How to start a sole proprietorship in Washington?
One of the most common and simplest business structures to form, in the world, is a sole proprietorship. Most home business owners prefer to start a sole proprietorship in Washington as compared to other entity structures. The operational and business aspect of this business structure is different from an LLC or a corporation. This guide has been created to provide you with an insight into how to start a sole proprietorship in Washington and understand its many characteristics like business plans, business names, licenses and permits, and bank accounts among others.
Sole Proprietorship in Washington
Washington is home to over 600,000 small businesses spread over a diverse umbrella of industries from Aerospace, to clean technology, manufacturing, information and communication technology, e-commerce, and global health among others. The state provides a strong infrastructure, commercial spaces, startup hubs, and loans and grants that will help you to start a sole proprietorship in Washington with ease. The state also offers small business assistance through many state-governed programs including business incentive programs.
What is a sole proprietorship in Washington?
Filing a sole proprietorship in Washington refers to operating an individual entrepreneurship or sole tradership. It is a company or enterprise that is owned as well as operated by a single individual. This individual is also responsible for all business assets, as well as profits and liabilities. A sole proprietorship also has a different tax structure as compared to other businesses like a corporation. If you want to know how to start a sole proprietorship in Washington then it’s important to identify the various characteristics of this particular entity.
Important features of sole proprietorship in Washington
First time business owners normally prefer to start a sole proprietorship in Washington due to its salient benefits and several features. Some of the key features are:
- It works well for small entities including home-based businesses as well as medium-sized enterprises.
- There is no requirement for registering a sole proprietorship in Washington with the office of the Secretary of State. Therefore, it is not required to file any type of new business formation documents.
- A sole proprietorship business is also known as a sole-owner business, meaning the business and the owner are considered as one.
- Filing a sole proprietorship in Washington means that any, and all financial, management, and operational decisions will be made by the owner. One of the benefits is that no one else can interfere with these decisions.
- The tax structure of a sole proprietorship is different from other structures. It has to be filed through the owner’s income tax return.
- Registering sole proprietorship in Washington also equates to unlimited liability. This simply means that the owner will be liable for any losses or debts.
- The process of dissolution for a sole proprietorship is also simple.
Are you ready to start a sole proprietorship in Washington?
Steps to Start Sole Proprietorship in Washington
If you intend to start a sole proprietorship in Washington then you must start by identifying the various business requirements. You will need to focus on the financial and management aspect of the business. You will also need to consider several of the state-based requirements like tax IDs and business licenses. If you are wondering how to start a sole proprietorship in Washington, these steps will help you get started and continue to run the business smoothly.
1. Prepare a business plan
When thinking of filing a sole proprietorship in Washington, one of the first details to focus on is creating a proper business plan. This plan focuses on several major elements that will aid in the overall growth of the business. It will provide you with a clear visual path regarding finance, budgeting, marketing, prospective markets, customer base, and state requirements among other details. Different types of businesses have different requirements and plan components. Some of the most common facets of a general business plan are:
- Executive Summary
- Company Description and Objectives
- Industry and Market
- Direct and indirect competitors
- Chain of command or Management
- Details of Products or services
- Marketing Plan
- Sales Plan
- Funding Plan
- Financial Projection
2. Choose a Washington business name
When you start a sole proprietorship in Washington, you must choose a business name. Creating a company name is important because it helps to create a professional identity and communicate the nature of the business and its objectives to customers, partners, and vendors among others.
A sole proprietorship is a type of business where the business name is usually the personal name or the name of the owner. You can conduct a sole proprietorship Washington search to check the names available for use, or to identify if your chosen name is unique or not. Some focal points to consider while choosing a company name are:
- Keep the business name as simple as possible
- The company name should represent your product or service like “Steven Johnson Sportswear”
- Conduct a copyright or trademark search for the chosen name
- If you plan to create a website, check for domain name availability
3. File for a Trade name
If you are thinking of filing a sole proprietorship in Washington, you will have two options available when it comes to choosing a company name. They are:
- The full legal name of the owner can be used as a company name
- Alternatively, you can register a trade name
A trade name is often referred to as a “doing business as” (DBA) name, a fictitious name, or an assumed name. It is a company name that is any name other than the full legal name of the owner. You have to register a trade name pursuant to RCW 19.80.10.
For example: IF your name is Susan Wright and you want to start a sole proprietorship in Washington as a Yoga Studio. You can use your own name like ‘Susan Wright Yoga.’ Alternatively, if you use a name like “Susan’s Master Yoga” then it will be considered a DBA or trade name. In this situation, you will need to conduct a sole proprietorship Washington search to determine availability and then register the trade name.
You can file for a trade name online with the Online Business Licensing Service. We, at IncParadise can also help you with the process of filing your trade name in Washington.
4. Get an EIN
An EIN or Employer Identification Number is required for most businesses, mostly for tax purposes or opening a business bank account. When you start a sole proprietorship in Washington, you will be required to file your income and expenses through an individual tax return using your Social Security number (SSN). You can also apply for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS). As a sole proprietor, you will need an EIN if you meet the following conditions:
- If you hire employees
- When you open a business bank account
- A Keogh plan for an unincorporated business or are self-employed
- For filing excise tax returns
- Filing Chapter 7 (liquidation) or Chapter 11 (reorganization) bankruptcy
- If you change or convert the entity structure from a sole proprietorship to an LLC or partnership
5. Obtain the necessary licenses and permits
If you are interested in filing a sole proprietorship in Washington, then you must fulfill certain state requirements. Filing for a business license and permit is one of the most vital requirements. Obtaining the right license your business will allow your business to become and remain operational. Business licensing in the state can be categorized as:
- A state business license
- Professional or regulated licensing
- City or County licenses and permits
- Zoning permits
To start a sole proprietorship in Washington, your business may require any one of the above or all of the above licenses. Whether or not you require these licenses will depend on the business profession, business activity, and the city where your company is located.
The licenses and permits are issued by different agencies. The state business license is issued by the Department of Revenue (DOR) while a city license would be issued by the city licensing administration. Identifying the right licenses can be a complicated task, this is where our Business License Research Report service can provide the necessary guidance and aid. This research report contains a detailed list of filing instructions, supporting document requirements, and fees for all business licenses and permits necessary for your sole proprietorship business in Washington.
6. Open a bank account for your Washington business
Sole traders or proprietors often feel as though they don’t require a separate business account for banking purposes. Having a business bank account has its advantages especially when it comes to managing finances. Opening a business banking account is an ideal professional decision because they have been specifically designed to serve the financial and accounting requirements of a business.
You can open a business or checking account before or after you start a sole proprietorship in Washington. The greatest benefit is that it will help make organizing your finances easier. These accounts allow you to view your balance, track your expenses and income, and check outstanding payments. A business bank account also helps build your business credit rating.
7. Report and pay taxes
Since a sole proprietorship is operated by a single owner, it is considered an unincorporated business for tax purposes. Normally, the owner of this type of entity has to file personal income tax but Washington State doesn’t have any personal or business income tax. Therefore, if you start a sole proprietorship in Washington then you will be required to file sales and use tax in the state depending on your business activity and the location of your company.
Example: If you start your company in Seattle then the combined sales tax rate would be .101, but if you are based in Vancouver then the rate would be .084. The combined tax rate includes local and state sales tax.
After registering a sole proprietorship in Washington, if it is involved in retail sales or the sale of tangible personal property then a retail sales tax will be levied. It also includes the sale of services like cleaning, repair, and recreational services among others. The use tax is applicable only for the use of goods as well as certain services.
Ready to Start a Sole Proprietorship Business in Washington?
A sole proprietorship, one of the simplest business structures, is well favored amongst first-time business owners. If you are wondering how to start a sole proprietorship in Washington then you will be happy to know that you are not required to submit any paperwork with the office of the Secretary of State. Although there is no registration process; paperwork and documentation will be required for making the company operational. This is where IncParadise can provide guidance and expertise to help you start a sole proprietorship in Washington with ease.
Once you form a new business in Washington, there are certain state guidelines and annual requirements that you may be required to fulfill. This is why IncParadise provides a wide variety of additional services like filing a DBA, and getting an EIN, among others.