How to Start a Sole Proprietorship in Wisconsin
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Starting a small business in the state of Wisconsin can be an exciting yet overwhelming journey, especially if you are not sure how it works. If you plan to offer your services or sell products, you may want to consider creating a sole proprietorship. Keep reading to learn more.
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What is a sole proprietorship?
A sole prop is a term used for a business structure that is used by entrepreneurs who want to start a new business but do not want the hassle of filing paperwork for a Wisconsin LLC or Limited Liability Company. A sole proprietorship is an entity that is owned and operated by one person who takes care of all business activities.
Because of the type of business structure, a sole proprietorship means that the owner is liable for all assets and debts of the business and has no asset protection. This also means that the sole proprietor must claim any income earned on their individual income tax return for tax purposes. If the business gets into financial trouble or is sued, you may be forced to use your personal assets to bail the business out.
Examples of a sole proprietorship
- A personal trainer who sells services out of their home
- A freelance writer or editor
- A person who sells crafts or jewelry at craft fairs
- An individual who acts as a consultant for other businesses
What qualifies your business as a sole proprietorship?
A business qualifies as a sole proprietorship when there is only one owner, unlike a general partnership which has more than one person who is providing either a service or goods to the public. This means that the individual has an idea to sell those goods and services to meet a specific need the public has.
Once you have begun selling goods and services, you have established yourself as a sole proprietor. This is, of course, if you have not filed any legal documents with the state to establish a different business structure, such as a single-member LLC.
Sole prop vs LLC
A sole prop is a business structure that is owned and operated by one person who has taken an idea and turned it into a way to make a profit.
A Limited Liability Company (LLC) is a business entity that protects business owners from certain liabilities that the company may face while doing business.
Who is it best for?
When it comes to considering whether or not to establish a sole proprietorship, you may want to consider who the structure is best suited to. It is important to keep in mind that this type of structure is typically best for those individuals who want to have the business all to themselves and have a low-risk business.
If your business is risky, or you want to start a business with a friend, then it is better to look up another business structure, such as an LLC or a general partnership.
How to set up a sole proprietorship in Wisconsin
If you live in the state of Wisconsin and have chosen to start your own business as a sole proprietorship, there are certain steps you need to take. Even though there is no formal business filing requirement, these steps are an important part of establishing your business as a legitimate company.
Is there any formal paperwork filed to establish a sole proprietorship?
It is not a requirement in the state of Wisconsin to file formal paperwork.
This does not mean, however, that a sole proprietorship is free of any paperwork. If, for example, you choose to call your business a name other than your own name, you need to register the name with the county. You may also need to fill out paperwork to obtain licenses.
Name your business
One of the first and most important steps in establishing a business in the state of Wisconsin is to name your company. This can be done in a variety of ways depending on whether you choose to use your own name or a trade name.
Using your own name
One of the most common ways to name a sole proprietorship is to use your own name as the business name. By doing this, you do not have to worry about filing paperwork with the Register of Deeds in the county where you operate your business.
Setting up a DBA
On the other hand, if you choose to create a unique name for your business, you will need to file a DBA, or Doing Business As, with the Register of Deeds in your county, which comes with a filing fee. While filing a fictitious or trade name is simple, it is required if you want to use a business name other than your legal name.
Before you choose a name for your business, you will need to check the Wisconsin Department of Financial Institution’s, or DFI, website. This will allow you to ensure that a business name is not already taken, which will help you to narrow down your choices.
If you have chosen to establish a unique business name, you also have the option of filing for a trademark with the Department of Financial Institutions. Although not a requirement, it gives your business additional liability protection from others using your name.
How to Check if a Business Name is Taken
State licenses
Another important consideration you need to keep in mind when establishing a sole proprietorship in Wisconsin is whether or not you will need state licenses or permits to operate. This will depend on the type of business you are forming and sometimes where you live.
The Wisconsin Department of Business and Professional Regulation is where you can find out if certain licenses or permits are required for your business. It should be noted that, however, the state does not typically require a state license to operate a business, except in some cities such as Madison. The only exception is venues that offer alcohol or gambling, as these require very specific licenses to operate. Healthcare-related fields occasionally require permits as well.
As you are establishing your business, you can use the One Stop Business Portal, which can be found on the Wisconsin Department of Revenue website. This site will walk you through all the steps to set up your business correctly.
Pros
- Gives you a good basis to begin that can be changed down the road
- The easiest way to start a business in the state
- The best option for a single-owner business
- Paying taxes is simpler than with other business set-ups
Cons
- You are solely responsible for the personal assets and liabilities of the business
- It may be more difficult to secure funding as you aren’t able to access government grants
- A sole proprietorship may make it more difficult to sell the business down the road
FAQs
What is the cost of starting a sole proprietorship in Wisconsin?
There are typically no start-up costs associated with starting a sole proprietorship in the state of Wisconsin other than the fee to file for a trade name for the business. There is, however, a fee to acquire a seller’s permit for anyone selling products or services in the state.
Do I need an EIN or Employer Identification Number for a sole proprietorship?
If you are operating a business by yourself, you are not required to have an EIN, which is a tax ID number; however, if you plan to hire employees, you will need to apply for one. If you do not want to use your Social Security Number, however, you may want to consider getting one since it may be required to get a business bank account.
What is the difference between a trademark and a trade name in Wisconsin?
When you file for a fictitious name or trade name through the state, Wisconsin considers it to be a trademark. Keep in mind that this trademark status is only recognized in the state.
Do I need a seller’s permit for my business in Wisconsin?
Yes, it is a state law for anyone selling goods or services are required to collect sales tax in the state of Wisconsin is required to apply for a seller’s permit. The cost is typically about $20 and can be obtained through the Wisconsin Department of Revenue.
Does a sole proprietorship need to be registered with the state of Wisconsin?
No, a sole proprietorship is not required to legally register with the state of Wisconsin. It is important to note that some steps need to be completed; however, there is no requirement to register with the state.
How does a sole proprietorship pay taxes?
In the state of Wisconsin, federal taxes for a sole proprietorship are filed alongside the business owner’s personal tax return. A sole proprietor should report the income from the business on a Schedule C form, which is the form used for profit or loss statements.
What’s the tax rate for sole proprietors?
It is important to note that the income reported from the business itself should be reported alongside other income the owner may have. Any business tax payments are paid to the IRS, or Internal Revenue Service, at the rate for the state, which is currently 7.65%, for any income associated with the individual person.
Are there other taxes business owners must pay?
In addition to income tax, a sole proprietor is responsible for paying other types of taxes that are required by the state. This includes Medicare and Social Security taxes, employment and property taxes, self-employment taxes, and sales tax, if applicable.
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