How to Start a Sole Proprietorship in Virginia
If you are thinking about starting a business and becoming a full-fledged entrepreneur in Virginia, starting a sole proprietorship might be your best option. It is a simple business structure, which is perfect for a startup that wants to make a business without going through a lot of paperwork.
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What is a sole proprietorship?
A sole proprietorship is a popular option for new business owners because it offers simplicity. It is an unincorporated business that is owned and operated by a single individual, known as the sole proprietor. This business structure has no legal distinction between the business and the owner, which makes the owner assume all business profits as well as business debt and liabilities.
Examples of a sole proprietorship
Sole proprietorships can be found in various industries and sectors. Some common examples include freelancers or individuals who provide services such as writing, graphic design, or consulting independently.
It can also include retailers, which are small businesses, such as boutique stores or online shops, operated by a single individual.
Some small-scale contractors who offer services like electrical and plumbing and consultants in specialized areas like marketing, finance, and human resources can also become sole proprietors.
What qualifies your business as a sole proprietorship?
To qualify your business as a sole proprietorship in Virginia, you must meet two fundamental criteria. First, your business must be owned and operated by a single individual. And second, your business must not be registered as any other form of a legal entity, such as a corporation, a general partnership, a non-profit organization, or a limited liability company.
If you meet these conditions, your business can qualify as a sole proprietorship, and you can begin business activities, like writing a business plan or making sales, at any time.
Sole prop vs LLC
While a sole proprietorship is the simplest business structure, there are instances where forming a limited liability company (LLC) may be more beneficial. An LLC provides personal liability protection, meaning the owner’s personal assets are separate from the business’s liabilities.
Who is it best for?
Being an owner of a sole proprietorship is best for individuals who prefer full control over the decision-making power over the business they own. It is also ideal for small-scale or low-risk business types, people who seek simplicity and minimal administrative requirements, and people who don’t plan to raise large capital or attract outside investors.
Remember to consult with professionals, such as attorneys or accountants, for personalized guidance based on your specific circumstances.
How to set up a sole proprietorship in Virginia
If you think a sole proprietorship is an ideal option for you, here is a quick and easy guide on how to set up your sole proprietorship in Virginia.
Is there any formal paperwork filed to establish this type of business?
No. One of the biggest advantages of starting a sole proprietorship is that there is no formal business registration or formal paperwork to establish the business. Unlike other business structures, such as corporations or LLCs, there is no need to submit Articles of Organization to the state.
Name your business
The first step is naming your business. In Virginia, you can use your name as a business name or pick a different business name. Here’s what you should know about each option:
Using your own name
Using your own name is the default choice. If you decide to use your own name, you don’t need to obtain a DBA or trade name from the State Corporation Commission (SSC) in Virginia. In other words, you won’t take any action. Your business name and personal name are automatically the same.
Although some people would prefer a different business name, some businesses that want to build a personal brand can benefit from using their own name.
Setting up a DBA
If you’d like to pick a name that’s different than your name, you can. If you choose this route, you’ll need to file a DBA, which stands for Doing Business As.
Setting up a DBA is easy, just think of an appropriate name for your business and check for its availability using the business name search tool here. If the name is already in use, you have to pick another name. No two businesses in the state can have the same name.
Once you have a name in mind, you can file for a trade name online by filling out the Certificate of Assumed or Fictitious Name form. It only costs $10 to file with no need for renewal.
How to Check if a Business Name is Taken
Obtaining state licenses
Although some businesses don’t need to get special permits, some businesses, like independent contractors and stores that might sell liquor and tobacco, are required to follow licensing requirements to legally run their businesses. The good thing is you can quickly get the licenses and permits you need online through the Virginia State website here.
Virginia taxes
When it comes to taxation, sole proprietorships have a straightforward process. A Virginia business itself is not taxed separately. In other words, you won’t pay seperate business taxes. Instead, all business income and expenses are reported on the owner’s personal income tax return. You’ll likely file the forms with the Internal Revenue Service using your social security number and file a Schedule C along with your Form 1040.
The owner is responsible for paying both income tax and self-employment tax, which covers Social Security and Medicare contributions on his or her personal tax return.
Pros
- Setting up a sole proprietorship is relatively straightforward
- There are minimal bureaucratic hurdles in paperwork
- You have full control over all aspects of the small business
- Sole proprietors can take advantage of certain tax deductions and benefits
- It offers a lot of flexibility in terms of business activity and operations
- It is an inexpensive way to start a small business
Cons
- Owners have unlimited liability for business debt and obligations with personal assets at risk
- It lacks continuity when the owner is unable to operate the business
- It has limited growth potential
- Securing funding is challenging because sole proprietorships don’t attract investors as much as any other business entity
FAQs
Can sole proprietorships in Virginia hire employees?
Yes, sole proprietorships can hire employees. However, it’s essential to comply with federal and state employment laws and fulfill necessary obligations, such as obtaining an employer identification number (EIN) from the IRS. Some of the necessary obligations of being an employer are getting your employee’s worker’s comp and insurance.
Do you need to file a separate business income tax return with the IRS for your Sole Proprietorship in Virginia?
No, sole proprietors do not file a separate income tax return for their business. Instead, they report business income and expenses on their personal income tax return using Schedule C. This is one of the advantages of starting your own business as a sole proprietorship in Virginia and in most states.
Is a DBA name required for sole proprietorships in Virginia?
A DBA in Virginia is not required and you don’t need a business license or register your business with the State. However, if you choose to operate your business under a name other than your legal name, you must register a DBA with the State Corporation Commission (SCC) in Virginia.
Are sole proprietorships challenging to manage?
While sole proprietorships offer simplicity, they still require effective management. Sole proprietors are responsible for all aspects of the business, including finances, marketing, operations, and compliance. Having your own business requires effective management and a solid business plan to ensure that it becomes viable.
Can you open a business bank account for your sole proprietorship in Virginia?
Yes, you can open a business bank account for your sole proprietorship. It’s recommended to keep personal and business finances separate to maintain accurate records and simplify tax reporting. Although it is beneficial for tax purposes, opening a separate bank account can also separate your personal assets and business assets for easier bookkeeping.
What are the benefits of obtaining an employer identification number (EIN) for your sole proprietorship?
While not mandatory for sole proprietors, obtaining an EIN from the IRS website for tax purposes can be beneficial. It allows you to separate your business and personal finances via a tax id, hire employees, and potentially open business credit lines, which you can use to expand your business in the future.
Does a Virginia sole proprietorship need business licenses?
Certain local permits or licenses may be necessary based on the type of business you plan to operate. You can check on licenses and permits that you might need online via the Virginia State website here.
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