How to Establish a Sole Proprietorship in Delaware
To establish a sole proprietorship in Delaware, here's everything you need to know.
In Delaware, you can establish a sole proprietorship without filing any legal documents with the Delaware Secretary of State. There are four simple steps you should take:
- Choose a business name.
- File a trade name with the Superior Court.
- Obtain licenses, permits, and zoning clearance.
- Obtain an Employer Identification Number.
To find out how to establish a sole proprietorship in any other state, see Nolo’s 50-State Guide to Establishing a Sole Proprietorship.
1. Choose a Business Name
In Delaware, 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:
- Delaware Secretary of State
- U.S. Patent & Trademark Office: (Click on the TESS link under Tools.)
- Delaware State Court - Trade Name Search
2. File a Trade Name
If you use a business name that is different from your legal name, Delaware requires you to register the trade name. You can file an application to register your trade name with the Prothonotary’s office, which is in the Superior Court of each county where you do business. Registration applications must be notarized. It is also important to make your business name distinguishable from other registered business names. The filing fee is $25. You can download the Trade Name Certificate and file it with the clerk.
3. Obtain Licenses, Permits, and Zoning Clearance
Your business may need to obtain a variety of licenses and permits depending on its business activities. All Delaware businesses must obtain a Delaware business license. Delaware provides a one-stop online registration tool to help new sole proprietors get the appropriate licenses and permits. A business can register for all necessary licenses by going to the Delaware One-Stop Registration. A complete list of business licenses and associated fees is available on the Delaware State website as well as a flowchart for new business registration. In addition, local regulations, including building permits and zoning clearances, may apply to your business. You should check with your city and county governments for more information.
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 Delaware, businesses that hire employees must register with the Delaware Department of Labor and the Division of Worker’s Compensation. You will need to use your EIN when registering your business through the Delaware One-Stop Registration.
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 Delaware Department of Finance publishes comprehensive information addressing Delaware taxes for business. For detailed tax information for Delaware businesses, you can review the Delaware Department of Revenue website under Services for Business Taxpayers.