In Mississippi, a business owner should register a sole proprietorship with the Mississippi Secretary of State. The IRS defines a sole proprietorship as a person who owns an unincorporated business by themselves. A person who is the only member of a domestic limited liability company (LLC) is not the sole proprietor if they elect to treat the LLC as a corporation.
Since a sole proprietorship is not incorporated, the owner does not need to register the business with the state. This means there are no registration forms or fees required of the owner.
Characteristics and Business Tax Obligations
A sole proprietorship does not have a legal identity apart from its owner. The owner of this type of business entity is personally liable for the debts and obligations of the business. They usually see the earnings of the company taxed as their personal income. They should file Schedule C Form 1040, profit or loss from business (sole proprietorship) with the Internal Revenue Service (IRS) every year.
A sole proprietor who has net earnings from Schedule C of $400 or more is required to file Schedule SE Form 1040, self-employment tax. Self-employment tax is the sum of Social Security and Medicare taxes on self-employment income. The taxpayer also uses Schedule SE to deduct one-half of the self-employment tax.
Business income includes:
- Income received from the sale of products or services, including fees from the regular practice of a profession, such as medicine.
- Rents received by a person in the real estate business.
- Payments received in the form of property or services, at the fair market value of the property or services.
Pros and Cons of Sole Proprietorship
The advantages of a Mississippi sole proprietorship include:
- Lack of filing fees.
- No limit to the number of people the business can hire.
- Ease in establishing the business, since no paperwork is required by the state.
- Having complete control over the business.
Among the disadvantages of a sole proprietorship are:
- Personal liability for the actions of the business.
- Challenges in raising funds for the business.
- Difficulty in securing credit for the business.
- Difficulty in selling the business, generally.
Start a Sole Proprietorship
The first step to start a sole proprietorship is to choose a business name. The owner should do research to determine whether the name is already taken. Next, the owner may apply for a fictitious name with the Secretary of State. This step is optional. A fictitious name is also known as a Doing Business As (DBA) designation. The owner should also select a registered agent for the business.
Then the owner should obtain the proper business licenses, permits and zoning clearance for the business. A sole proprietorship does not incur fees like the $50 fee for articles of incorporation for a corporation. Yet it still must have the licenses required to operate the business. Finally, the owner must obtain an employer identification number (EIN) from the IRS.
Additional steps to begin a sole proprietorship include:
- Opening a business bank account, using the company’s fictitious business name and EIN.
- Getting general liability insurance and any malpractice insurance necessary.
- Reporting and paying taxes such as sales tax to the Mississippi Department of Revenue.
Obtain an EIN for a Mississippi Business
A business owner can apply for an EIN online with the IRS. Even a small business needs to obtain an EIN. The person applying online is required to have a valid taxpayer identification number such as a Social Security number. Unless the applicant is a government entity, the responsible party who controls the business must be an individual. The responsible party cannot be an entity, such as another business.
LLCs and Individual Ownership
An individual who is the sole owner of a business can choose to register the business with the Mississippi Secretary of State as an LLC, which can have one owner. Owners of an LLC are called members. An LLC can choose one or more people to manage the business and make decisions for it.
Forming an LLC requires filing a certificate of formation with the Mississippi Secretary of State. There is a $50 filing fee for this document. A member of an LLC is not personally liable for the debts or liabilities of the company. Mississippi encourages members to develop an operating agreement to govern the company. The state does not require the members to adopt this type of agreement.
General Partnerships for Multiple Owners
An individual who wants to start a business with one or more additional people can start the company as a general partnership. There are no filing requirements with the Secretary of State for this type of business entity. Partners can draft a partnership agreement to state the responsibilities of the different owners, but they are not required to do so.
Partners own the assets of the business jointly, and each partner is personally liable for the actions of the other partners. This liability extends to business debts, taxes and tort liability. Their earnings are usually taxed as personal income for each partner.
An LLC with more than one owner is usually treated as a partnership for federal tax purposes. A partnership should report its income and expenses on Form 1065, return of partnership income. The partnership does not pay income tax. Typically, a partner receives a right to share in profits and losses equal to the value of the money, property or services they contributed to the partnership.
How Limited Partnerships Are Different
A limited partnership (LP) is different from a general partnership because it has two levels of partners, general partners and limited partners. A general partner makes business decisions for the company and controls the business. They are liable for the debts and obligations of the partnerships.
A limited partner has a stake in the company, typically by investing money. They have limited control over business decisions. They are only liable up to the amount of their investment in the company. An LP must file a certificate of limited partnership with the Mississippi Secretary of State, which incurs a $50 fee. The earnings of all partners are usually taxed as personal income.
Changing the Business Structure
A business owner, member or partner of a company that needs to be registered, such as an LLC, can change the type of the business by filing the required documents with the Secretary of State and paying the proper fees. The change may require an amendment, a change to an item on the business’ certificate of formation or articles of incorporation. The typical fee for a certificate of amendment is $50.
- U.S. Small Business Administration: Register Your Fictitious or “Doing Business As” (DBA) Name
- Mississippi Secretary of State: Start Your Business in Mississippi
- Internal Revenue Service: Sole Proprietorships
- Mississippi Secretary of State: Business Documents Filing Fees
- Mississippi Secretary of State: Fictitious Business Name Registration
- Internal Revenue Service: Apply for an Employer Identification Number (EIN) Online
Jessica Zimmer is a journalist and attorney based in northern California. She has practiced in a wide variety of fields, including criminal defense, property law, immigration, employment law, and family law.