How to start a sole proprietorship in New York?

Sole Proprietorship in New York

A sole proprietorship business is not just the simplest but one of the oldest forms of business. If you are planning to start a sole proprietorship in New York then this is one state that provides everything from the right business climate to some of the best startup accelerators and incubators. The state is home to 2.3 million small businesses and offers a wide variety of incentive programs to sole proprietorships and other forms of small businesses.

What is a sole proprietorship in New York?

In order to start a sole proprietorship in New York, there are several aspects you have to consider like creating a proper business plan or getting a tax ID, or even obtaining the necessary business license. A sole proprietorship business as the name suggests consists of a single owner of the business. This type of business is also known as individual entrepreneurship, sole tradership, or just proprietorship. As a sole proprietorship business, it doesn’t have to be a one-man show as you can always hire employees. You can also form a sole proprietorship in NY online or offline.

Pros and cons of sole proprietorship in New York

A sole proprietorship is considered as an unincorporated business entity and because it is a single-owner type of business structure, the business and the owner are considered the same. There are several advantages that make it beneficial to file a sole proprietorship in NY State. This form of business also has certain disadvantages as compared to other business structures. So, let’s look at the pros and cons of a sole proprietorship.

Pros

• Simple and easy to form – This type of business formation doesn’t require much paperwork and you are not required to register the business with the New York Division of Corporations as compared to other business structures like LLC or a corporation.
• Lower cost of formation – You can start a sole proprietorship in New York with ease and even from your home or any commercial space or even a co-working hub. You can form a sole proprietorship in NY online or offline and have less capital requirements as well as lower annual compliances.
• Management decisions – Since this form of business is run by a single owner, all operations as well as management-related decisions will be made by the sole owner without any interference.
• No sharing of Profits – The profits earned by the business after you start a sole proprietorship in New York, will go to the owner or sole proprietor. Unlike some of the other forms of businesses, it is not split amongst members, partners, or shareholders.
• Simpler tax – When you form a sole proprietorship in NY online, you will not be required to file tax returns separately for your business. Instead, you will report the income earned on your own personal tax return.

Cons

• Unlimited liability – If you start a sole proprietorship in New York then the business and owner will be considered the same and hence there will be unlimited liability where debts are concerned. There will be no legal distinction between business and personal assets.
• Decision making – There are several advantages of being the sole owner but there is a disadvantage too. As the owner, you will be responsible for making all decisions as well as the operations and this can be tedious.
• Difficult to raise capital – When you form a sole proprietorship in NY online, one of the biggest disadvantages is raising capital. If you require startup capital or want funds for expansion it will be difficult to raise capital unlike in corporations where you can sell stock.
• Liquidation – One of the biggest disadvantages when you start a sole proprietorship in New York is liquidation. If the business owner passes away then unlike a corporation, the business will be liquidated.

Steps to Start a Sole Proprietorship in New York

If you want to start a business without any partners, all by yourself then it is time to file a sole proprietorship in NY State. The state of New York has different requirements for this type of a business structure and as the owner you will be required to fulfill them or be compliant with them. If you are wondering how to start a sole proprietorship in NY then just like any other form of business, there are several aspects and processes to consider. Let us look into these processes in detail as they will enable you to help set up the business and run it smoothly.

1. Prepare a business plan

A business plan is one of the most important areas to focus on before you file a sole proprietorship in NY State. A business plan is considered to be a strategic plan that encompasses marketing, sales, and finance. The role of a business plan is to help you identify the various aspects and areas of a business that you should prioritize. The process of preparing this document will require you to conduct in-depth market research, which will help in not only developing your business idea further but assist with how to start a sole proprietorship in NY, implement good practices and achieve higher growth and sustenance. Some of the components of a good business plan for a sole proprietorship include:

Components of a Business Plan

• Statement of Purpose (Mission Statement)
• Description of the Business
• Products or Services
• Personnel and management
• Insurance
• Methods of Record Keeping
• Marketing Plan
• Competition
• Methods of Distribution
• Summary of Financial Needs
• Financial goals and projections

2. Choose an NY business name

One of the important processes before you file a sole proprietorship in NY State is to identify a business name. It is important to ensure the name of your sole proprietorship is creative and distinct. Here are some tips that will help you in choosing a New York business name:

• Keep it as simple as possible and it should be easy to pronounce
• The business name should represent your business, products, or services
• Try to pick a name that is not limiting as your business may expand or grow in the future
• Conduct a business name search over the internet to get an idea
• Try choosing a name that conveys meaning and sounds positive
• Once you have identified a name, conduct a copyright or trademark search
• It is also important to ensure the availability of a domain name

3. Form the sole proprietorship

If you are planning to start a sole proprietorship in New York as a domestic or foreign entity then you will be required to file a Certificate of Assumed Name pursuant to NY Gen Bus L § 130 (2020). An assumed name is known as a New York DBA (Doing Business As) or a fictitious business name and without this, you will not be able to transact business in this state. You will have to file the Certificate of Assumed Name with the New York Department of State, Division of Corporations along with a $25 filing fee.

Do you want to form a sole proprietorship in New York?

4. File fictitious business name

Normally, sole proprietorships use a DBA also known as an assumed name as the business is not a separate legal entity from the owner. You will need to file a New York DBA only if you don’t want to conduct business under your own name.

For example: If an individual named Claude James wants to start a sporting goods store in New York, he can simply use his own name ‘Claude James.’ If he wants to name it Claude’s Sporting Goods and wants to do business under this name then he will need to file a New York DBA.

• You need to identify a name like Claude’s Sporting Goods depending on the primary business activity
• The business name should be kept simple and also relate to the product of services being offered like Mannie’s TV Repair
• Once you have identified a business name, you need to also conduct a New York DBA name search with the Trademark Electronic Search System (TESS) of the U.S. Patent & Trademark Office

5. Get an EIN

An EIN or Employer Identification Number is also known as the Federal Employer Identification Number (FEIN). It is a unique number that is assigned by the Internal Revenue Service (IRS) to business entities. If you file a sole proprietorship in NYS then ideally you will be filing taxes on your personal tax returns and hence will need a Social Security number (SSN). There are instances in which a sole proprietorship may be required to apply for and obtain an EIN. Such instances according to the IRS are:

• If the sole proprietorship business has employees
• If you have a Keogh plan
• As the owner, if you are going to be filing tax returns related to Employment, Excise, Tobacco, Alcohol, and Firearms
• If you form a sole proprietorship in NY online and it is categorized in special types of organizations like Non-profits, cooperatives, and Estates among others.

You can apply for an Employer Identification Number (EIN) before or after you file a sole proprietorship in NYS.

6. Obtain the necessary licenses and permits

Once you start a sole proprietorship in Texas, one of the foremost requirements is that of a business license. It is important to note that the state of New York does not require a license or permits to operate a sole proprietorship business but some professions may require state licensing. Some of the professions that require licensing after you form a sole proprietorship in NY online include:

• Legal
• Banking
• Architecture
• Pharmacy
• Insurance
• Public Accountancy
• Interior Design
• Athletic Training
• Dietetics-Nutrition
• Clinical Laboratory Technology
• Medicine
• Veterinary Medicine
• Social Work

7. Open a bank account for your New York business

A sole proprietorship business as the name suggests has a single owner. The taxes are also filed on the personal income tax return of the owner. Hence, it is very important to keep your personal gain and revenue generated by the business separately. This is possible if you start a business bank account. You can open this separate account before or after you start a sole proprietorship in New York.

• A business account will keep your business finances separate
• A checking account will keep your payments received or sent organized
• It will also organize accounting records and thus ensure a clear audit process
• It will ensure easy filing of your tax return
• Depending on the bank, you will be able to leverage overdraft protection

8. Report and pay taxes

When you file a sole proprietorship in NY State, you have to keep in mind that for tax purposes, you and your business are the same. As a result, you will not be required to file tax returns separately for your business. Instead, you will have to report the income earned through your personal tax return. You have to report all income earned during a year to the New York State Tax Department using a Federal 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship) form.

Ready to Start a Sole Proprietorship Business in New York

A sole proprietorship is one of the simplest forms of businesses that you can start. It is a type of unincorporated entity and you can start a sole proprietorship in New York without having to register with the Division of Corporations, NY State Department. If you are wondering how to start a sole proprietorship in NY then IncParadise can provide you assistance regarding the formation of your new business in NY.