Starting your own business in Nebraska is an important step filled with opportunities and challenges. One challenge is deciding on a business structure, which is how the business is legally set up to operate. There are four main options: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
In Nebraska, sole proprietorships are a popular choice for entrepreneurs. In this guide, we’ll explore what a sole proprietorship is, including its advantages and disadvantages. We’ll also provide you with a step-by-step guide on how to get registered in Nebraska, ensuring you have all the information you need to make an informed decision about whether this business structure is right for you.
Related: Nebraska Business Startup Checklist
What is a Sole Proprietorship?
A sole proprietorship is the simplest and most common structure for small business owners. It is an unincorporated business owned and run by one individual, and there is no legal distinction between the business and the owner.
Sole Proprietorship Advantages
Lowest startup costs: This is one of the biggest advantages of the sole proprietorship, as there are no state filing fees or legal costs like with an LLC or corporation.
Tax simplicity: Sole proprietorships are considered pass-through entities for tax purposes. This means the business itself does not pay income taxes. Instead, the owner reports business income or losses on their personal tax return. Taxes are the most straightforward for sole proprietors.
Complete control: As the sole owner, you have complete decision-making power over your business. You do not share control with partners or board members as other structures require.
Sole Proprietorship Disadvantages
Unlimited personal liability: The main downside of a sole proprietorship is the owner is personally responsible for all business debts and liabilities. If the business cannot pay a creditor or loses a lawsuit, the owner’s personal assets are at risk.
Less business continuity: The existence of a sole proprietorship is tied directly to the owner. If the owner retires or passes away, the business may not easily continue, which is important if there are contracts that wouldn’t transfer to a new owner.
Difficulty raising capital: With a sole proprietorship, you don’t have shares to sell to investors, which can make it harder to raise money.
While sole proprietorships offer simplicity and control, they also come with risks, particularly in personal liability. If liability protection is a significant concern, forming a Limited Liability Company (LLC) might be a better choice.
Related: How To Form A Nebraska LLC
Steps to Start a Sole Proprietorship in Nebraska
While starting a sole proprietorship in Nebraska is a straightforward process, there are a few steps to cover so the business is legally set up.
Step 1: Choose a Business Name
As a sole proprietor in Nebraska, the owner can operate their business under either their full first or last name. However, registration is required if they want to operate under a specific business name.
For example, John Smith is starting a landscaping business in Omaha. Instead of having to do business under his full name, John Smith, he’d like to do business under the name “Green Thumb Landscaping.” In this case, he’ll register his DBA name, “Green Thumb Landscaping,” with the Nebraska Secretary of State.
Step 2: Verify Name Availability
In order to operate under a specific business name, it has to be unique or not too similar to other names registered with the Secretary of State. Before finalizing a name, a Nebraska Trade Name search is necessary to verify that the name you want to use is available.
Related: How To Do A Nebraska Trade Name Search
Step 3: File the Trade Name Registration
With the name verified, the next step is to register with the Nebraska Secretary of State by filing the Trade Name Form. Registering an assumed name in Nebraska won’t prevent another business from using it. Consider applying for a federal trademark through the U.S. Patent & Trademark Office (USPTO) for stronger name rights.
Related: How To Register A Nebraska Trade Name
Step 4: Research Business License Requirements
Regardless of your business structure, you may need business licenses. These vary depending on your business activities and location. Here are some licenses you might need:
Local business license: While there is no state business license, some local jurisdictions may require a business license. Check with your city officials or economic development office for information.
Nebraska Tax Identification Number: All businesses must register for a Nebraska Tax Identification Number with the Nebraska Department of Revenue. This is a combined registration for a sales tax permit, income tax withholding, and other miscellaneous taxes.
Professional license: Certain professions in Nebraska require licensing before offering particular services. Examples include food establishments, architects, acupuncturists, barbers, contractors, and childcare facilities.
Employer Identification Number (EIN): The EIN is a unique number required by the IRS for businesses to report taxes. As a sole proprietor, you’ll need an EIN if hiring employees. While not always necessary, some banks may require an EIN to open a business bank account. Otherwise, you can use your social security number.