If you’re starting a business in the Hoosier State, choosing a business structure is one of the first steps. For many entrepreneurs in Indiana, operating as a sole proprietor can be a good option.
In fact, according to IRS and SBA data, there are 534,305 small businesses in Indiana, of which 373,458 are sole proprietorships. With approximately 70% structured as sole proprietorships, it is the most common legal entity chosen by Indiana small business owners by far.
This guide will explain what a sole proprietorship entails, weigh the pros and cons, and outline the steps for registering your sole proprietorship in Indiana.
What is a Sole Proprietorship?
A sole proprietorship is a business structure where an individual runs a business for profit and assumes all of the liability and debt associated with it. It is the simplest and most common form of business ownership compared to other types of business structures such as general partnerships, corporations, and limited liability companies (LLCs).
Advantages of a Sole Proprietorship
One of the most significant advantages of a sole proprietorship is the ease of starting and operating the business. With no registration requirements with the Indiana Secretary of State, legal documents, or corporate formalities to worry about, it is easy to get started. Another benefit of a sole proprietorship is the ease of handling taxes. If you’re used to filing a personal Form 1040 each year, not much changes. You’ll just add a Schedule C to your tax return, which shows your business profits or losses. Additionally, the owner has complete control over the business and can make decisions about the business without consulting anyone else.
Disadvantages of a Sole Proprietorship
While the advantages are significant, the biggest disadvantage of a sole proprietorship for many is that the owner is personally liable for all debts and obligations incurred by the business. This means that if the business fails or is sued, the owner’s personal assets could be used to pay off any outstanding debts.
In a nutshell, if you need greater liability protection, you might want to consider an LLC. Indiana LLCs offer more robust asset protection and might be a better choice if that’s a priority for you.
Related: How to form an Indiana LLC
How to Start a Sole Proprietorship in Indiana
Step 1: Choose a Business Name
The first thing you need to do is think of a business name. In Indiana, you’ve got two options. You can operate under your full first and last name, or you can get creative and come up with a business name that speaks to the services or products you offer.
For example, if your name is John Smith and you plan to offer landscaping services, you could simply operate under “John Smith.” On the other hand, you might decide on a name that describes your business better, like “Indiana Green Lawns.”
Step 2: Register your Business Name
If you plan on operating under a name that is different from your own personal name, you need to file the Assumed Business Name form with the County Recorder in the county where the business is located, per Indiana Code, Section 23-0.5-3-4. An Assumed Business Name is sometimes referred to as a Doing Business As, DBA, Fictitious Business Name, or Trade Name.
To fill out the Assumed Business Name form, information such as the business name, your name and business address, and the nature of your business is usually needed. Each county might have a slightly different form, so make sure you’re using the correct one for your location. In addition, there will be a small filing fee, which varies by county.
Using an assumed business name doesn’t protect it from use by others. If you want exclusive rights to your business name, you should consider trademarking it.
Step 3: Obtain Required Business Licenses and Permits
No matter what kind of business structure you have, be it a sole proprietorship, or something else, you’ll likely need some form of license or permit to operate legally. What you’ll need depends on what your business does and where it’s located.
Let’s break down some of the key licenses and permits you might need in Indiana.
Registered Retail Merchant Certificate: If your business involves selling a product or certain services in Indiana, you’ll likely need to register for a Registered Retail Merchant Certificate. This is also known as a sales tax permit and can be obtained by filing the Business Tax Application (BT-1) with the Indiana Department of Revenue.
Sales Tax Exemption Certificate: For businesses that purchase merchandise to resell, an Indiana Sales Tax Exemption Certificate is usually required. This certificate allows businesses to avoid paying sales tax on merchandise that will be resold to customers.
Professional licenses: Over 400 different occupations in Indiana require professional licensing before providing certain products and services. This includes professions like home inspectors, interior designers, manicurists, plumbers, and more. Furthermore, businesses in specific industries, such as food establishments, daycares, salvage recyclers, etc., also require licensing. More information about these licenses and their requirements can be obtained from the Indiana Professional Licensing Agency.
Employer Identification Number (EIN): An EIN, also known as a FEIN or Federal Tax ID Number, is similar to a Social Security Number, except it’s for a business. It’s required for corporations, Limited Liability Companies, Partnerships, and Sole Proprietorships with employees. Sole Proprietorships without employees can use the owner’s Social Security Number instead. Registering for an EIN is free and can be done quickly with the Internal Revenue Service (IRS).