In Rhode Island, you can establish a sole proprietorship without filing any legal documents with the Rhode Island state government. There are four simple steps you should take:
- Choose a business name.
- File an assumed business name with the city or town clerk.
- 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 Rhode Island, a sole proprietor may use his or her own given name or may use a trade name. If you plan to use an assumed business name or trade name, state law requires that the name be distinguishable from the name of another company currently on record. It is also 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:
- Rhode Island Secretary of State
- U.S. Patent & Trademark Office: (Click on the TESS link under Tools.)
2. File an Assumed Name
If you use a business name that is different from your legal name, Rhode Island requires you to register an assumed business name certificate with the city or town clerk where you intend to do business. This is a mandatory requirement in Rhode Island. To file your assumed business name you must contact the city or town clerk for the appropriate form. The assumed business name certificate must be notarized. The filing fee is $10.
3. Obtain Licenses, Permits, and Zoning Clearance
Your business may need to obtain business licenses or professional licenses depending on its business activities. Rhode Island provides a comprehensive website of every profession and occupation that requires a license by any sole proprietorship. A business can obtain this information by going to Rhode Island Licensed Occupations provided by the Department of Labor. In addition, local regulations, including licenses, building permits, and zoning clearances, may apply to your business. You will need to 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 Rhode Island, businesses are required to report taxes and file various employee reports. You may need to use your EIN when registering your business to report taxes through the Rhode Island Division of Taxation. If you have employees, you must report and pay employment taxes on a periodic basis. More information related to employment taxes can be obtained by registering with the Rhode Island Business Registration initiative.
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. You can obtain more information from the Rhode Island Division of Taxation.