the business and can be used to cover these costs.
Examples of a sole proprietorship
- A freelance carpenter or handyman taking on projects in his or her neighborhood.
- A freelance writer publishing books on Amazon.
- An artist selling paintings or crafts at a local market.
- A photographer advertising their services on Facebook to friends and family.
What qualifies your business as a sole proprietorship?
A business is considered a sole proprietorship once you begin business activities. Business activities could be making a business plan, conducting market research, or selling products to customers.
Even if you haven’t yet made a sale or collected money, the minute you begin working on any business activity, you are considered a sole proprietor in Oregon.
Sole proprietorship vs. LLC
A sole proprietorship is a business owned by a single individual. This individual and the business are often indistinguishable and share finances and sometimes a name.
An LLC is a limited liability corporation that is created using incorporation documents to legally separate the ownership of the business from its business liabilities. LLCs help lower the business owner’s exposure to risk as the business operates.
Who is it best for?
Sole proprietorships are perfect for entrepreneurs who are looking to start up a low-risk business like freelancing. It’s easy for these business owners to get started, and they don’t need to hire an accountant to file taxes. Plus, while the individual has to be the sole owner of the business, they can still hire employees if needed.
If a business is associated with some risks, or an individual would like to have a partner, then it is probably a better idea to look into a different business setup, as a sole proprietorship isn’t the right fit for these types of businesses.
How to set up a sole proprietorship in Oregon
There are a few steps you need to perform before you begin, which include choosing a name, obtaining licenses, and requesting an EIN if you need one.
Is there any formal paperwork filed to establish this type of business?
In Oregon, unlike other business setups (such as an LLC or limited partnership), there is no paperwork required to begin working on your sole proprietorship unless you’d like to establish a business name that’s different than your personal name.
Name your business
You have a couple of options when it comes to naming your sole proprietorship in Oregon. You can either use your own name, or you can choose one. Under Oregon law, your business name must not be the same as any other business in the state.
Using your own name
The easiest option for picking a name is just to use your own name. If you don’t select a name, your name is automatically used as the name of your business.
Note that using your own name means that you have to use your legal name, and you cannot shorten it or use a nickname. If you wish to use a different version of your name, then you must file a DBA, which is also called a trade name or an assumed name.
Setting up a DBA
For those who don’t want to use their name, you’ll want to attain a DBA or ‘doing business as’ name. Before you can do anything else, you must perform a name search to see if your name is available in the state of Oregon. You can check if your desired name is available on the Oregon Secretary of State website.
If your name is available, you can register it with the Online Assumed Business Name Registry. In Oregon, this registered name is known as an assumed name, and it will cost a $50 filing fee for the necessary paperwork.
How to Check if a Business Name is Taken
Get state licenses
In Oregon, several different businesses require licenses in order to operate, like a daycare, electrician, or landscaper. Check the list in the Oregon License Directory to see if your business meets licensing requirements.
Don’t forget that many businesses also need zoning and building permits if they have a brick-and-mortar location, so you will want to check on these requirements as well.
Obtain an EIN
If you plan to hire employees for your business, you can do so but know that you should also take the time to acquire an EIN. An EIN is an employer identification number, and it isn’t required, but it can help to protect your identity when paying your employees.
EINs are issued by the internal revenue service and can be requested on the IRS website. If you hire employees and don’t request an EIN, you will need to provide your personal social security number to all your employees for tax purposes.
Open a business bank account
Opening a business bank account is optional for a sole proprietor, and opening one won’t provide any liability protection for your business. It can, however, make paying employees and fulfilling orders easier, and it is therefore recommended.
Oregon taxes
A sole proprietorship is an easy business setup for beginners because of how easy it is to file taxes. Sole proprietors in Oregon pay pass-through income taxes, which means the income that you make from your business “passes through” to your personal tax returns.
The only additional form you will need is the Schedule C form which will be submitted to the IRS with your regular federal tax return. The Schedule C form will be prepared by an accountant to show the profits and losses of your business.
Pros
- Taxes are simple and quick.
- You pay taxes on business profits at your regular income rate.
- No need to pick a name for your new business, but you can if you want.
- You can start your business in a few minutes with very little paperwork because you and your business are one legal entity.
- An EIN and business bank account are recommended but not required.
Cons
- Since the business and the individual are one business entity, you, as the owner, are responsible for all the business debts and liabilities of your company using your personal assets.
- Sole proprietorships often don’t qualify for government funding or bank loans.
- It can be difficult to qualify for government programs like Medicare or social security.
- You will be required to pay a self-employment tax.
- If your business goes bankrupt, you could too.
FAQs
Do you have to register to become an Oregon sole proprietorship?
Do you need a business license to be self-employed in Oregon?
Do you need a Tax ID number (EIN) in Oregon?
How do you start a small business in Oregon?
Do you need to collect sales tax in Oregon?
Do you need a registered agent to start a sole proprietorship?
What type of business is best for a startup in Oregon?
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