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How To Start A Virginia Sole Proprietorship

How To Start A Virginia Sole Proprietorship

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How To Start A Virginia Sole Proprietorship

Starting a business takes a handful of key decisions – the first among them being the choice of business structure. Your business structure, or the legal organization of your business, fundamentally determines how your business will operate, be taxed, and how much personal liability you’ll assume.

In Virginia, the sole proprietorship is a popular choice due to its simplicity, and we put together this guide to help you understand if it’s the right fit for you. Here, we aim to shed light on the sole proprietorship structure, its pros and cons, and the process of registering as a sole proprietorship in Virginia.

Related: How to start a business in Virginia

What is a Sole Proprietorship?

A sole proprietorship is a business owned and operated by one person. There’s no legal distinction between the owner and the business. This means the owner and business are legally indistinguishable, and all profits, losses, assets, and liabilities of the business go to the owner.

Other common types of business structures are:

  • General partnership: Similar to the sole proprietorship, except in this setup, two or more people share control, liability, and profit of the business.
  • Corporation: A corporation is a legal entity distinct from its owners, providing limited liability but more complex to start and manage.
  • Limited Liability Company (LLC): This is a hybrid structure combining the limited liability of a corporation with the simplicity of the sole proprietorship.


Sole Proprietorship Advantages

There are several benefits that draw entrepreneurs in Virginia towards a sole proprietorship:

  • Ease of setup: Since the business and the owner are one entity, there’s no formal setup process or paperwork required.
  • Lowest startup costs: Starting a sole proprietorship involves minimal if any, costs. This may range from a small registration fee to purchase a Doing Business As (DBA) name to the cost of obtaining necessary licenses and permits.
  • Privacy: Sole proprietorships are not subject to public filings, meaning business details remain confidential.

Sole Proprietorship Disadvantages

Nevertheless, we must acknowledge the limitations of a sole proprietorship:

  • Unlimited personal liability: If the business happens to incur debts or faces legal action, the owner’s personal assets are at risk, as there is no legal distinction between the two.
  • Less business continuity: A sole proprietorship in Virginia is closely tied to its owner. If you decide to retire or something happens to you, the business doesn’t continue automatically. This could affect long-term contracts or business relationships.
  • Potential tax disadvantages: While sole proprietors benefit from a simpler tax process, they might face higher taxes. You’re responsible for income and self-employment taxes on all profits, which can sometimes be more than other business structures.

If liability protection and business continuity are important, you might want to consider forming a Limited Liability Company (LLC) instead. An LLC provides the benefit of limited personal liability, continuity, flexibility in profit distribution, and certain tax advantages over a sole proprietorship.

Related: How to form a Virginia LLC

Steps to Start a Sole Proprietorship in Virginia

Starting a sole proprietorship in Virginia involves a few key steps to ensure your business is legally set up. While sole proprietors do not have to file formal business formation documents, some registrations are still required depending on the name, location, and type of business.

Step 1: Come Up with a Business Name

In Virginia, you can operate a sole proprietorship under your own name without extra paperwork. However, if you prefer a specific business name, you’ll need to register it. For example, imagine Sarah Johnson wants to start a bakery. Instead of operating as Sarah Johnson, she decides to name her business “Blue Ridge Bakery.” In this scenario, she must register “Blue Ridge Bakery” as a DBA (Doing Business As) name. This process is governed by Vermont law, 11 V.S.A. § 1621.1

Step 2: File the Certificate of Assumed or Fictitious Name Form

To register your DBA in Virginia, file the Certificate of Assumed or Fictitious Name Form through the Virginia State Corporation Commission website.

Related: How to file a Virginia DBA

Remember, registering a Virginia assumed name doesn’t prevent others from using it. For exclusive rights, consider applying for a trademark through the U.S. Patent & Trademark Office (USPTO).

Step 3: Research Business License Requirements

Regardless of your business structure, you might need to obtain specific licenses or registrations, depending on your business activities and location.

  • Local business license: Virginia doesn’t have a statewide business license, but local licenses may be required. Contact your city’s officials or economic development office for details.
  • Business tax account: Most businesses in Virginia need to register with the Virginia Department of Taxation for a Virginia Tax Account Number. This is most often needed for businesses selling products or offering certain services, as they’ll need a Sales Tax Certificate.
  • Professional license: Various professions are regulated in Virginia. For example, home inspectors, landscapers, nail technicians, and tattooists need specific licenses. The Virginia Department of Professional and Occupational Regulation (DPOR) provides additional information, fees, and requirements.
  • Employer Identification Number (EIN): An EIN from the Internal Revenue Service (IRS) is necessary if you plan to hire employees. Some banks might also require an EIN to open a business bank account. If you don’t plan on hiring employees, you might use your Social Security Number instead.

Wrapping Up

Starting a sole proprietorship in Virginia is a simple and cost-effective way to set up a small business, but it may not be the best fit for every entrepreneur. There are other business structures available, each with their own benefits and downsides. The best choice of business structure – be it a sole proprietorship, partnership, corporation, or LLC – depends highly on the individual circumstances of your business and your personal preferences.

So now, we’d love to hear from you. Do you think a sole proprietorship is the right choice for your business in Virginia? Or do you feel another business structure suits your needs better? Share your thoughts in the comments below – we’d love to hear your perspective and answer any questions you may have.

Sources

  1. Vermont law, 11 V.S.A. § 1621 ↩︎

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 Virginia Sole Proprietorship

How To Start A Virginia Sole Proprietorship

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