As long as you are the owner, you do not have to take any formal action for form this entity. You may already have a Sole Proprietorship and not even realize it. For instance if you receive income for any services you do that is not through an employer and you report those as additional income on your tax return, then you are already a Sole Proprietor.
As with all business you need to obtain the correct and necessary license and permits. This varies from state to state as well as locally. Please visit the U.S. Small Business Administration for resources on these documents. You can click here for their website.
If you do not want to operate under your own name, then you would have to file a fictions name, also known as assumed name, trade, name or doing business as (DBA). This name also cannot be used by another business.
Sole Proprietor Taxes – Due to the fact that you and your name are the same, the business itself is not taxes differently then you would be as an individual. You now will report your income and expenses on a Schedule C Form and what is knows as a 1040 long form. The information that is gathered from the schedule c form will then be transferred to your personal tax form the 1040 long form.
A Sole Proprietorship is inexpensive and easy to form. Cost are minimal with obtaining all the necessary license and permits. You will have complete control over the business; you are not required to consult with anyone but yourself. The tax preparation is very easy to do and if you choose to have an accountant perform these tasks for you, the cost will be minimal.
However because there is not legal separation between you and the business you will be held responsible for all liability from the business and its debts. This risk would also extend to any wrong doings or mishaps done by your employees. It is also a challenge to trying to raise money because you cannot sell stock and most times it is near impossible to get an investor to invest in your company. Banks are also not as likely to lend to and Sole Proprietor because of the lack of creditability of the company due to the fact that you ability to repay the debt is a very high risk to both the banks and the investor.
Ultimately however you are in control of the success or failure of this type of business.