How to start a sole proprietorship in Arkansas?

Sole Proprietorship in Arkansas

Arkansas is home to over 280,000 (two hundred and eighty thousand) small businesses and over 450,000 SMB’s (Small to Medium-sized Businesses). There are different entity structures, including that of a sole proprietorship in Arkansas, which are considered to be highly vital to the state’s economy. The scalability and overall sustainability depend on several factors, including market trends, access to capital, the diversity of industries, and an effective marketing strategy.

What is a sole proprietorship in Arkansas?

If you are wondering how to start a sole proprietorship in Arkansas, it is essential first to understand the type of entity structure this is. It is also known as a sole trader business and is an individual-driven structure, unlike a corporation or partnership. An individual owns and operates this type of business, with no legal separation between the company and the owner. One of the distinct advantages of forming a sole proprietorship in Arkansas is that it will require less documentation and paperwork during its formation and operation stages. As the owner of such an entity, you will enjoy the profits earned but have to be responsible for any liabilities sustained by the company. This type of business will have a different tax structure compared to other legal entity forms, as it is known as a non-registered and unincorporated business.

Important features of sole proprietorship in Arkansas

If you want to start a sole proprietorship in Arkansas, it is essential to understand the various advantages this type of entity offers. Some of the top features are:

• This is a ‘Single Ownership’ entity, which is owned and operated by an individual or one person
• The owner is not answerable to anyone else when it comes to different aspects of the business, like marketing, finance, and management
• A sole proprietorship business does not have any separate legal existence from its owner
• The owner has complete control, but also has to bear all risks of the business
• The profit from the company goes to the owner, but so does the loss
• This type of company has a simple business structure and is easy to form
• This entity has few legal requirements and is easy to dissolve

Steps to Start a Sole Proprietorship in Arkansas

If you are wondering how to start a sole proprietorship in Arkansas, several key aspects of this type of business structure need to be considered. Apart from key areas such as operations, management, and finance, you will also need to focus on the requirements of state and local jurisdictions, including tax filing. Let’s look at the most important aspects of a sole proprietorship.

1. Prepare a business plan

If you want to file a sole proprietorship in Arkansas, then it comes with its unique set of advantages and challenges. The most critical of them is proper business and operations planning. It’s essential to find a solution that fits your business needs. It’s easier to get a solution if you craft a good business plan. Your business plan should include the following:

• Executive summary of the business
• Market research and analysis
• SWOT analysis (strengths, weaknesses, opportunities, and threats)
• Marketing and Sales Strategy
• Product or Service Line
• Organization and Management
• Operational Plan
• Financial Projections

2. Choose an Arkansas business name

The first point on your ‘How to Start a Sole Proprietorship in Arkansas’ checklist is choosing a company name. You cannot operate any business without a name. Of course, you cannot use just about any name; there are specific naming rules and guidelines to be followed. Here are some tips for choosing a name for your sole proprietorship:

• The first rule is always to keep the name easy to pronounce and remember
• Ensure the name is not confused with that of a competitor
• Follow Arkansas state naming guidelines
• You can consider your target audience or product while choosing a name
• Always check your chosen domain name for availability and website
• You can use online business name generators
• Most importantly, use the Arkansas SOS website to search for any existing business names
• The name should not be similar to that of a government agency

3. Obtain a DBA

When you start a sole proprietorship in Arkansas, your business must operate under a specific name. Two types of business names can be used, and they are:

• You can use your full legal name as the company name
• You can register a fictitious business name, wherein you will need to file an Arkansas DBA

Example: Your name is Emily Harper, and you want to file a sole proprietorship in AR as a therapy service. You can use your name, such as ‘Emily Harper Therapy Service.’ Alternatively, you can choose to use a business name, such as “Harper Therapy Service.” Here, Harper Therapy Service will be considered as a fictitious business name, and you will need to file an Arkansas DBA. You will need to conduct a name availability search for a fictitious name before registering.

Example: If you form a sole proprietorship in Arkansas and operate from Jefferson County, then you will need to register your DBA there. A DBA certificate can be filed and recorded in the office of the County Clerk. You will need to submit the “Doing Business under an Assumed Name Certificates” form. You will need to file an Arkansas DBA, which incurs a filing fee of $25 and an index fee of $1. If you want the County Clerk’s office to notarize this form, then there will be an additional charge of $5.

Do you want to start a sole proprietorship in Arkansas?

4. Get EIN

A sole proprietorship is one of the easiest business structures to form in Arkansas. When it comes to filing taxes, there is no distinction between the owner and the entity. Hence, you will be required to file a personal income tax return. Generally speaking, as the owner of a sole proprietorship, you can file individual income tax using your Social Security Number (SSN). However, if you opt for an Employer Identification Number (EIN), then it can be beneficial in the long term. According to the Internal Revenue Service (IRS), you can apply for an EIN if the following criteria are met:

• If your company hires employees
• When a sole proprietorship company plans to open a business bank account
• If you have invested in a Keogh plan
• If you need to file any form of excise tax returns
• When you convert or change the entity structure from a sole proprietorship to a partnership or LLC
• If you file Chapter 7 (liquidation) or Chapter 11 (reorganization) bankruptcy

5. Obtain necessary licenses and permits

If you plan to start a sole proprietorship in Arkansas, one of the important aspects to consider is obtaining the necessary business licenses and permits. Yes, every company formed in the state requires specific licenses to commence operations. If you operate without a license, your company may be penalized. You will need to search for a sole proprietorship in Arkansas for permits in the following categories:

• Sales Tax license or permit
• Professional licenses
• Occupational licenses
• Local licenses
• Regulated licenses
• Zoning permits
• Home occupation permit

6. Open a bank account for your Arkansas business

A sole proprietorship structure is a straightforward structure in terms of formation, operations, and finances. There is, therefore, no legal requirement for sole proprietorships to open a business bank account. Yet, having a separate bank account for business can be pretty advantageous. The most important thing is managing all your finances. If you operate a personal account and use it for receiving or making business payments, then it may become extremely complicated to separate personal from business earnings and expenses. This will create confusion and pose challenges during the tax season.

7. Report and pay taxes

Once you form a sole proprietorship in Arkansas, you must remain compliant with state laws and ensure that all annual requirements are met. One of the critical requirements is the filing of taxes. The Internal Revenue Service (IRS) sees this type of structure and the owner as the same, and hence, you will need to file personal income tax. The state of Arkansas has a graduated individual income tax rate, which varies from 2 percent to 3.9 percent depending on the net income bracket into which you fall.

Ready to Start a Sole Proprietorship Business in Arkansas

If you have decided to start a sole proprietorship in Arkansas, this is probably the safest and easiest structure to operate. It is also known as a sole trader entity and is not required to file any registration forms with the state department, unlike other entity structures. However, that being said, you may need to file an Arkansas DBA and ensure compliance with all annual requirements of the state. This will help you to enjoy a good standing with the state.