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Sole proprietorship is a straightforward and easy business structure in which a single individual owns a business. This one-person business is not required to be registered with the state as a corporation or LLC, which is why freelancers and independent contractors often fall into this category.
However, with each state’s legislation, there are a few things to keep in mind as a sole proprietor. By understanding the ins and outs of what it takes to be a sole proprietor in Texas, you can grow your business and meet business-related obligations such as taxes and paying back business debts.
Don’t fall asleep at the wheel just because it’s a one-person business
Congratulations! You decided to start your own business or are seriously thinking about it. As you begin your path as a sole proprietor, be aware that every pursuit, no matter how glamorous it may seem, comes with its own brand of lousy side effects. Here are a few things to keep in mind as you navigate the challenges of being a sole proprietor:
- Lay the right groundwork: Whether that means organizing your to-do list, workflow, or getting your hands on the right tools, make sure you’re well-informed about what it takes to be successful in your industry as a sole proprietor.
- Focus on what you can control: There is no use stressing over things that are out of your control.
- Get out of your head: Put in the work instead of just thinking about all the things you should be doing. Breaking big goals down to smaller steps is always helpful.
How to Start a Sole Proprietorship in Texas
What makes Texas such an easy state to be a sole proprietor in is you don't need to file any legal documents with the Texas state government. However, the Texas Economic Development website states your county or city government may require permits or business licenses depending on your industry. Here’s how to open your sole proprietorship in Texas in four steps:
- Choose a Business Name: Unless you need to advertise, using your legal name is probably best. In case you do need to have a business name, choosing something memorable and simple will help with your marketing efforts. Make sure when you pick a name that no other business is already using it or has a similar name. To check if your business name is available, search it here: Texas Comptroller of Public Accounts or here: U.S. Patent & Trademark Office.
- File an Assumed Name Certificate: Fill out an Assumed Name Certificate (Form 503), available from the county clerk's office. You can submit it to the Texas Secretary of State either online, by mail, fax, or in-person. Filing fees may vary, but are usually around $25.
- Acquire Any Necessary Licenses, Permits, and Zoning Clearances: Before you officially launch your business, make sure to check whether you need a license or permit. Texas provides a comprehensive website of every profession and occupation that requires a license by any sole proprietorship.
- Obtain an Employer Identification Number: If you want to have employees, you'll need to get an Employer Identification Number, or EIN. This is a nine-digit number issued by the IRS for tax reporting.
Next Steps After Starting a Sole Proprietorship in Texas
Depending on your type of business and how fast it’s growing, you may need to take additional steps. To safeguard your business, here are a few things sole proprietors should consider after getting started.
- Open a Business Bank Account: Keeping track of your business expenses will make doing taxes easier for you. This is why keeping a business banking account separate from your personal one is ideal (although optional when it comes to sole proprietorship in Texas). Every bank offers business owners different perks. Some may offer lines of credit that are helpful to your business, while others may provide reduced fees. This is where doing your research is crucial so the bank you choose will meet your specific business needs. Once you know which bank is best suited to your business, you'll need your business name certificate and EIN to open an account.
- Obtain General Liability Insurance: It's all fun and games being your own boss as a sole proprietor until you realize you are personally liable for all business debts and lawsuits. This means if someone wins a lawsuit against you, they can take your personal assets, such as your home. Even though this is optional, getting a general business liability policy to protect you is key.
- Report and Pay Taxes: Once you have your EIN, you can report and pay employment taxes through the Texas Comptroller of Public Accounts on a quarterly basis. However, if you're a sole proprietor without employees, you can simply use your Social Security number to report taxes.
Pros and Cons of Sole Proprietorship in Texas
While starting a business as a sole proprietor in Texas is easy and inexpensive, there are also disadvantages to consider. Weighing the pros and cons before getting started will help you stay informed and ultimately see if this business model is meant for you.
Pros of Sole Proprietorship in Texas
- Easy to get started: The process of becoming a sole proprietor in Texas is very easy, straightforward, and requires very little paperwork.
- It’s inexpensive: Unless you have an office, you can most likely conduct your business at home and filing fees are around $25 for business documentation.
- You are your own boss: Making decisions becomes streamlined when it’s only you. Additionally, you can pick your own schedule and have full control over the business.
- Single Tax Return: You can file a single tax return for both your business and personal income.
Cons of Sole Proprietorship in Texas
- Personal liability: The most significant con of this business model is, as a sole proprietor, you will be personally liable for any debts and liabilities of the business. If someone that sues you wins, they can come after your personal assets.
- The business depends solely on you: While being your own boss is great, you are also responsible for growing your business and to keep it thriving. Understandably, this kind of responsibility may not be for everyone, especially when it comes to stress management and self-motivation.