How to Establish a Sole Proprietorship in Iowa

If you've started selling your homemade jewelry online or running personal training sessions out of your garage, you've likely formed a sole proprietorship already—and you're not alone. When an individual starts a business (sells goods or services) and that person hasn't filed any legal documents with the state officially registering the business, then the person has automatically created a sole proprietorship.

A sole proprietorship is low maintenance. It doesn't typically require you to file any creation documents or submit renewal filings or fees, and you can usually report your income on your personal tax return. But sole proprietors are personally liable for the business's debts and obligations, so you might need to dip into your personal funds to satisfy any debts your business can't pay.

In Iowa, you can establish a sole proprietorship without filing any legal documents with the Iowa state government. Though no action is required to legally create a sole proprietorship, you should follow four simple steps to start your business:

1. Choose a business name.
2. File a trade name with your county recorder's office.
3. Apply for licenses, permits, and zoning clearance.
4. Obtain an employer identification number (EIN).

For more information, read our article on how to start a business in Iowa.

1. Choose a Business Name

As a sole proprietor in Iowa, you can use your own legal name or a trade name—also known as a "fictitious name" or "DBA" (for "doing business as"). If you plan to use a trade name for your business, you should avoid using the same name as any other business currently registered with the state.

It's also a good idea to choose a name that's not too similar to another registered business to avoid trademark infringement. Under trademark law, your trade name can't be used by someone else in a way that would cause confusion among consumers. So, if you use a name that's the same as or too similar to someone else's trademark and you both provide similar goods or services, then you could be infringing on their trademark. If you find a competitor company already exists with a similar name, then it's best to choose another name.

For example, suppose you want to operate a food truck selling corn-based snacks under the name "Fields of Corn Snacks." In the next town over, there's a restaurant called "Corn Fields Snack Shop" that's been in business for years. Because your food truck would have a similar name to a restaurant that already exists, you should choose a different name

To make sure your business name is available, you should run a search in the following government databases:

• any county where you plan to do business—for example, Polk County has a link to its indexed records
• Iowa Secretary of State business entities search; and
• United States Patent and Trademark Office's Trademark Electronic Search System.

(For more information, read our FAQ on choosing and registering a business name.)

2. File a Trade Name With Your County

If you use a business name that's different from your legal name, Iowa requires you to register your business name with the county record of the county where you do business. (Iowa Code § 547.1 (2023).)

For instance, suppose Roger Leeds makes and sells sculptures under the name Elephant's Eye Standing Artwork. Because Roger's business name, Elephant's Eye Standing Artwork, isn't the same as his legal name, he'll need to register his business name.

File your trade name form with the county recorder where you do business. Many county websites have a link where you can download the form—for example, Scott County and Jasper County both have forms. You'll need the form notarized when you sign it. As of 2023, the county recording fee generally is $5 per page. But this fee can vary by county.

3. Apply for Licenses, Permits, and Zoning Clearance

Iowa doesn't require a general business license. However, depending on your business activities, you could need to apply for business or professional licenses. The Iowa Business License Information Center provides comprehensive guidance about many business licenses. You can search by:

• business type
• topic inquiry
• department, and
• popular licenses.

The Department of Revenue's permit registration website also has useful information. Your business will need to apply for a separate permit for the following tax types:

• sales and use tax
• household hazardous materials
• withholding tax
• water service excise tax, and
• fuel tax.

The state's Workforce Development department provides licensing information for occupations. On its website, you can find information on each license's exam and certification requirements, license authority, and associated contact information.

The Professional Licensing Bureau provides information regarding professional licenses, such as for accountants, architects, surveyors, interior designers, and real estate professionals.

You might also need to comply with local regulations, building permits, and zoning laws. Check with your city and county governments for more information.

4. Obtain an EIN

Sole proprietors who wish to have employees need to obtain an 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 an EIN. You can register for an EIN online with the IRS.

Sole proprietors without employees aren't required to have an EIN. Instead, you can use your Social Security number to report taxes. Nevertheless, you might want to obtain an EIN. Some banks require an EIN to open a bank account, and having an EIN can reduce the risk of identity theft.

In Iowa, businesses are required to report taxes and file various employee reports. You might need to use your EIN when reporting business taxes.

Next Steps for Sole Proprietors

You should consider taking the following steps once you've established your sole proprietorship:

• Open a business bank account for your sole proprietorship. Using your trade name and EIN, set up a bank account to keep your business and personal finances separate. You should keep your business income and expenses separate from your personal funds so you can easily distinguish your business's financial profile for tax purposes. For instance, you can more easily report business deductions on your tax return if you've created a separate account.
• Obtain general liability insurance. Because sole proprietors are personally liable for all debts and obligations of the business, a business liability insurance policy can offer financial protection against unforeseen events. You should also consider other types of insurance for your business, including property and auto insurance. For more information, read our article on the types of insurance your small business might need.
• Report and pay taxes. Depending on your specific business activities, you could be required to report such items as sales tax and use tax. You can get more information about sales and use taxes, employer withholding taxes, and other business taxes in the businesses section of the Department of Revenue website. (For more information, see our section on business taxes and deductions.)

To find out how to form a sole proprietorship in any other state, see our state guide to establishing a sole proprietorship.

Consulting a Small Business Attorney

You might not need to submit paperwork to start a sole proprietorship in Iowa. But your specific circumstances could require you to file certain forms and comply with certain rules and regulations. As a business owner, it's important to understand what steps you need to take to legally start and operate your sole proprietorship.

If you have business experience and only need to meet a few requirements to establish your sole proprietorship, you can probably do the work yourself. But if you need specific guidance or run into a complicated issue when starting your business, you should talk to a small business lawyer. A lawyer can help you register your name, file your taxes, and obtain licenses and permits.