Arkansas, known for its diverse landscape of mountains, rivers, and hot springs, is also home to a thriving business landscape. Among the various business entities operating in the state, sole proprietorships make up a significant portion. According to data from the Small Business Administration (SBA) and the IRS, sole proprietorships are the most common form of business structure in the state.
As of 2022, there were 260,640 small businesses in Arkansas. Of those, approximately 68% or 177,291 were sole proprietorships. This type of business structure is popular for its simplicity and low startup costs. If you’re ready to join the many successful Arkansas sole proprietors, this guide will walk you through the steps to legally establish your business.
In this guide, we aim to guide you through the process of establishing a sole proprietorship in Arkansas. We will explain what a sole proprietorship is and who it’s suitable for and provide a step-by-step guide on how to get registered.
Related: How to start a business in Arkansas
What is a Sole Proprietorship?
A sole proprietorship is the simplest form of business structure, where there is no legal distinction between the business and the owner. In Arkansas, this means that the individual owner is entitled to all profits and is entitled to all profits and responsible for all debts and liabilities.
Sole proprietorships are ideal for individuals who want to run small, low-risk businesses. They are often chosen by people who want to test their business idea before establishing a more formal business structure or are seeking simplicity in their business operations.
Sole Proprietorship Advantages
Starting a sole proprietorship in Arkansas has many advantages. Here are some of the top benefits:
Simplicity and ease of formation: Forming a sole proprietorship in Arkansas is easy and inexpensive, requiring minimal paperwork.
Control: As the sole owner, you have complete control over all decisions and operations.
Tax simplicity: Business income and expenses are reported on your personal tax return, avoiding corporate taxes.
Sole Proprietorship Disadvantages
There are also some potential disadvantages to consider:
Unlimited personal liability: As a sole proprietor, you are personally responsible for all business debts and legal liabilities. Your personal assets are at risk.
Difficulty raising capital: It can be challenging to raise money and get business loans as a sole proprietorship. You are limited to using personal assets and credit.
Less business continuity: A sole proprietorship dissolves upon the owner’s retirement, death, or exit from the business.
If safeguarding your personal assets is a priority, you might consider forming a Limited Liability Company instead. An Arkansas LLC provides a stronger shield against liabilities, offering a safer route for business owners concerned about liability protection.
How To Set Up a Sole Proprietorship in Arkansas: A Step-by-Step Guide
In Arkansas, establishing a sole proprietorship doesn’t require any formal registration with the state. However, there are a few steps to cover to make sure the sole proprietorship business is legally set up.
Step 1: Choose Your Business Name
In Arkansas, you have the option to operate your business under your full first and last name or choose a distinctive business name. For instance, if your name is John Doe, you could operate as “John Doe” or choose a business name such as “Doe’s Home Repairs.”
However, if operating under a name different than the owner’s legal name, the business must file for a “Doing Business As” (DBA) certificate per Arkansas Code 4-70-203. This allows the business to use the fictitious name legally.
Step 2: File a Doing Business As Certificate with the County Clerk
Arkansas law stipulates that anyone conducting business under a name other than their own must file an Arkansas DBA Certificate (also called an Assumed Name Certificate) with the County Clerk’s office in the counties where they conduct or plan to conduct their business. This applies to all individuals, sole proprietorships, and general partnerships.
To comply with this regulation, you will need to complete a DBA (Doing Business As) certificate form, which must be signed in the presence of a notary public. Here is a breakdown of the associated costs you should anticipate:
- Filing fee: $25.00
- Index fee: $1.00
- Certified copy for the bank: $5.00 (additional)
- Notarization by the County Clerk’s office: $5.00 (additional, if required)
Once your form is duly filled and notarized, you can file your DBA certificate at the County Clerk’s office through the following means:
- In person: Visit the County Clerk’s office to submit your form and make the payment.
- By mail: Send your completed form along with a self-addressed stamped envelope and the necessary fees through a money order or cashier’s check.
Related: How to register a DBA in Arkansas
Step 3: Get an EIN (Optional)
Sole proprietors may want to obtain an Employer Identification Number (EIN) from the IRS if planning to hire employees.
Although optional for sole proprietors without employees, obtaining an Employer Identification Number (EIN) from the IRS can be useful in keeping the owner’s social security number off of some business documents. In addition, some banks may require an EIN before opening a business bank account.
Related: How to register for an EIN
Step 4: Research Arkansas Business License Requirements
Depending on the nature of your business, you may need to obtain specific licenses or permits. These could include zoning clearance for your business location, health permits if you’re in the food service industry, or professional licenses for certain services.
In Arkansas, there isn’t a general state business license; however, most cities require businesses to be licensed to operate. The requirements and fees can vary significantly depending on the city’s specific regulations and the nature of your business. It’s advisable to check the specific requirements of the city you plan to operate in to ensure compliance.
Building & Zoning Permits
Your business location might dictate the need for various permits, including occupancy and building permits, especially if construction or renovations are involved. Additionally, some cities have specific zoning ordinances to adhere to, and securing a signage permit might be necessary before adding any signage to your business premises.
Arkansas Sales Tax Permit
Businesses selling a product or offering certain services must register for an Arkansas sales tax permit under the Gross Receipts Tax Law. Moreover, if you are purchasing merchandise to resell, obtaining an Arkansas Sales Tax Exemption Certificate could be beneficial to avoid paying sales tax on goods meant for resale.
Occupational Permit / Professional License
Certain professions are regulated in Arkansas and require registration before offering certain restricted services. This includes a wide array of professions, from barbers to home inspectors. Checking the specific licensing requirements for your business type is a good idea.
In conclusion, establishing a sole proprietorship in Arkansas is a relatively straightforward process, but it requires careful planning and consideration. By following this guide, you’ll be well on your way to launching your sole proprietorship and joining the vibrant business community in Arkansas.