Texas has a well-deserved reputation of being a business-friendly state. There are to over 3 million small businesses across the state – a significant percentage of which are sole proprietorships. The combination of a low tax rate, simplified regulations, and the availability of high-skilled labor makes Texas the perfect place for anyone who wants to start their own business.
Sole proprietorship – in particular – remains the most preferred choice of business structures for a vast majority of first-time business owners. It costs virtually nothing to form a sole proprietorship business and there are virtually no regulatory requirements.
In this article, we take a look three key things you need to know about sole proprietorships in Texas.
Operating a Sole Proprietorship under an Assumed Name
As a sole proprietor in Texas, you can choose to operate under your own name or under an assumed name – also referred to as “doing business as” name or DBA name. If you choose to operate under an assumed name, you are required to register it with the county clerk.
You should choose a unique assumed name for your sole proprietorship business for two reasons.
- If your business’s assumed name is the same as or very similar to some other business’s name, they might sue you for trademark violations.
- Having a unique name can give a distinct identity for your business, which can make it easier for you to promote your brand and market your products.
You can run a search in the links given below to check if your business’s assumed name is unique and distinguishable from other businesses’ names.
It is also a good idea to trademark your business name so that no one else can use it in the future.
A Sole Proprietorship Is Not a Separate Legal Entity
One of the most important things you need to know about a sole proprietorship is that it is not considered a separate legal entity under the law. Unlike a limited liability company LLC, a sole proprietorship is merely an extension of the business owner and they are personally liable.
Even if you use an assumed business name, which is different from your own name, your business is still an extension of yourself. Your business income and your personal income are one and the same, your business debts are your own debts, and your business’ liabilities are your own liabilities.
This is the reason why sole proprietors running a small business are generally advised to buy liability insurance, as it is the only way you can protect your personal assets from business-related debts and liabilities incurred.
Filing Income Tax Returns as a Sole Proprietor
Since a sole proprietorship is not a separate business entity, you can file your tax returns and pay taxes using your own social security number – as long as you do not have anyone else working for you. On the other hand, if you wish to hire employees, you are required to obtain an employer identification number (EIN) to file your tax returns with the Internal Revenue Service (IRS).
Looking to Set Up a Sole Proprietorship in Austin, Texas? Our Business Attorneys Can Help You!
If you are planning to start a sole proprietorship business, the experienced business attorneys at Kelly Legal Group can provide you with legal advice to guide you through the process. From deciding whether a sole proprietorship is the right business structure for you to helping you get the licenses you need, we will be with you at every step of the way.