When you’re starting a business, choosing your business structure is one of the first decisions you’ll make. Business structures set the tone for how the organization will operate, be taxed, and the level of liability protection it offers. The structure you pick could also affect future tasks in the startup process, such as raising funds or expansion opportunities.

In West Virginia, many people opt for a sole proprietorship due to its simplicity and direct control. This guide will help you understand whether a sole proprietorship is the right business structure for you or not and how to register one in West Virginia.

What is a sole proprietorship?

A sole proprietorship is a business entity where one person is responsible for all the business decisions and liabilities. In this structure, there’s no legal separation between you and your business. Your business’s debts and obligations are yours, and its profits go directly to your pocket. The appeal lies in its simplicity; forming a sole proprietorship does not require any formal registration, and profits are subject to personal income tax rather than corporate tax.

Other business structures include:

General partnership: Similar to a sole proprietorship, but is a business owned by two or more individuals who share in profits, losses, and management.
Corporation: A more complex structure that offers liability protection, as the business is a separate legal entity.
LLC: A Limited Liability Company combines elements of partnerships and corporations, providing flexibility and limited personal liability.

Sole Proprietorship Advantages

Being a sole proprietor offers several advantages that make it a popular choice for individuals launching a small business in West Virginia.

Ease of setup: As a sole proprietor, you and your business are legally considered the same entity. Therefore, there is no separate registration process for a sole proprietorship, allowing you to start your business quickly.
Lowest startup costs: Starting a sole proprietorship in West Virginia usually requires less money upfront compared to other business structures because there are no costs for forming a corporation or LLC.
Minimal ongoing fees: Unlike other structures, there are no charges for maintaining your legal status as a sole proprietor in West Virginia.

Sole Proprietorship Disadvantages

While the sole proprietorship sounds appealing, especially for first-time business owners or small businesses, it does come with a few drawbacks.

Personal liability: With no legal separation between the business and its owner, creditors can seize personal assets to cover business debts.
Business continuity: The lifespan of the sole proprietorship is tied to that of the business owner. Should anything happen to you, your business will automatically dissolve, which can be an issue if there are critical contracts in place.
Potential tax disadvantages: Despite the tax process being less complex for a sole proprietor, there could be potential tax disadvantages. For example, you have to pay income and self-employment taxes on business profits, which might be more than those paid by other business structures.

If you are concerned about personal liability and are looking for more protection, forming a Limited Liability Company (LLC) might be a better choice. An LLC provides personal liability protection, separating your personal assets from the business assets.

Steps to Start a Sole Proprietorship in West Virginia

Setting up a sole proprietorship in West Virginia involves several steps to make sure your business is legally compliant. Although sole proprietors don’t need to file formal business formation documents, registration may be required based on the name, location, and type of business.

Step 1: Choose a Business Name

In West Virginia, you can operate your sole proprietorship under your own name. If you prefer a specific business name, registration is necessary. For example, let’s say Emily Parker wants to start a handmade jewelry business. Instead of operating under her name, she decides on “Mountain Gems Creations.” Emily will need to register this name as her Doing Business As (DBA), which is outlined under West Virginia Statutes §47-8-2.¹

Step 2: Register with the West Virginia State Tax Department

Before filing your Trade Name registration application, it’s mandatory to register your business with the West Virginia State Tax Department. This step is a prerequisite for the Trade Name registration with the Secretary of State.

Step 3: Verify Name Availability

Ensure your chosen business name isn’t already taken. In West Virginia, your sole proprietorship’s name cannot be the same or too similar to another name registered with the State Tax Department. This step helps avoid legal issues and confusion in the marketplace.

Step 4: File the Trade Name (DBA) Registration

Once you’ve confirmed the availability of your business name, file the Trade Name Registration (Form TN-1) with the West Virginia Secretary of State.

Registering an assumed name in West Virginia doesn’t prevent businesses in other states from using it. For exclusive use, consider applying for a trademark with the U.S. Patent & Trademark Office (USPTO).

Step 5: Research Business License Requirements

Regardless of your business structure, you may need to obtain certain licenses. This varies based on your business activities and location.

State business registration: Regardless of whether a trade name is needed, anyone engaging in business activities in West Virginia must obtain the Business Registration Certificate that we talked about earlier from the West Virginia State Tax Department before starting. This certificate also covers the registration for a West Virginia Sales Tax Permit.
Local business license: In addition to the state of West Virginia business registration, some local business licenses may be needed. Check with your city officials or local economic development office for specific requirements.
Professional license: Various professions in West Virginia are regulated and require licensing. This includes accountants, cosmetologists, landscapers, massage therapists, and more. The West Virginia Association of Licensing Boards provides information on fees and requirements for these licenses.
Employer Identification Number (EIN): An EIN from the Internal Revenue Service (IRS) is required for sole proprietorships hiring employees. It may also be needed to open a business bank account. Without employees, your social security number can be used.

Wrapping Up

From choosing your business name to meeting legal obligations, these steps lay the groundwork for starting your business. Whether a sole proprietorship or an LLC, each structure offers its unique set of benefits and drawbacks. The main idea is to choose the one that best aligns with your business goals, financial situation, and risk tolerance.

We hope this guide has provided you with a good understanding of the steps to start a sole proprietorship in West Virginia. But remember, each business is unique, and this guide is just a starting place.

Let us know in the comments which business entity you plan to go with or let us know if you have any questions!