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How To Start A Missouri Sole Proprietorship

How To Start A Missouri Sole Proprietorship

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How To Start A Missouri Sole Proprietorship

Starting your first business and wondering which structure to choose? There are four main types: the sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). Making the right choice is an important first step because it may affect your taxes, how much paperwork you’ll have to deal with, and how much personal liability you might have.

In Missouri, sole proprietorships are a popular choice. Of the 536,754 small businesses in the state, a remarkable 70.5% are sole proprietorships.1 That’s 378,372 businesses operating under this structure, which reflects its popularity.

In this guide, we’ll focus on the sole proprietorship and walk through what it is, the advantages and disadvantages, and the steps to get started.

Related: How to start a business in Missouri

What is a Sole Proprietorship?

A sole proprietorship is the simplest and most common business structure for small businesses and entrepreneurs. It’s not a separate legal entity, but rather an individual operating a business as themselves. Very little paperwork is required, as there’s no formal registration or setup process in Missouri to form a sole proprietorship. You can simply start conducting business activities under your own personal name.

While simple, a sole proprietorship has key differences from other structures like corporations and LLCs. It’s important to weigh the advantages and disadvantages when deciding if it’s the right fit.

Sole Proprietorship Advantages

Simplicity and ease of formation: With no formal registration or setup required, launching a sole proprietorship is straightforward. You can get up and running immediately without paperwork hassles or filing fees.

Complete control: As a sole proprietor, you retain complete control over all business decisions and operations. You don’t share control with partners or board members. This freedom and flexibility can be beneficial for many small business owners.

Tax simplicity: Business income and losses are reported directly on your personal tax return. You avoid the additional filings and fees that come with other structures like corporations. This can mean less paperwork hassles at tax time.

Sole Proprietorship Disadvantages

Unlimited liability: A major downside is that sole proprietors have unlimited personal liability for business debts and obligations. Your personal assets are at risk if your business is sued. For those wanting liability protection, an LLC offers an alternative.

Business continuity: A sole proprietorship ends if the owner dies, sells, or transfers the business. This can be an issue for a business that relies on contracts with customers and vendors. Other structures allow for more continuity.

Self employment taxes: As a sole proprietor, you’re subject to self-employment taxes. This can mean a higher tax bill compared to some other business structures.

While a sole proprietorship offers simplicity and control, it’s important to consider the potential risks, particularly regarding personal liability. If you’re concerned about liability an LLC might be a better fit for you.

Related: How to form a Missouri LLC

Steps to Start a Sole Proprietorship in Missouri

Starting a sole proprietorship in Missouri is a straightforward process, as it does not require filing any legal documents with the state government to legally create the business entity. However, there are a few steps to cover to ensure your business is correctly set up.

Step 1: Come Up with a Business Name

As a sole proprietor in Missouri, you can operate your business under your full first and last name, but if you prefer a specific business name (as most would), registration is necessary. Let’s say Bob Smith decides to start a barbecue restaurant named “Bob’s Smokehouse.” To operate under this name, he would need to register it with the state. If Bob was running a business under his name, he would skip the next step.

Step 2: Fill Out the Fictitious Name Registration Form

If your business will operate under a specific name like “Bob’s Smokehouse,” you must register this name. You can file the Registration of Fictitious Name form online or download and mail it to the Missouri Secretary of State.

Related: How to register a Missouri fictitious name

Keep in mind that registering an assumed name in Missouri won’t prevent other businesses from using it. To better protect your chosen name, consider applying for a trademark.

Step 3: Research Business License Requirements

Regardless of your business structure, you may need specific licenses to operate legally. These requirements vary based on your business activities and location. Here are a few examples of potential business licenses you may need:

  • Local business license: While there’s no statewide business license, you might need a local business license. Contact your city officials or economic development office for details.
  • Business tax registration: If your business collects sales tax or employee withholding taxes, complete the Missouri Tax Registration from the Missouri Department of Revenue.
  • Merchant’s license: Some counties require a Merchant License for businesses making retail sales. This is in addition to the state business tax registration.
  • Professional license: Certain professions in Missouri are regulated and require licensing. Examples include electrical contractors, accountants, interior designers, and tattoo artists. Check with your County Clerk’s Office for specific requirements.
  • Employer Identification Number (EIN): An EIN is needed for tax reporting purposes if you hire employees. Some banks also require an EIN to open a business bank account. Otherwise, as a sole proprietor, you can use your social security number.

Related: What licenses are needed in Missouri?

Wrapping Up

Starting a new business involves important decisions, and choosing the right structure is an important first step.

We hope this guide provided a helpful overview of how to start a sole proprietorship in Missouri. Please let us know in the comments which business structure you plan to form and why. What helped you decide? Also, do you have any other questions about starting a business in Missouri? We look forward to hearing from you!

Sources

  1. Internal Revenue Service ↩︎

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

How To Start A Missouri Sole Proprietorship

How To Start A Missouri Sole Proprietorship

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