Steps to Start Sole Proprietorship in North Carolina
If you want to start a new business but don’t want any partners or want to remain self-employed, then it is time to file for a sole proprietorship in NC. The state of North Carolina has different requirements for this type of business and as the owner you will be required to fulfill them. You will also need to focus on several other responsibilities for the business like banking accounts, the North Carolina assumed name certificate, and reporting and paying state taxes. Let us take a detailed look into each process that is crucial for the sustenance, successful operations, and growth of the business.
1. Prepare a business plan
If you’re wondering how to start a sole proprietorship in NC then the first step would be to prepare a strong business plan. A business plan is also known as an operational plan that takes into consideration a wide variety of factors like the market, the target audience, the location, and the finances among others. The importance of this type of plan lies in the fact that it will help provide direction for the company to meet its short-term and long-term objectives. If you’ve chosen to start a sole proprietorship in North Carolina then your business plan should include the following:
- Mission Statement (Statement Of Purpose)
- Description of the company or business
- Customer demographics
- Products or Services
- Marketing Plan
- Record Keeping
- SWOT Analysis
- Distribution, Promotion, and Pricing
- Financial goals and projections
2. Choose a North Carolina business name
A business name is the identity of the company and the single most important detail for any form of business. If you want to start a sole proprietorship in North Carolina, you will need to choose a unique business name. It is important to carefully consider a name as it will be used in all types of business collateral, banking, domain name, website, and branding. Here are some tips that will help you with choosing the right name for your sole proprietorship:
- Following North Carolina’s naming guidelines is important when choosing a business name
- The state may also have a list of names that you are prohibited from using
- Never choose a name that is similar to that of a competitor
- Keep the name as simple as possible
- The name should be easy to pronounce and spell
- The name you choose should not have any trademark infringement
- Ensure that the business name is web-friendly
- It should be consistent with your product, services, or brand
3. File Assumed business name
There are certain state and legal requirements associated with a sole proprietorship, which you will need to fulfill. One such requirement is that of an assumed name also known as a DBA (Doing Business As). Not every business is required to apply for a DBA. You only need to apply for a North Carolina assumed name certificate if you don’t want to conduct business under your own name. Let’s look at an example to understand how the assumed name works.
For example: If an individual named Walter Betty wants to start a sole proprietorship in North Carolina as a coffee store then can simply use his own name ‘Walter Betty Coffee’. If he wants to name it Walter’s Coffee and wants to do business under this name then he will need to apply for a North Carolina assumed name certificate pursuant to NC Gen Stat § 66-71.2 (2020). After creating this name, he needs to conduct an Assumed Business Name search to check its availability. If the DBA name is available then he can apply for a DBA.
Apart from the assumed name search, you need to also conduct a DBA name search with the Trademark Electronic Search System (TESS) of the U.S. Patent & Trademark Office. This ensures that there is no trademark infringement. It is important to note that you cannot engage in any business in the state before applying for the assumed name certificate pursuant to NC Gen Stat § 66-71.4 (2020). The North Carolina assumed name certificate will be valid for a period of 5 years after which you will need to renew it.
Thinking of starting a sole proprietorship in North Carolina?
4. Get EIN
An Employer Identification Number (EIN) is also known as the Federal Employer Identification Number (FEIN). This unique number is considered to be a valid tax ID number and is assigned to businesses by the Internal Revenue Service (IRS). If you start a sole proprietorship in North Carolina then you will have to file taxes on your personal tax returns. This is possible using a Social Security number (SSN), but there are certain scenarios in which a sole proprietorship firm may be required to apply for and obtain an EIN. Instances in which your firm will have to apply for EIN according to the IRS include:
- If you have hired employees in your sole proprietorship firm
- If you have a Keogh plan (tax-deferred pension plan) or a Solo 401(k) retirement plan
- If you buy or inherit an existing company
- If you change the entity structure from sole proprietorship to LLC or corporation
5. Obtain necessary licenses and permits
Once you start a sole proprietorship in North Carolina, one of the foremost requirements is to acquire a business license. North Carolina doesn’t have a general business license for all businesses but there are industry specific licenses. It is essential for sole proprietors to check state-level requirements as well as county requirements where licensing and permits are concerned. When you search sole proprietorship in North Carolina for licenses, it will reveal occupational permits and professional licenses. You may also require local zoning and building permits. If you feel the process to identify the right business license is complex then our Business License Research Report service can help you. This is a detailed research report that contains a list of filing instructions, supporting document requirements, and fees for all business licenses and permits for your sole proprietorship business in NC.
6. Open a bank account for your North Carolina business
Once you file a sole proprietorship in NC and obtain necessary licenses and permits, you will be able to transact in the state. One problem that many sole proprietors face is the inability to maintain proper accounts. This confusion happens when personal banking accounts are used for business transactions. Therefore, it is very important to keep your personal gain separate from the revenue generated by the company. The importance of a business bank account lies in the fact that it will keep all business finances separate. It will help by keeping accounting records organized thus ensuring that you can file your tax return easily.
Alternatively, you can also open an account online with Cheqly. It is a neo-bank for startups that operates as any normal US business bank account. You can receive and make payments with ease and will also be able to use physical & virtual debit cards.
7. Report and pay taxes
One of the important facets of how to start a sole proprietorship in NC is filing taxes. This is an annual requirement for all forms of businesses. The taxes for a sole proprietorship firm will be different from that of any other business structure. Since this type of company is operated by an individual, the owner will have to report their income earned using their personal tax return. You will be required to report all income earned during a year using the Individual Estimated Income Tax Form NC-40. The tax rate is flat 4.75% of North Carolina Taxable Income. When you file a sole proprietorship in NC, you may be required to collect state sales taxes if your company is selling goods or products in the state. You can visit the website of North Carolina Department of Revenue (NCDOR) for more information on other applicable taxes.