A sole proprietorship is an alter ego of its owner, not an independent legal entity like a corporation. The owner is personally responsible for all business obligations and debts, which means that business creditors can come after the owner's personal assets. You can sell your sole proprietorship or transfer it to another person, just like any other business, but if the recipient of the business is a spouse, keep in mind that you are only effectively transferring responsibility for business operations. Married couples are jointly liable for most personal debts that each spouse incurs during the marriage. You may no longer have to worry about the day-to-day operations of a sole proprietorship that is transferred to your spouse, but you will still be personally liable for any business obligations or debts because of the marriage.
Change the contact information on any state business registration or license. In most states, sole proprietorships do not have to register with the state business registrar. A handful states, such as Nevada, require all businesses, even sole proprietorships, to have a state business license. If you are in one of the states where you had to get a statewide business license to operate your business, contact the state agency that issued the license to change the name of the contact person from you to your spouse. In most states, the business registrar is the secretary of state's office. Information about updating a state business license can be found in the business section of the secretary's website or by calling the secretary's office directly.
Read More: How to Set Up a Sole Proprietorship Using a DBA
Change the contact information on any city or local business license. Some cities and localities require any business operating within its borders, even sole proprietorships, to obtain a local business license, in addition to any state business license. An example is Las Vegas. Contact the city agency that issued your license for instructions on changing the name of the responsible party.
Update your fictitious name registration, also known as a "doing business as" or DBA, if you are using one for your business. Most states register DBAs at the county level through the country clerk's office. A handful of states require you to register a DBA at the city or state level -- or not at all. Go back to whichever county, city or state office registered your DBA and change the registration from you to your spouse. Most offices will charge a fee for this service.
Change the name of the responsible party for all city and state occupational licenses and permits. Depending upon your type of business, you may have multiple licenses or permits under the business name. For example, a food handler's permit, occupancy permit or personal trainer's license. Contact the government agency that issued the license or permit to find out how to change the business contact information.
Contact the state's department of finance and revenue if the business has a state tax account for sales or payroll taxes. Change the name of the contact person on the account. Most states allow you to do this over the phone. They may require that you show them the updated DBA registration, if your state requires it. Some states may require you to close the tax account under your name and open a new account under your spouse's name.
Send a letter to the Internal Revenue Service to update the information associated with your sole proprietorship's employer identification number, if you have one. Download the instructions for IRS Form SS-4 from the IRS website. Send the letter to the same address listed in the instructions that you sent the application for your EIN. Alternatively, call them. Indicate that the new contact for the business associated with the EIN is your spouse, and provide your spouse's Social Security number and contact information.
Transfer the business bank accounts to your spouse's name. The bank will likely require you to bring in a copy of the updated DBA registration. If you have been operating the sole proprietorship under your own name, the bank will likely require you to close that account. Your spouse will then have to open a new account in his name.
Transfer assets and accounts to your spouse's name. Any assets that are used for the business should be transferred into the name of your spouse, such a company vehicle. Call or write to all your vendors and customers and inform them of the change. You will likely have to make special arrangements with any vendor that has extended credit to the business. Your spouse may have to add his name and signature to any credit instruments. The creditor may or may not allow you to remove your name from the obligation. Alternatively, you can settle any outstanding credit obligations in your name, such as a business credit card, and let your spouse open new credit accounts in his own name.
When you transfer or sell a sole proprietorship, there are typically tax consequences that you must account for on Schedule C of your personal income tax return. These consequences will likely be different, depending on whether you and your spouse file a joint return or file individually. Make sure to consult with an accountant or tax attorney to discuss tax consequences before you make the transfer.
This article assumes you are transferring the business, not selling it to your spouse. If you want to sell the business to your spouse, you can use an accountant to establish a current valuation for the business.
Terry Masters has been writing for law firms, corporations and nonprofit organizations since 1995, specializing in business topics, personal finance, taxation, nonprofit issues, and general legal and marketing content creation for the Internet. Terry holds a Juris Doctor and a Bachelor of Science in business administration with a minor in finance.