Starting a business in Wisconsin requires making important decisions, and one of the first decisions to make is choosing your business structure. A business structure defines how your business operates, its legal responsibilities, and how it will be taxed. This is an important first step in the startup process, as it lays the foundation for your business and affects how you will proceed with subsequent startup steps.
In Wisconsin, the sole proprietorship is a popular business structure, and this guide will help you determine if it’s the right choice for you. We will provide an overview of the sole proprietorship, discuss its advantages and disadvantages, and offer a step-by-step guide on registering your business.
Related: How to start a business in Wisconsin
What is a Sole Proprietorship?
A sole proprietorship is a business entity with just one owner who is entirely responsible for all business decisions and liabilities. There’s no legal line between you and your business, and your business’s profits or losses are your personal profits or losses. This simplicity attracts many to form a sole proprietorship, but this also means that you’re also solely responsible for any debts or legal issues the business faces.
Other Business Structures:
- General partnership: Similar to a sole proprietorship, except it’s owned by two or more individuals who share profits and losses. Each partner is equally responsible for the partnership’s debts and obligations.
- Corporation: A separate legal entity from its owners, offering liability protection but with more complex regulations.
- LLC (Limited Liability Company): Blends the ease of a sole proprietorship with the liability protection of a corporation.
Related: Business Structure Comparison
Sole Proprietorship Advantages
There are several reasons why many Wisconsin business owners choose the sole proprietorship structure:
- Ease of setup: Since the individual and the business are the same, there is no formal registration process and no formation documents, allowing you to get started immediately.
- Lowest startup costs: A sole proprietorship has minimal initial expenses, making it an affordable choice for starting a business.
- Tax simplicity: Sole proprietors in Wisconsin benefit from tax simplicity since the profits of the business pass through to the owner and are taxed as personal income. This eliminates the need to file a separate entity tax return each year.
Sole Proprietorship Disadvantages
However, there are some drawbacks to the sole proprietorship structure:
- Unlimited personal liability: Owners are personally responsible for all debts and obligations of the business, putting personal assets at risk.
- Less business continuity: Sole proprietorships end automatically upon the owner’s death or decision to stop the business, which can be problematic if there are contracts with customers or vendors that wouldn’t transfer to a new owner.
- Potential tax disadvantages: Sole proprietors pay income and self-employment taxes on business profits, which can be higher than other structures.
If liability protection is a significant concern, consider forming a Limited Liability Company (LLC) instead. An LLC offers the same pass-through taxation as a sole proprietorship but with the added benefit of limited liability protection for its owners. This can shield your personal assets from the liabilities of your business, potentially making an LLC a better option for those who prioritize asset protection.
Related: How to form a Wisconsin LLC
Launching a sole proprietorship in Wisconsin involves several key steps. It’s more straightforward than other business structures, but it’s still necessary to complete specific registrations based on your business name, location, and nature. Below, we’ll walk through the common steps so you can get your business legally set up.
Steps to Start a Sole Proprietorship in Wisconsin
Step 1: Choose a Business Name
As a sole proprietor in Wisconsin, you have the option to run your business under your full first and last name. But, suppose you want to do business under a specific name. For instance, Sarah Johnson plans to start a cheese-making business, and she prefers to use the name “Curds and Whey Artisan Cheeses” instead of her personal name. In this scenario, Sarah has the option of registering her trade name, “Curds and Whey Artisan Cheeses.” Wisconsin State Statute 132.01 provides details on registering business names.1
Keep in mind that while state registration isn’t mandatory, certain vendors or banks might require proof of business ownership for tasks such as opening a business bank account or registering a merchant account to accept credit cards.
Step 2: Verify Name Availability
No business in Wisconsin can legally register a company name identical or remarkably similar to an existing business in the state. To confirm your chosen name isn’t already in use, perform a Wisconsin trademark search on the Department of Financial Institutions website.
Related: How to search available names in Wisconsin
Step 3: File the Trademark Form
If you decide to register a specific business name, you can submit the trademark form online or in person at the Wisconsin Department of Financial Institutions’s office. Registering an assumed name in Wisconsin doesn’t prevent other businesses in different states from using the same name. If you want exclusive rights to the name, consider applying for a trademark through the U.S. Patent & Trademark Office (USPTO).
Related: How to register a business name in Wisconsin
Step 4: Research Business License Requirements
Identifying and obtaining relevant business licenses is a necessary process that applies to all business structures, not just sole proprietors. The exact requirements can vary between companies, depending on their activities and location. Here are some licenses you might need:
- Local business license: While Wisconsin doesn’t implement a state business license, your city or county may require a local business license. Consult your city officials or economic development office to verify.
- Seller’s permit: Any Wisconsin business that makes retail sales, leases, or rentals of tangible personal property or taxable services must obtain a Wisconsin Seller’s Permit (also known as a sales tax permit) from the Wisconsin Department of Revenue.
- Professional license: If your business provides professional services, such as hairdressing, home inspections, interior design, or manicure services, you’ll need to register for a professional license. The Wisconsin Department of Safety and Professional Services can provide you with the necessary information, fees, and licensing requirements.
- Employer Identification Number (EIN): While sole proprietors usually use their Social Security Number for tax purposes, an EIN from the Internal Revenue Service (IRS) is required if you plan to hire employees. Banks might also require an EIN to open a business account.
Related: What business licenses are needed in Wisconsin?
Wrapping Up
Starting a sole proprietorship in Wisconsin doesn’t need to be complicated. Take your time to choose the right business name, ensure its availability, register it, and get all the necessary licenses. Whether a sole proprietorship is the perfect fit for you or another business structure better meets your needs, the most important thing is that you are taking steps toward making your business dream a reality.
So, now it’s your turn! We’d love to hear about your plans. Are you leaning towards a sole proprietorship or considering another business structure? Share your thoughts in the comments section below, and don’t hesitate to ask questions if anything is unclear.
