Starting your first business is a big step, and one of your initial decisions is choosing your business structure. A business structure defines the legal liability, taxes, and paperwork requirements of your company.
In Wyoming, many entrepreneurs opt for a sole proprietorship, and this guide is here to help you understand if it’s the right structure for you. We’ll explain what a sole proprietorship is, its pros and cons, and guide you through the registration process in Wyoming.
Related: How to start a business in Wyoming
What is a Sole Proprietorship?
A sole proprietorship is a form of business entity where there is only a single owner who is responsible for all business decisions and liabilities. This means there’s no legal difference between you and your business. Your business’s profits and losses are your personal profits and losses. Many small business owners opt for the sole proprietorship due to low startup costs and minimal paperwork. However, the lack of legal protections can make it risky if significant liabilities are expected.
Other common business structures include:
- General partnership: Similar to a sole proprietorship, except this structure is owned by two or more people, sharing responsibilities and profits.
- Corporation: A complex structure offering liability protection, involving shareholders, directors, and officers.
- LLC (Limited Liability Company): Combines the features of sole proprietorships and corporations, offering liability protection, with fewer administrative requirements.
Related: Business Structure Comparison
Sole Proprietorship Advantages
Starting a business can be challenging, but the right structure can make it easier. Let’s look at some advantages of a sole proprietorship.
- Ease of setup: A sole proprietorship allows you to begin conducting business immediately with no need for formal registration or setup documents.
- Lowest startup costs: Forming a sole proprietorship has the lowest upfront costs since there are no formation documents to prepare or file.
- Tax simplicity: Your business earnings are taxed as your personal income, simplifying the tax process and avoiding corporate taxes.
Sole Proprietorship Disadvantages
However, the simplicity of a sole proprietorship can also lead to some downsides:
- Unlimited personal liability: This is a big one. If your business faces debts or legal issues, your personal assets like your home or car could be at risk.
- Less business continuity: If you decide to stop your business or if something happens to you, the business also stops. This can affect contracts with customers or vendors.
- Potential tax disadvantages: While simpler, the tax situation might not always be in your favor. You’ll pay income and self-employment taxes on all profits, which can be higher than other structures.
If protecting your personal assets is a priority, you might consider forming a Limited Liability Company (LLC) instead. An LLC can offer you the liability protection missing in a sole proprietorship, keeping your personal assets safe from business liabilities.
Related: How to form a Wyoming LLC
Steps to Start a Sole Proprietorship in Wyoming
Even though formal business formation documents are not necessary for sole proprietorships, there are still a few registrations required to ensure your business is legally set up. Here are the most common ones:
Step 1: Come Up With a Business Name
In Wyoming, a business owner can operate their sole proprietorship under their full first and last name. But if they want to operate under a business name that’s different from their own, registration is a must. For example, if Sally Smith is starting a pet grooming service, she could do business under her full name. But she decides to go with “Pampered Pets.” So, Sally will need to register her Trade Name (also called a DBA) as “Pampered Pets” according to Wyoming statutes 40-2-101–109.1
Step 2: Verify Name Availability
Before registering your business name, you must ensure it’s unique. No two businesses in Wyoming can have the same or a confusingly similar name. You can check name availability on the Wyoming Secretary of State’s website, ensuring your chosen name isn’t already in use.
Related: How to search available business names in Wyoming
Step 3: File the Trade Name Form
Once you’ve picked a unique name, the next step is to officially register it. This is done by completing the Application for Registration of Trade Name form available from the Wyoming Secretary of State’s office. Keep in mind, while registering your Wyoming assumed name secures it in the state, it doesn’t provide nationwide protection. For that, consider applying for a trademark with the U.S. Patent & Trademark Office (USPTO).
Related: How to file a Wyoming Trade Name
Step 4: Research Business License Requirements
Regardless of your business structure, you might need specific licenses or permits. This varies based on what your business does and where it’s located. Here’s what to look into:
- Local business license: Wyoming doesn’t have a statewide business license, but your city or county might require one. Check with local city officials or the economic development office.
- Business tax number: Known as the IBT or REG-1 Form, the Wyoming Business Tax Number is issued by the Wyoming Department of Revenue. It’s most often needed for hiring employees, buying or selling tangible personal property, or manufacturing goods.
- Professional license: Certain professions are regulated in Wyoming. For example, athletic trainers, physical therapists, landscapers, and barbers need to register before offering their services.
- Employer Identification Number (EIN): If you plan to hire employees, you’ll need an EIN from the Internal Revenue Service (IRS). Also, some banks require an EIN to open a business bank account. If you’re not hiring employees, or the bank doesn’t require one, your social security number will be used.
Related: What business licenses are needed in Wyoming?
Wrapping Up
We hope this guide gave you clarity on what sole proprietorships entail so you can make an informed decision. Let us know in the comments if you plan to launch a sole proprietorship or if a different business entity seems like a better fit! What appeals to you most about going solo? What lingering questions do you have? We welcome any feedback or discussion to help you start strong on your entrepreneurial journey.
