Once you start a business, you automatically become a sole proprietor in Pennsylvania. 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 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 Pennsylvania, you can establish a sole proprietorship without filing any legal documents with the Pennsylvania 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 a fictitious name with the Department of State.
- 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 Pennsylvania.
1. Choose a Business Name
As a sole proprietor in Pennsylvania, you can use your own given name or a fictitious name—also known as a "trade name," "assumed business name," or "DBA" (for "doing business as"). If you plan to use a fictitious name for your business, it can't be the same name as any other company 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 that other person's 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 computer repair shop in your garage under the name "Bit and Byte Complete Computer Repair." In the next town over, there's a computer sales and service store called "Bits and Bytes Compleat Computer Repair and Sales" that has been in business for years. Because your repair business would have a similar name to a store 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:
- Pennsylvania Department of State's business entity search; and
- United States Patent and Trademark Office's Trademark Electronic Search System.
(For more information, read our FAQ on how to choose and register a business name.)
2. File a Fictitious Name With Pennsylvania
If you use a business name that's different from your legal name, Pennsylvania requires you to register that fictitious name with the Department of State. (54 Pa. Cons. Stat. § 311 (2023).)
For instance, suppose Yuri Olenksa runs a lawn care service under the name "Fields of Green Landscaping." Because Yuri's business name, Fields of Green Landscaping, isn't the same as his legal name, he'll need to register his business name.
Use the Department of State's Registration of Fictitious Name Form DSCB:54-311 to register your business name. You can download the form from the Department of State website. As of 2023, the filing fee is $70.
3. Apply for Licenses, Permits, and Zoning Clearance
Depending on your business activities, you could need to apply for business or professional licenses. The Pennsylvania state government has a webpage for registering your business where you can search for information on a variety of state and local business licenses.
For professional licenses, check the Department of State's Professional Licensing webpage. You can find information about:
- licensing regulations
- occupational license requirements
- licensure reports, and
- applying and renewing a license.
You might also need to comply with local regulations, building permits, and zoning laws. Check with your city and county governments, such as your city hall or county clerk, for more information. Some cities, such as Philadelphia, have webpages with guidance on local licenses and permits.
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 Pennsylvania, 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 in the Tax Types section of the Pennsylvania 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 Pennsylvania. 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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