Once you start a business, you automatically become a sole proprietor in North Carolina. But you should still take steps to start your sole proprietorship, including choosing a business name, applying for licenses and permits, and obtaining an EIN.
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 North Carolina, you can establish a sole proprietorship without filing any legal documents with the North Carolina state government. Though no action is required to legally create a sole proprietorship, you should follow four simple steps to start your business:
- Choose a business name.
- File an assumed name with your county register of deeds.
- Apply for licenses, permits, and zoning clearance.
- Obtain an employer identification number (EIN).
For more information, read our article on how to start a business in North Carolina.
1. Choose a Business Name
As a sole proprietor in North Carolina, you can use your own legal name or an assumed name—also sometimes known as a "trade name" or "DBA" (for "doing business as"). If you plan to use an assumed 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 basic Mexican food under the name "Taste of the Border Burritos and Tacos." In the next town over, there's a restaurant called "Tasty Border Burrito & Taco" 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 if the county website has an option to search previously-registered business names—for example, Wake County Register of Deeds has an online assumed name search system and Mecklenburg County Register of Deeds also has an online search system.
- North Carolina Secretary of State (SOS) assumed business name 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 an Assumed Name With Your Registry of Deeds
If you use a business name that's different from your legal name, North Carolina requires you to register your business name with the register of deeds of the county where you do business. (N.C. Gen. Stat. § 66-71.4 (2023).)
For instance, suppose Raymond Richardson provides basic bookkeeping services under the name "It All Adds Up Bookkeeping." Because Raymond's business name, It All Adds Up Bookkeeping, isn't the same as his legal name, he'll need to register his business name.
You can download a form to register an assumed business name from the business forms section of the SOS website. Some county websites also have downloadable forms. State law sets the filing fee at $26 for the first 15 pages and $4 for each additional page—so you'll likely pay $26 to register your business name. (N.C. Gen. Stat. § 161-10 (2023).)
3. Apply for Licenses, Permits, and Zoning Clearance
Depending on your business activities, you could need to apply for business or professional licenses. The SOS has a licenses and permits webpage with basic information. North Carolina has a Start My Business webpage on its state website with more detailed information about registrations and licensing. The webpage provides a detailed 11-step process to start your business including:
- registering your business
- obtaining necessary licenses and permits
- applying for your sales and use tax number (if applicable) and preparing for taxes
- obtaining insurance
- complying with regulations
- arranging for business financing, and
- protecting your intellectual property.
The state also recommends using Business Link North Carolina (BLNC). Business Link is an entrepreneur resource center that's a division of the Economic Development Partnership of North Carolina. BLNC provides information on state permits, licenses, tax forms, and requirements for North Carolina businesses.
Professionals should check the state government's professional licenses and permits webpage.
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 North Carolina, 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 assumed business 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 from the State of North Carolina's taxes section of the state website and on 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 North Carolina. 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.
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