Deciding on your business structure is an important initial stage in starting your business. Sole proprietorships are a common choice in Louisiana, and significantly more small business owners choose this structure versus others. With 69.3% of the 490,138 small businesses setting up as a sole proprietorship, you may be even more interested in starting your business under this structure.1
This guide explains what a sole proprietorship is, its pros and cons, and the step-by-step process for getting one up and running in Louisiana.
Also See: Checklist To Start A Business In Louisiana
What is a Sole Proprietorship?
Besides sole proprietorships, some other common types of business structures include general partnerships, corporations, and Limited Liability Companies (LLCs). A sole proprietorship is unique in its simplicity and is simply a business owned and run by a single individual. Unlike a corporation or an LLC, it doesn’t have to be registered with the state of Louisiana and doesn’t exist separately from its owner. Let’s look at some of the pros and cons of the sole proprietorship.
Sole Proprietorship Advantages
Simplicity and ease of formation: There are no complex legal documents to file or state registration requirements to meet. You become a sole proprietor as soon as you start doing business.
Tax simplicity: In a sole proprietorship, business income and expenses are reported on your personal income tax return.
Control: As a sole proprietor, you have complete control over all decisions and operations. There’s no need to consult with shareholders or partners, allowing you to quickly adapt and make decisions that are best for your business.
Sole Proprietorship Disadvantages
While an easy-to-set-up sole proprietorship can seem appealing, it’s also essential to be aware of potential disadvantages:
Unlimited personal liability: As a sole proprietor, you are personally responsible for all business debts and obligations. This means your assets can be targeted to satisfy business liabilities.
Potential tax disadvantages: Depending on your circumstances, you may pay more in taxes as a sole proprietor than you would in another business structure.
Limited life: The business does not exist separately from the owner. Therefore, if the owner decides to stop the business or passes away, the business ceases to exist.
If you value liability protection, you may want to consider setting up an LLC instead. An LLC offers protection to the owner’s personal assets, making it a better choice than a sole proprietorship for businesses exposed to potential liabilities.
Steps to Start a Sole Proprietorship in Louisiana
In Louisiana, starting a sole proprietorship is relatively straightforward as it doesn’t require formal registration with the state. However, some things must be taken care of to ensure your business is legally compliant and set up for success.
Step 1: Come up with a Business Name
As a sole proprietor in Louisiana, you can operate your business under your full first and last name and not have to register. However, if you want to operate under a specific business name, you will need to register it. For example, if your name is Jane Doe and you provide home cleaning services, you could go by “Jane Doe” and not register or register the name “Jane’s Home Cleaning Service.”
Step 2: File the Trade Name Form
If you plan to operate under a business name, you’ll need to register it with the Parish Clerk of Court in the parish where your business is located by filing a Trade Name form.
Related: How to file a Louisiana Trade Name form
Step 3: Research Business License Requirements
While there isn’t a state business license in Louisiana, other required registrations may exist. These licenses and permits will apply regardless of your business structure. We’ve included a few common registrations below.
A local business license may be required depending on local rules and your business’s activities. Check with your local city officials or economic development office for more information.
In Louisiana, all businesses need to register for a Louisiana Tax Account Number. The state has made this process easy by allowing you to register for your sales tax license, employer registration, and more in one place.
Certain professions in Louisiana require a professional license before providing services. These include physical therapists, interior designers, and massage therapists.
Finally, many small businesses register for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS). The EIN essentially serves as a Social Security Number for your business.
Related: What business licenses and permits are needed in Louisiana?