In Arizona, you can establish a sole proprietorship without filing any legal documents with the Arizona Secretary of State. There are four simple steps you should take:
- Choose a business name.
- File a trade name with the Secretary of State (optional).
- Obtain licenses, permits, and zoning clearance.
- Obtain an Employer Identification Number.
1. Choose a Business Name
In Arizona, a sole proprietor may use his or her own given name or may use an assumed name. It is always a good idea to choose a name that is not too similar to another registered business because of common and federal law trademark protections. To make sure your business name is available, run a search in the following government databases:
- Arizona Secretary of State (Search under registered name)
- U.S. Patent & Trademark Office: (Click on the TESS link under Tools.)
- The county recorder’s office where you plan to do business.
2. File a Trade Name
If you use a business name that is different from your legal name, Arizona does not require you to register the trade name, however, it is an acceptable business practice to do so. Business owners can file an application to register their trade name with the Arizona Secretary of State. The trade name must be distinguishable from other registered business names. The filing fee is $10. Visit the trade name section of the Arizona Secretary of State website for more information. In addition to filing with the Arizona Secretary of State you can also file a certificate of fictitious name with the county recorder’s office in the county where you do business. Check with the Arizona Secretary of State county recorders database for a list of county contact information and websites.
3. Obtain Licenses, Permits, and Zoning Clearance
Your business may need to obtain a variety of licenses and permits depending on its business activities. Arizona provides a comprehensive database of every license and permit that may be required by any sole proprietorship. A business can obtain this information by going to the Arizona Commerce Authority website. In addition, Arizona state agencies oversee the licensing of various occupations. A complete list of occupations and license requirements is available on the Arizona State website. Finally, local regulations, including building permits and zoning clearances, may apply to your business. You should check with your city or county clerk or licensing department.
4. Obtain an Employer Identification Number
Sole proprietors who wish to have employees need to obtain an Employer Identification Number, or EIN. This is a nine digit number issued by the IRS for tax reporting purposes. All businesses with employees are required to report wages to the IRS using their EIN. Registering for an EIN can be done online at the IRS website.
Sole proprietors without employees are not required to have an EIN because they can use their Social Security number to report taxes. Nevertheless, you may want to obtain one anyway for your business. Some banks require one to open a bank account and it can reduce the risk of identity theft.
In Arizona, businesses that hire employees must report new hires within 20 days of the start date. You have the option of using your social security number or EIN when registering to file this report. For more information and to register, see the Arizona Department of Revenue.
It is important to consider doing the following once you have established your sole proprietorship:
- Open a business bank account. Using your fictitious business name and EIN, you should set up a bank account to keep your business and personal finances separate.
- Obtain general liability insurance. Because sole proprietors are personally liable for all debts and obligations of the business, a business liability insurance policy may be the only form of financial protection against unforeseen events.
- Report and pay taxes. Depending on your specific business activities, you may be required to report such items as sales tax and use tax. The Arizona Commerce Authority publishes comprehensive information addressing Arizona taxes for business. Visit their website for more information.