For a lot of people, starting a business is one of the biggest goals in life. And for some, establishing a sole proprietorship is their best bet as it is the most basic and easiest way to get started.
Sole proprietorships are incredibly popular due to their minimal paperwork and ease of set-up. According to IRS data, there were 933,118 sole proprietorships in Georgia in 2022, representing 73.8% of all small businesses in the state. This is slightly higher than the national average of around 70%.
Starting a sole proprietorship in Georgia is a relatively simple process that can be completed in just a few steps. In this guide, we will explain what a sole proprietorship is, the advantages and disadvantages, and provide a step-by-step process for starting one.
What Is A Sole Proprietorship?
A sole proprietorship refers to a type of business ownership where the entity’s legal existence and the owner are one and the same. This means that in the eyes of the law, the sole proprietor and the business are considered a single entity. This structure is typically accommodated by small business owners, where they can easily register and start a company without incurring many costs and headaches.
Sole Proprietorship Advantages
Let’s first look into some of the key points of why a sole proprietorship may be for you.
Simplicity and ease of formation: In Georgia, you can become a sole proprietor just by starting your business activities. There are no forms to fill out to establish the business structure itself.
Tax simplicity: Come tax time, you report your business earnings on your personal tax return. This is a lot simpler than dealing with corporate tax filings.
Minimal paperwork: Aside from any licenses or permits you might need, there’s usually not much paperwork involved in running a sole proprietorship.
Sole Proprietorship Disadvantages
But let’s not sugarcoat it; there are some downsides, too.
Unlimited personal liability: You and your business are the same in the eyes of the law. This means that if your business owes money or gets sued, your personal assets are at risk.
Difficulty raising capital: It can be challenging to raise capital since you can’t sell ownership shares in a sole proprietorship. An LLC or corporation is better suited if you need to raise funds.
Less business continuity: A sole proprietorship may dissolve upon the owner’s death or incapacity, which can disrupt operations. Other structures allow for greater continuity of the business.
In summary, if having a shield between your business and personal assets is high on your list, you might want to consider a Limited Liability Company (LLC). In Georgia, an LLC can offer that extra layer of protection without a lot of extra hassle.
Related: How to form a Georgia LLC
Steps to Start a Sole Proprietorship in Georgia
Step 1: Choose a Business Name
You can operate your sole proprietorship under your own full legal name or choose a business name, known as a “doing business as” or DBA name. For example, if your name is John Smith, you can operate as “John Smith.” If John wanted to open a business named “John’s Amazing Cookies,” then he would have to register a Trade Name.
If you decide to operate under a business name, you will need to register a Trade Name, per Georgia state law O.C.G.A § 10-1-490. You have to do this within 30 days of starting your business and the filing is done with the Clerk of Superior Court in each county where you plan to do business.
After filing the form, a legal notice has to be published in a local newspaper as well.
Related: How to register a Georgia Trade Name
Step 2: Obtain an EIN from the IRS (optional)
You can use your Social Security Number for your sole proprietorship’s tax ID. However, obtaining an Employer Identification Number (EIN) from the IRS adds an extra layer of privacy.
Some banks may also require an EIN to open a business bank account.
Related: How to register an EIN
Step 3: Check for Business Licenses
Regardless of the business structure, starting a business in Georgia requires registration with several federal, state, and local agencies.
Although there is no general state of Georgia business license, many cities require businesses to apply for an occupational tax certificate to operate. The rules and costs for this vary based on the location and nature of the business, as well as the gross receipts and number of employees.
Cities like Atlanta, Columbus, Macon, Savannah, and others have specific licensing requirements. In some cities, almost all businesses have to register. In others registration is needed for certain activities, such as those selling alcoholic beverages, bakeries, game rooms, health clubs, etc.
Depending on the business’s location, you may need to verify if there are specific zoning regulations to follow or if you need a Certificate of Occupancy. While not common, home-based businesses may need a home occupation permit, depending on city requirements. If there are any construction or renovations to a facility, a building permit may be needed. Some municipalities also require a permit before adding signage.
Businesses selling tangible personal property, providing taxable services, or contracting to provide services in Georgia need to register for a Georgia Sales Tax Number from the Georgia Department of Revenue. If you’re purchasing merchandise to resell, you may want to obtain a Georgia Sales Tax Certificate of Exemption to avoid paying sales tax for merchandise being resold to customers.
Last, certain professionals in Georgia, such as interior designers, accountants, home inspectors, landscapers, plumbers, etc., are regulated and need to register. Additional information, fees, and licensing for these regulated professions are available from the Georgia Secretary of State.