Steps to Start Sole Proprietorship in Pennsylvania
If you’re wondering how to start a sole proprietorship in PA, there are certain requirements that you need to comply with first. When you form a new company, however big or small, there are some basic areas to focus on, including operations, management, and finance. Apart from this, there are state and business requirements that one needs to fulfill to run a successful company such as business licenses and filing of taxes. Let’s look at the important areas to focus on when starting a sole proprietorship in Pennsylvania.
1. Prepare a business plan
The first step when you’re ready to file a sole proprietorship in PA, is to formulate a strong business plan. The beginning phases of getting your company started will include risks, but following a solid and well-thought-out business plan will lead to long-term rewards. A business plan will help you to identify and mitigate most risks. This type of plan is referred to as a roadmap that takes factors that may impact the business negatively or positively into consideration, such as market challenges and day-to-day operations. This plan is a blue-print for your business operations. It will help you set objectives, maximize resource allocation, and help you make better decisions. Some of the most common features of a sole proprietorship business plan are:
- Executive summary
- Company description and business concept
- Long and short-term objectives
- Product and services
- Target audience
- Competition and market analysis
- Operating plan
- Marketing plan and sales tactics
- SWOT analysis
- Financial plan and projection
2. Choose a Pennsylvania business name
If you are planning to form a sole proprietorship in Pennsylvania online, then one of the first requirements is to choose a business name. The sole proprietorship name will help your company to stand out from the crowd of competition. It will also aid in communicating the objectives of your company, and the nature of the business activity to current and potential clients. The business name will also be the focal point of your entire brand and marketing strategy. Here are some easy tips to follow when choosing a name for your company:
- Follow Pennsylvania state’s naming guidelines
- The chosen name should not be similar to the name of your competitors
- Try to avoid company names that are hard to pronounce or spell
- The chosen name should be easy to remember
- You should consider your target audience when choosing a name
- When you think of a name, make sure that it is appropriate and remains relevant as the business grows and evolves
- Be sure to check the name availability as a domain name for your website
- You can get help from online business name generators for creating short names
3. File fictitious business name
If you want to start a sole proprietorship in Pennsylvania then you need to identify a business name. There are two types of available company name options which include:
- You can use your full legal name as the company name
- You can register a fictitious business name also known as a Pennsylvania DBA
A fictitious business name or DBA (doing business as) is also known as a trade name and an assumed name. This type of company name is chosen by sole proprietors who don’t want to use their full legal name. It’s important to note that a DBA is not considered to be a legal entity. Let’s look at an example to understand this.
Example: Your name is David Jackson and you want to file a sole proprietorship in PA as a Marketing Consultant. You can use your own name like ‘David Jackson Consulting.’ Alternatively, you can choose to use a business name like “David’s Consulting”. Here, David’s Consulting will be considered as a fictitious business name or Pennsylvania DBA. You will have to conduct a name availability search for a DBA prior to registration.
If the said business name is available then you can file the Fictitious Name Registration form along with a fee of $70, pursuant to 54 PA Cons Stat § 311 (2020). The Pennsylvania DBA application has to be filed with the Pennsylvania Department of State, Bureau of Corporations and Charitable Organization. You will also have to “officially publish” a notice that states your filing or intention to file for the registration of the chosen fictitious name. We, at IncParadise can help you apply for your Pennsylvania DBA name with ease.
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4. Get EIN
When you start a sole proprietorship in Pennsylvania, you will be required to file personal income taxes, as well as state taxes for any other state you do business in. The owner of a sole proprietorship can typically file income taxes using a Social Security Number (SSN), but opting for an Employer Identification Number (EIN) can be highly beneficial. The criteria for applying for an EIN include:
- When a sole proprietorship company hires employees
- The company plans to open a business bank account
- If you have a Keogh plan
- You have to file 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
You can apply for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS) by filing an SS-4 form.
5. Obtain necessary licenses and permits
If you are wondering how to start a sole proprietorship in PA, one of the most important aspects to consider is the type of licenses required for your company. The primary objective for licensing for a sole proprietorship is to ensure that such a company is safe for the public, such as the cleanliness in food service establishments or the safety of new medications. If you file a sole proprietorship in PA, you will need the proper licenses and permits to become and remain operational.
Business licensing in the state of Pennsylvania can be categorized under:
- Professional licenses
- Industry or activity based-licenses
- City or County licenses and permits
- Regulated licenses
- Zoning permits
When you start a sole proprietorship in Pennsylvania, your company may require a single business license or several licenses and permits. These licenses are issued by different authorities depending on the type of license.
Example: You form a sole proprietorship in Pennsylvania online and the company is a retail food establishment like a convenience store situated in Philadelphia. You will need to obtain a Food Preparation and Serving License from the Department of Licenses and Inspections (L&I), City of Philadelphia. Apart from this license, you may need to apply for a Zoning and Use Registration Permit, a Pennsylvania liquor license (if alcohol has to be served), and a Commercial Activity License. The fee would vary according to the total square area like $220 for up to 5,000 sq. ft. You will also need to obtain a Plan Review and License Eligibility Report (LER) issued by the Philadelphia Department of Public Health.
Figuring out which licenses you need and applying for them may seem like an extremely daunting task. At IncParadise we’ve made this task easier by offering our Business License Research Report service. This is a detailed research report that contains a list of filing instructions, supporting document requirements, and fees for all business licenses and permits.
6. Open a bank account for your Pennsylvania business
A sole proprietorship structure is easy to form, but you will need to maintain compliance with all Pennsylvania state requirements to remain operational in the state. Aside from applying for a Pennsylvania DBA, another important requirement is opening a bank account for your business. Although they may look and function similarly, this account will be separate from your personal savings or checking account. The primary advantage of most business bank accounts is to help you manage all of your business finances. If you operate a personal account then you may find that managing personal and business earnings and expenses together can be difficult and confusing. Using a business checking account to keep your funds separate will also help limit your personal liability.
You can now open a business account online and remotely with Cheqly. By using the onboarding interface, you can start this account quickly with ease. Cheqly is our partner organization that offers banking access to businesses anywhere in the USA. This Neobank for startups is a US-based bank account with no minimum balance and FDIC insurance requirements.
7. Report and pay taxes
In the state of Pennsylvania, different business structures have different tax requirements and they are mostly determined by the entity structure and business activity. If you start a sole proprietorship in Pennsylvania, you will be required to file personal state income taxes at a rate of 3.07%. Apart from this, you may be required to file sales taxes and employer withholding taxes. If your business activity focuses on selling certain products or services, then you will have to submit the PA-100 form (Pennsylvania Enterprise Registration Form). This will provide you with a tax account number for sales taxes, Employer Withholding Taxes, Use Taxes, and Specific products taxes.