How to Establish a Sole Proprietorship in Arkansas
To establish a sole proprietorship in Arkansas, here's everything you need to know.
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In Arkansas, you can establish a sole proprietorship without filing any legal documents with the Arkansas Secretary of State. There are four simple steps you should take:
1. Choose a business name.
2. File a certificate for doing business under an assumed name.
3. Obtain licenses, permits, and zoning clearance.
4. Obtain an Employer Identification Number.
1. Choose a Business Name
In Arkansas, 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:
- U.S. Patent & Trademark Office: (Click on the TESS link under Tools.)
2. File an Assumed Name Certificate
If you use a business name that is different from your legal name, Arkansas requires you to file a certificate for doing business under an assumed name with the office of the county clerk where you plan to do business. Business owners must file this statement prior to the business start date. The certificate must be notarized and the filing fee is $25. Filing can be done in person or by traditional mail. Serious penalties can be levied against business owners who do not register their trade name including a monetary penalty of up to $100 per day.
3. Obtain Licenses, Permits, and Zoning Clearance
Your business may need to obtain a variety of licenses and permits depending on its business activities. Arkansas provides a comprehensive list of every professional license that may be required by any type of business. You can obtain this information by going to the Licensing Section of the Arkansas State website. Certain business activities require permits that may be obtained through the online business services section of the Arkansas State website. Additionally, local regulations may apply to your business. For instance, most cities in the state of Arkansas require businesses to obtain a business license in order to carry on a business within the city limits. 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 Arkansas, businesses that have employees are required to withhold tax from wages and remit monthly payments to the Arkansas Department of Finance and Administration. You can register to pay taxes online at the Arkansas Department of Finance
As an employer in Arkansas you should be aware of all relevant tax issues related to your employees. For more information on being a Arkansas employer, see the Starting a Business in Arkansas brochure available on the State of Arkansas website under Business.
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 Arkansas Department of Finance oversees and collects these taxes. Visit their website for more information.