Starting your own business is a big step, and one of the first things you’ll need to decide is the type of business structure to adopt. A business structure defines how your company is legally organized and can affect everything from your day-to-day operations, how you pay taxes, to how much of your personal assets are at risk. It’s important to choose the right structure, as it lays the foundation for many future startup steps.

In Utah, many entrepreneurs find the sole proprietorship structure appealing, and this guide is here to help you figure out if it’s the right choice for you. We’ll cover what a sole proprietorship is, its pros and cons, and provide a step-by-step guide on how to get registered in Utah.

What is a sole proprietorship?

A sole proprietorship is a business owned and run by one person. It’s the simplest form of business structure and is incredibly popular due to its ease of setup and management. In a sole proprietorship, there’s no legal distinction between the owner and the business. This means that all profits are yours, but so are all liabilities.

As the sole decision-maker, you have complete control over your business. However, this also means you’re personally liable for all business obligations. If your business can’t pay its debts, your personal assets, like your home or car, could be at risk.

In addition to sole proprietorships, other business structures include:

General partnership: Similar to a sole proprietorship, but there two or more people own and operate the business, sharing profits and liabilities.
Corporation: A separate legal entity from its owners, offering liability protection but requiring more complex setup and management.
LLC (Limited Liability Company): Combines the liability protection of a corporation with the tax benefits and ease of a partnership.

Related: Business Structure Comparison

Sole Proprietorship Advantages

There are several reasons why a sole proprietorship might be the right choice for your business in Utah:

Ease of setup: There’s no need for formal registration or formation documents. You can start your business immediately and with minimal hassle.
Lowest startup costs: This is a major draw. With no need for complex legal documents or fees, you can start your business with minimal financial outlay.
Minimal paperwork: Running a sole proprietorship requires less paperwork than other structures. You can focus more on your business and less on administrative tasks.

Sole Proprietorship Disadvantages

However, there are also downsides to consider:

Unlimited personal liability: You are personally responsible for all business debts and obligations. This could put your personal assets at risk if your business faces financial challenges.
Less business continuity: The business ceases to exist if you decide to stop operating or in the event of your death. This could impact long-term contracts and relationships.
Difficulty raising capital: As a sole proprietor, you can’t sell shares of your business. This can make it harder to raise funds compared to other structures like corporations or LLCs.

In summary, while a sole proprietorship offers simplicity and control, it also comes with significant personal risk. If liability protection is a priority, consider forming an LLC. An LLC offers personal liability protection, potentially making it a safer choice than a sole proprietorship, especially for businesses with higher risk.

Related: How to form a Utah LLC

Steps to Start a Sole Proprietorship in Utah

Starting a sole proprietorship in Utah means taking several steps to make sure your small business is legally set up and ready to operate.

Step 1: Decide on a Business Name

As a business owner in Utah, you can conduct your business under your full name. However, if you’d like to utilize a different name, you will need to register it. For example, Maria Sanchez wants to start a mountain biking tour company called “Sanchez Outdoor Adventures.” To use this business name, she must register it with the state of Utah per Utah Statutes UT Code § 42-2-5.¹

Step 2: Confirm Your Business Name

In Utah, a business can’t operate under a name that’s identical or very similar to an existing registered business name. You can ensure name uniqueness by searching the Utah Business Search website managed by the Utah Department of Commerce.

Step 3: File the DBA Form

Once you’ve chosen an available name, the next step is to register your DBA. This can be done online or by downloading forms from the Utah Department of Commerce.

Registering a DBA in Utah doesn’t prevent others in different states from using your business name. To secure exclusive rights to the name, consider applying for a trademark through the U.S. Patent & Trademark Office (USPTO).

Step 4: Research Business License Requirements

Regardless of the business structure, licensing and registration are often required and vary based on your business activities and location.

Local business license: Utah doesn’t require a state business license, but you might need a local one. Check with your city officials or the economic development office.
Business tax number: If your business involves selling or leasing tangible personal property or taxable services, register for a Utah Sales Tax License with the Utah State Tax Commission.
Professional license: Certain professions in Utah require registration. This includes accountants, electricians, handymen, hunting guides, landscapers, and more. The Utah Division of Occupation and Professional Licensing provides further information, fees, and licensing requirements.
Employer Identification Number (EIN): While sole proprietorships typically use the owner’s social security number, an EIN through the Internal Revenue Service (IRS) is required if you hire employees. You might also need to open a business bank account.

Wrapping Up

Starting a sole proprietorship in Utah can be a solid step toward your entrepreneurial goals. By understanding the advantages and considering the drawbacks unique to a sole proprietorship, you’ll ensure you’re making an informed decision that suits your unique needs and goals.

As you head off on your business adventure, what feels right for you? Are you leaning towards a sole proprietorship, or does another business entity seem like a better fit? We’d love to hear your thoughts and any questions you may have.

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