Starting your first business is a big step, and if you’re in Kansas, you might be thinking about setting up a sole proprietorship. Let’s dive into what that involves.
Sole proprietorships are quite popular in Kansas. Of the 268,310 small businesses in the state, 181,877 are sole proprietorships, or 67.8% of all small businesses.1 2This guide will help you learn more about sole proprietorships, their benefits and drawbacks, and how to get your Kansas sole proprietorship up and running.
Related: Kansas Business Startup Checklist
What is a Sole Proprietorship?
A sole proprietorship is the most straightforward business structure. It’s owned and run by one person, and there’s no legal distinction between the owner and the business. This means you get to be your own boss, but it also means you’re personally responsible for all aspects of the business.
Now, sole proprietorships are just one type of business structure. Others include general partnerships, corporations, and Limited Liability Companies (LLCs). Each has its pros and cons, depending on your business needs and goals.
Sole Proprietorship Advantages
Simplicity and ease of formation: The beauty of a sole proprietorship lies in its simplicity. You can start without any formal paperwork, making it the easiest and least expensive way to start a business in Kansas.
Tax simplicity: For tax purposes, your business and personal activities are one and the same. This simplifies filing taxes since you just report your business income and expenses on your personal tax return.
Sole Proprietorship Disadvantages
Unlimited personal liability: This is a big one. If your business gets into debt or legal issues, your personal assets, like your home and car, could be at risk.
No business continuity: Since the business and owner are the same legally if something happens to the owner, the business will end, too. This lack of continuity can be a concern, especially if the business has contracts in place with customers or vendors.
If you’re worried about personal liability, consider an LLC. In Kansas, LLCs offer liability protection and can be a better choice if that’s important to you.
Related: How to form a Kansas LLC
Steps to Start a Sole Proprietorship in Kansas
Starting a sole proprietorship in Kansas is more straightforward than in many other states. Here’s what you need to do:
Step 1: Come Up With A Business Name
Kansas is unique because it doesn’t have a state or county-level system for registering DBAs (Doing Business As). So, you can use a business name without formal registration. The downside is that sole proprietors are required to use the sole proprietor’s name for their official business and banking needs.
Step 2: Research Business License Requirements
Even though the state of Kansas doesn’t have a general business license, your business might still need specific licenses to operate. This requirement is the same regardless of the business structure and depends on where your business is and what it does. A few of the most common licenses include:
Local business license: The city may require a business license even though there isn’t a state business license. Check with the local city hall or economic development office for more information.
Kansas Business Tax License: If you’re selling goods or services, you need to file a Business Tax Application with the Kansas Department of Revenue. This license is commonly called a seller’s permit, sales tax license, sales tax number, or sales tax registration.
Professional License: Certain services in Kansas, like contracting, running a bakery, and many others, require a professional license.3
Employer Identification Number (EIN): This is like a Social Security Number for your business. As a sole proprietor, you’ll need to obtain an EIN if you have employees. If not, you can use your personal Social Security Number.
Related: Guide To Register A Business In Kansas
Wrapping Up
To wrap things up, starting a sole proprietorship in Kansas is a relatively straightforward process with its share of benefits and drawbacks. It’s important to understand your chosen structure inside and out and make the right moves in line with what best fits your business.