Choosing a business structure is one of an entrepreneur’s first decisions when starting a business. The business structure defines the legal and tax implications of the business, outlining your responsibilities and protections as a business owner.

Many small business owners in Oregon choose a sole proprietorship, and in this guide, we’ll explain what a sole proprietorship is, the pros and cons of this structure, and provide a step-by-step guide to legally forming one.

Related: How to start a business in Oregon

What is a Sole Proprietorship?

A sole proprietorship is the simplest and most common business structure. It is a business entity owned and run by one individual. There is no legal separation between the business and the owner, so all profits, losses, and liabilities are the responsibility of the sole proprietor.

Apart from a sole proprietorship, other common business structures you might consider are:

• General partnership: Like a sole proprietor, but there are two or more owners.
• Corporation: A separate legal entity that offers liability protection.
• Limited Liability Company (LLC): Combines the liability protection of a corporation with the relaxed administration of a sole proprietorship.

Related: Comparison of business structures

Sole Proprietorship Advantages

• Ease of formation: You can establish a sole proprietorship instantly by simply starting to do business or engage in a trade. While there may be certain business registrations, there is no formal registration to establish the sole proprietorship business structure.
• Tax simplicity: Business profits are taxed as personal income. You complete a Schedule C form with your personal tax return.
• Lowest costs: Forming a sole proprietorship has the lowest costs of the other structures.

Sole Proprietorship Disadvantages

• Unlimited liability: As a sole proprietor, you have unlimited personal liability for all business debts and legal actions. This can potentially put your personal assets at risk.
• Business continuity: The business is tied to the owner. If you decide to stop the business or pass away, the business ceases to exist, which can be a big issue for businesses that rely on contracts.
• Income taxes: You pay self-employment tax on net business income in addition to personal income tax.

If limiting personal liability is a priority, forming an LLC is likely a better choice than a sole proprietorship in Oregon. With an LLC, your personal assets are protected from business debts and liabilities.

Related: How to form an Oregon LLC

Steps to Start a Sole Proprietorship in Oregon

Starting a sole proprietorship in Oregon involves several necessary tasks to ensure your business is legally set up and ready to operate. Follow these steps to establish your sole proprietorship with confidence and clarity.

Step 1: Come Up with a Business Name

As a sole proprietor in Oregon, you can choose to operate your business under your full first and last name. However, if you prefer to operate under a specific business name, you’ll need to register it. For instance, Emily Brown wants to run her photography business, not under her full name but as “Oregon Scenic Shots.” In that case, she will need to register her DBA name, “Oregon Scenic Shots.”

Step 2: Verify Name Availability

If you plan to operate under a specific name, you need to verify it’s available to use. Before you register your business name in Oregon, make sure it’s not already taken by another business in the state. You can do a business name search on the Oregon Secretary of State’s website.

Related: How to do an Oregon name search

Step 3: File the Assumed Business Name Form

You can download or print the Assumed Business Name Registration Form from the Oregon Secretary of State’s website. Keep in mind that registering an assumed name in Oregon won’t prevent other businesses from using the same name. To protect your business name, you can apply for a trademark through the U.S. Patent & Trademark Office (USPTO).

Related: How to file an Oregon Assumed Business Name Form

Step 4: Research Business License Requirements

Regardless of structure, your business might need specific licenses. This varies based on your activities and location.

• Local business license: Although Oregon does not have a statewide business license, your city may require a local business license. Get in touch with your city officials or economic development office for details.
• Oregon Business Identification Number: If your business hires employees in Oregon, you must obtain a Business Identification Number from the Oregon Department of Revenue.
• Professional license: Some professions in Oregon require specific licensing before offering services. Examples include food service, accounting, and electrical work. Learn more about licensing requirements, fees, and additional information from the Oregon Department of Consumer & Business Services.
• Employer Identification Number (EIN): A sole proprietorship is required to get an EIN when hiring employees. Sole proprietors without employees usually use their social security number, but an EIN might be needed to open a business bank account.

Related: What business licenses are needed in Oregon?

Wrapping Up

Starting a business, large or small, is an exciting time filled with decisions and planning. Choosing a business structure is a central part of this process, and looking at a sole proprietorship as an option is certainly a good route for many people. It offers simplicity, less upfront costs, and fewer paperwork requirements. Yet, it also brings along personal responsibility for all business debts and obligations.

So, what business structure are you leaning towards? Are you considering going with a sole proprietorship, or does another structure seem to fit your needs better? Why? We’d love to hear your thoughts in the comments section below. And if you have any questions, don’t hesitate to ask! We’re here to help you navigate through this exciting journey.