Once you’ve decided to start a business, you have a series of other important decisions to make, including what the structure will be. As a sole proprietor, you are the sole person affiliated with your business. While this is a simple structure, there are still formal processes you must follow to get your business set up in Florida.
This guide will explain what a sole proprietorship is, how it differs from other business structures, and provide instructions for business owners to set one up in the Sunshine State.
What is a sole proprietorship?
A sole proprietorship is a business entity that refers to a business that is unincorporated and has a single owner. This is the simplest possible structure to set up a business. While there can only be one owner, a sole proprietorship can have employees and obtain an Employer Identification Number (EIN).
As a sole proprietor, your business profits are taxed as a part of your personal income. This makes the process simple, but can also expose you to personal liability in some cases.
How to set up a sole proprietorship in Florida
1. Choose your business name
Florida law allows you to operate a sole proprietorship under a name other than your own. While you can use your name, most people choose a specific business name. If you want to do this, you should first search the Florida Department of State’s website to see if the name you chose is taken or if something similar exists.
State laws require the name of your business to be unique, and you may want to check the U.S. Patent and Trademark Office’s website to ensure you don’t face trademark infringement issues.
2. File a trade name
If you do use a name that is different from your legal name, Florida requires you to register the trade name. You can do this by mailing the Trade Name Form to the Department of State or using the Online Fictitious Name Registration form.
There is a $50 filing fee if you decide to operate under a trade name. You will also be required to publish the name in a local newspaper within the county where your business will operate as a “legal notice of intent to file a fictitious business name”. This newspaper must meet certain requirements such as being at least 25% in English and published at least once per week.
3. Obtain licenses, permits, and zoning clearance if needed
Depending on the industry of your business, you may need to obtain a variety of business licenses or permits. This is managed by the Florida Department of Business and Professional Regulation (DBPR), though some areas like health care are licensed by independent areas.
You should also explore local regulations like building permits and zoning clearances where appropriate.
4. Obtain an Employer Identification Number (EIN)
If you’re planning a new hire, you need to obtain an EIN. This nine-digit number is issued by the IRS and used for tax purposes when you need to report wages. You can file for an EIN online through the IRS website.
If you do not have employees, you can use your Social Security Number to file taxes and are not required to have an EIN. However, some banks will require new business owners to have an EIN to open a business bank account, so you may want one anyway.
How is a sole proprietorship different from an LLC?
A Florida LLC is a limited liability company that can be formed by one or multiple people. The primary difference in an LLC is that it is a separate legal entity from the owner. In other words, your business and your personal assets are separate. With an LLC, taxes are filed separately and the business’ liability does not translate to the owner.
Setting up a sole proprietorship is simpler than setting up an LLC because it does not have the same business tax implications.
If you’re freelancing, you might wonder if you need to set up a sole prop. If you plan to hire freelancers, then yes. To hire others, you need a business structure like a sole proprietorship.
If you don’t plan to hire anyone, you can continue to freelance and pay taxes on the income without setting up a sole prop.
Best LLC services
What are the benefits of being a sole proprietor in Florida?
Simple way to start a business
Florida sole proprietorships are incredibly easy to set up and do not require any filing process or fees at the outset. In fact, if you have done any freelance work or made money through a side hustle, you are technically operating a sole proprietorship. The simple and inexpensive start means you can quickly legitimize any business you are doing by opening a bank account and distributing formal marketing materials.
Your business remains yours
As the owner of a sole proprietorship, you have complete control of your business. Decisions will not need to take into account legal partners, shareholders, or partners, giving you the freedom to change your course or adjust as you learn about your business.
Since this structure is often used for new businesses, this is a great way to try out an idea and make changes before you have to manage formal rules or expectations.
Easy transition to a corporation
Starting a business as a sole proprietor does not mean you will have to operate that way through the life of your business. At any time, you can convert a business to an LLC, corporation, or general partnership with the right paperwork and process. This allows you to feel out your business and settle on a model before you move to a corporate structure.
Many large companies started this way. eBay, for example, started as a sole proprietorship called Auction Web. By the time the owner, Pierre Omidyar, incorporated the business he changed the name to eBay.
How are sole proprietors taxed in Florida?
With this type of business, taxes are a part of the personal tax return of each owner. Business profit is calculated and reported on a Schedule C form which is for Profit or Loss from Small Business.
A Schedule C will calculate the income of the business, including all income and expenses, along with the costs of goods sold and costs for home-based businesses. The rest of the calculation is the net income, which is the amount of taxable business income.
This net income is entered on the Schedule C and included with other income and losses the owner (and their spouse) reports for the purpose of income taxes. If the business is operating at a loss, it could be used to reduce the total adjusted gross income of the owner.
The owner then pays income tax on all of the income listed on their personal return, including income from business activity at the applicable rate for the year.
Keep in mind that Florida does not have a state income tax, but this will still apply to federal taxes.
Even though there is no state tax, sole proprietorships need to register with the Florida Department of Revenue.
As a self-employed individual, there are additional taxes necessary to pay. Based on the business’ income, the sole proprietor must pay Social Security and Medicare taxes. If the business operates at a loss, the tax is not payable, but you will not receive benefit credits for that year.
There may be other employment taxes and property taxes that are applicable.
You are not required to register a sole proprietorship with the state. However, if you want to operate under a name other than your own, you will have to register that trade name through the state and pay a $50 filing fee.
Because you do not need to file any legal documents, there is no need for a lawyer when setting up your sole proprietorship in Florida. If you are concerned about taxes or permits, you may seek legal advice or accounting advice to make sure everything is done properly, but this is not required.
A sole proprietorship that employs people other than the owner does not need to obtain an Employer Identification Number as the taxes will be filed under their personal Social Security Number.
Sole prop owners can still file for an EIN and use it to do things like open a bank account.
If there are any additional employees, an EIN will be required to report wages.
Florida does not require an operating agreement in order to create a sole proprietorship. However, it is still good practice to have an agreement in place for personal and business use.
Unlike other forms of business, a sole proprietorship does not protect the owner’s personal assets. They will remain liable for any debts or judgments in the name of the business. A collector could seize personal items and funds if anything were to be owed by the business.
Since a sole proprietorship is not incorporated and does not need to be registered through the state, there is no requirement for a registered agent.
If you wish to operate your business under a name other than your legal name, then you must be registered under a fictitious name. This is also known as a DBA, or “Doing Business As”. Though you do not need to register a sole proprietorship with the state, it is required to register a trade name if you choose to do this.
While any business can be started as a sole proprietorship, it is a better fit for certain industries. Freelance work and side hustles are common businesses that fit this model, while large organizations with shareholders may be a better fit for other structures.
A sole proprietorship has a single owner and cannot share this responsibility, but they are able to hire employees as well as work with independent contractors.
If you hire people, you need to obtain an Employer Identification Number and report wages to the IRS.
If you choose to use a DBA or fictitious name for a sole proprietorship, there are a number of words that cannot be part of the name. This includes phrases that indicate a different business structure: LLC, Incorporated, Corp, etc. You may also not use names associated with financial institutions: bank, banker, trust, savings, etc.