How To Register Sole Proprietorship In Ma

Sole Proprietorship in Massachusetts

Sole means one. And Proprietor means owner. Put them together and you lot take a Sole Proprietor, or Sole Proprietorship. A Sole Proprietor is the person. A Sole Proprietorship is the business entity.

A Sole Proprietorship in Massachusetts is an informal construction with one business organisation owner. Often, it is the easiest and simplest form of business concern structure to create. Withal, that doesn't always mean they are the best choice for modest business owners.

While Sole Proprietorships have some advantages, there are likewise disadvantages you should be aware of.

We've explained these below, too as provide pace-by-step instructions if you lot determine to commencement a Sole Proprietorship in Massachusetts.

Pro tip: Sole Proprietorships don't protect your personal assets. On the other hand, if you lot course an LLC, your personal assets are protected in the event of a lawsuit. Bank check out Sole Proprietorship vs LLC for more information.

Advantages of a Sole Proprietorship

Ease of setup and maintenance

The primary reward of a Sole Proprietorship is how easy they are to ready and to maintain.

In fact, at that place is no form to file in social club to "create" one. If y'all're doing business by yourself, you're operating as a Sole Proprietorship.

Call back of information technology this manner: once yous appoint in business activities, with the goal of somewhen making coin, you are operating as a Sole Proprietorship.

For case, if you lot want to beginning a nuptials planning business, the moment you lot begin doing business research, calling potential customers, or edifice your website, y'all're operating equally a Sole Proprietorship.

Taxation

The 2nd advantage of a Sole Proprietorship is taxation. Filing taxes for a Sole Proprietorship business is very similar to how you already file your individual taxes.

Meaning, you already file a personal Grade 1040 tax return each twelvemonth. Withal, equally a Sole Proprietorship you (or your accountant) will include a Schedule C which lists your business profits or losses.

Disadvantages of a Sole Proprietorship

At that place is one major disadvantage and a few other minor disadvantages of a Sole Proprietorship.

No liability protection

The main disadvantage of a Sole Proprietorship is liability protection: at that place is none.

If your business is sued, your personal avails (like your dwelling house, cars, and banking concern account) could be used to settle the business's debts and liabilities.

On the other hand, if you formed an LLC or a Corporation, your personal assets are protected in the effect of a lawsuit. But the business'south assets can exist used.

Tip: LLCs offer boosted nugget protection that Corporations don't.

Lack of brownie

Even though y'all tin can file a DBA name (discussed below), Sole Proprietors are still often seen equally beingness less apparent.

On the other hand, if you were to form a legal business concern entity, like an LLC or Corporation, those are considered more than official and reputable.

Converting from a Sole Proprietorship to an LLC

If you lot start your Massachusetts business every bit a Sole Proprietorship, and and so later want to convert to an LLC or Corporation, it'southward a large headache with many steps involved.

There isn't a ane-step procedure to convert a Sole Proprietorship to LLC. In fact, there are frequently multiple steps and multiple filings you must make with various state departments and local governments.

For example, you need to update the state, the IRS, and the bank that your business blazon has changed. And if your business organisation requires a license or permit to operate, you will need to re-utilize for those equally the new business organisation. You lot may also need to redo contracts with your clients and vendors, and update your website and marketing materials.

And then if y'all're on the fence about which type of Massachusetts business to choose, and you have the money to spend on an LLC, we recommend starting an LLC in Massachusetts.

Sole Proprietorship vs LLC

Quick Read: What is an LLC and what does information technology exercise?

A Limited Liability Visitor (LLC) is a legal entity that offers pass-through taxation and nugget protection. If your LLC is sued, your personal assets – like your dwelling, car, and personal bank account – are protected.

An LLC with one owner is called a Single-Member LLC. And the corking thing about them is they are taxed simply the same as a Sole Proprietorship. Check out LLC taxed as Sole Proprietorship for more details.

To start an LLC in Massachusetts, y'all must file a Certificate of Organisation with the Corporations Division and pay a $520 filing fee.

LLCs must also pay an LLC almanac fee and engage a Registered Amanuensis in guild to stay in compliance.

If you want to hire a company to grade your LLC, we recommend Northwest Registered Agent.

If y'all determine you'd rather operate as a Sole Proprietorship, nosotros have the instructions below.

How to start a Massachusetts Sole Proprietorship

The only thing yous must exercise to start a Sole Proprietorship in Massachusetts is merely decide to start.

Again, just by taking deportment that may lead to making money means that you're now a Sole Proprietor. You don't have to file a document to "form" your Sole Proprietorship with the land.

However, in that location are a few things y'all may need to (or want to) practise in social club to operate legally. For example, your business organisation may need a license or permit to operate.

And information technology's best exercise to open a separate business banking concern business relationship.

You lot might also want to get a DBA (for branding), and an EIN Number (and so you aren't putting your social security number on invoices or contracts).

We'll walk you through each of these steps below.

Footstep 1 – Business Planning Stage

Once you have a business idea and have decided to operate as a Sole Proprietor, information technology's a expert idea to found some key components of the business.

Some things that are helpful to call back about are:

business model
business name
startup costs
industry
marketing ideas
concern address

Your business model is how your Sole Proprietorship plans to brand money – what volition yous sell, how it'southward made, how it'southward delivered, how information technology's marketed or advertised, etc.

It'southward a adept idea to recall of marketing ideas early on to assistance your business succeed. A skillful marketing program can include developing a logo and brand name, deciding where to annunciate, building a website, and developing a social media strategy.

You should also choose a primary business address. This tin exist an actual part address, simply it doesn't have to be. Information technology could exist your home address or you could even rent a mailbox address. The purpose is to have one designated address where all post for the business organization is sent, and that you lot tin can use on official documents.

Step ii – Name your Sole Proprietorship and Obtain a DBA

At present that you've done some business planning, you lot have the option to name your company.

By default, a Sole Proprietorship'south proper name is the possessor'due south legal proper noun. Notwithstanding, if you'd rather do business under a unlike proper name, yous can file a DBA name (Doing Business Equally name).

For example: Felipe Cruz is starting a hymeneals planning business. Instead of having to do business nether his total name – Felipe Cruz – he'd similar to exercise concern under the proper noun "Excellence in Events". In this instance, he'll demand to register his DBA name "Excellence in Events".

Having a DBA name can make it a lot easier to make and marketplace your business concern. It can too make your business organization sound larger than a ane-person business.

Having said that, a DBA proper noun is not required for a Sole Proprietorship in Massachusetts. If you'd rather do business under your first and concluding name, that is 100% okay.

In Massachusetts, you reserve a DBA at the canton level. There is likewise a state-level DBA, which the Secretary of the Commonwealth considers a type of Trademark. Read more than about Massachusetts Trademarks.

How practise I get a DBA?

To annals your DBA in Massachusetts, you'll need to file the DBA Certificate with the County Clerk in any county where your concern operates. Fees will vary.

Here is a list of Counties and Cities in Massachusetts to assistance you identify the right Clerk to contact.

To register your DBA as a Trademark at the state level in Massachusetts, you'll need to submit a Trademark Application and pay a $50 fee.

Need to save time? We recommend hiring MyCompanyWorks ($99 + country fee) to file your DBA.

Step iii: Become an EIN from the IRS

Past default, a Sole Proprietor uses their Social Security Number (SSN) for revenue enhancement and financial reporting.

However, a Sole Proprietor besides has the option of getting an EIN Number (Employer Identification Number) from the IRS.

Notes: Whether or not you become an EIN for your Sole Proprietorship will not impact your taxes. Your taxes will be filed the same either way.

An EIN is too called a Federal Tax ID Number, Federal Employer Identification Number, Employer Identification Number, or FEIN. They all mean the same thing.

Getting an EIN for your Sole Proprietorship may be a good idea for a few reasons:

Safety (forbid identity theft)

Without an EIN, you may need to use your SSN when dealing with vendors and clients. For example, if a client pays yous more than $600 per year, you'll need to provide them with IRS Grade W9.

Instead of using your SSN, you can list your EIN instead on Grade W9.

The aforementioned thing can as well apply to online account setups and other places you may do business organisation with.

Past using your EIN, you don't have to give out your SSN every bit much.

Hiring employees

In this example, an EIN isn't optional; information technology's required. If you want to hire employees for your business concern, you will need to obtain an EIN first. This is because an EIN is required in order to pay payroll taxes for your employees.

Note: As a Sole Proprietor, while yous are considered self-employed, you lot are technically non an employee.

Step iv – Research business license requirements

When researching required business licenses, it's a good thought to check if in that location are state-level requirements. After doing so, y'all'll desire to research any local requirements, those enforced past the county or urban center where you're doing business.

Good news, Massachusetts doesn't require a "full general" business license at the state-level for Sole Proprietors. So there's nothing to practise for this step.

Yet, depending on your industry, and where you lot're doing business organization, y'all may need an industry-specific license or a license issued by your municipality (ex: canton or city).

Please see our Massachusetts Business Licenses and Permits page or these resource:

Massachusetts Permit Regulatory Office
Massachusetts Professional person Licenses & Permits
Contact your specific City or Town in Massachusetts

Tip: Salvage time by hiring an expert. We recommend using IncFile ($99) to handle the business concern license research for yous.

Step 5 – Maintain your business concern

One time you have established your Sole Proprietorship, there are a few things to exercise in order to keep it in good working order.

Getting a business banking concern account, maintaining business organisation financial records, and filing taxes are all role of making your business run smoothly.

Business organization Banking company Account

It's important to open a business bank account for your Sole Proprietorship.

Keeping business finances separate from personal finances is an important role of operating a business safely.

Business bank accounts typically allow you to process more transactions per calendar month than a personal banking concern business relationship, and have other benefits.

Some banks may require a DBA in order to open a business organisation depository financial institution account for a Sole Proprietor. Nosotros recommend calling the banking concern to run across if a DBA is required or if you can open the business account in your own name.

While you're on the phone, it's also a skillful idea to ask about the products they offer, and what documents they require.

For case, most banks crave you lot to bring your photo ID, and if yous take them: your EIN Confirmation Letter of the alphabet and DBA filing.

Business Records

Most states crave that businesses continue certain records. There is no constabulary specifically governing Sole Proprietorships, however, it's a skillful idea to continue the following records for your Sole Proprietorship:

Copies of taxation returns for the previous three years
Copies of whatever financial statements for the previous three years

If yous're just starting out, yous won't accept these records right away, and that'south okay. Just keep them saved and organized every bit time goes on.

We recommend establishing a specific location to store the records. For example, a filing cabinet in your house or at the business's part location. Or an online cloud storage system where yous scan and save all the documents.

File your taxes (or rent an accountant)

Every bit mentioned above, when operating as a Sole Proprietor, you'll written report your business profits or losses on your personal tax return.

While you can file your taxes yourself (using a software similar Turbotax), you may want to hire a professional instead.

If so, we recommend that you hire a business organization accountant. Check out our guide on how to cull an auditor.

Decision

While a Sole Proprietorship may seem easier and less expensive than starting a legal entity (similar an LLC), it tin be risky (no asset protection) and nonetheless requires paperwork for a DBA proper name and business license.

In general, nosotros don't see many skilful reasons to operate as a Sole Proprietorship and nosotros don't recommend them. They only take disadvantages when compared to legal entities.

The exception to this would be if you really don't have money to pay for an LLC, especially if your state has expensive fees. For some, a Sole Proprietorship may exist the only option to getting your concern off the ground and earning profit. In this scenario, a Sole Proprietorship can be a proficient place to start.

If you'd like to larn more about LLCs, cheque our our guide on Starting an LLC in Massachusetts.

Massachusetts Sole Proprietorship FAQs

What is better LLC or Sole Proprietorship?

While starting a Sole Proprietorship is easy, the advantages stop there.

Sole Proprietorships offer no personal asset protection. If your business is sued, you lot're personally liable for the concern debts and obligations. On the other manus, if you lot form an LLC, your personal assets are protected if your business is sued.

Sole Proprietors are besides seen as less official and less legitimate than a formal entity like an LLC.

We recommend forming an LLC instead of a Sole Proprietorship. Not simply does it offering personal asset protection, merely they are more apparent, and there's no departure between how you file taxes for a Sole Proprietorship and an LLC.

How do I make myself a Sole Proprietorship?

There is no grade to file to start a Sole Proprietorship. Just by engaging in activities with the goal of making money, you are operating every bit a Sole Proprietor.

However, if you'd like to exercise business nether a proper name besides your commencement and last name, you'll need to register a DBA (Doing Business Equally) Name.

Are Sole Proprietorships required to register in Massachusetts?

You don't accept to register your Sole Proprietorship with the Massachusetts Secretary of State. It simply exists once yous decide to first a business and engage in business organization activities.

Still, if your Sole Proprietorship volition apply a DBA, y'all must register that with the county where your business operates. You can likewise file your DBA as a Trademark with the Massachusetts Secretary of the Commonwealth.

Additionally, you should bank check with an accountant in Massachusetts about whether your Sole Proprietorship needs to register with the Massachusetts Section of Revenue for things similar sales tax or other types of taxes.

Can a DBA be a Sole Proprietorship?

A DBA isn't a Sole Proprietorship. A DBA is just a "nickname" for something else – whether that's a business concern or person(s).

Having said that, your Sole Proprietorship can practice business using a DBA (doing concern every bit) proper name.

For example, the default name for a Sole Proprietorship is the first and last proper name of the owner (like: Bob Barkley). Yet, if you're running a bagel shop, you tin file a DBA called "Bob's Bagels & Sandwiches" in order to ameliorate brand and market your business organisation.

How are Sole Proprietorships taxed?

Any turn a profit or loss from your business is reported on a Schedule C with the Internal Revenue Service (IRS).

And the Schedule C is included with the residuum of your personal revenue enhancement return (Form 1040).

What's the deviation between a Sole Proprietorship and a Partnership?

A Sole Proprietorship is an informal business structure with 1 possessor.

A Partnership, aka General Partnership, is an informal business concern structure with two or more owners.

While both structures have laissez passer-through taxation, a Partnership needs to file Form 1065 at tax time, while a Sole Proprietorship doesn't. Instead, a Sole Proprietor needs to include a Schedule C on their personal revenue enhancement return.

Matt Horwitz

Founder & Educator, LLC University®

Matt Horwitz has been the leading expert on LLC educational activity for the by decade. He founded LLC University in 2010 afterward realizing people needed uncomplicated and actionable instructions to start an LLC that other companies weren't offering. He'south cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.

Matt holds a Bachelor's Degree in business organisation from Drexel University with a concentration in concern law. He performs extensive inquiry and analysis to convert land laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.