The Requirements of a Sole Proprietor in Pennsylvania

Sole proprietorships are the most common types of business entities, as they are easy to set up and have few filing requirements compared to other types. A sole proprietorship has a single owner and may or may not have employees; freelancers and independent contractors also run businesses in this capacity.

The commonwealth of Pennsylvania does not require sole proprietors to have a business license, but depending on the type of sole proprietor business and its municipality or county of location, it may need one. A sole proprietor operating under a name that is not their own must register the fictitious name they choose for the business with the Pennsylvania Department of State.

A sole proprietorship is the simplest way to create a new business. It is a popular option because it allows a business to have one owner with sole responsibility and control. The majority of small businesses are typically sole proprietorships, and as they grow, their owners may decide to form another business structure.

A sole proprietorship is a business that is not incorporated or registered as a limited liability company (LLC) or corporation. Freelancers and independent contractors often act as sole proprietors, as do some household employers.

Sole proprietorships have some advantages that other business structures don’t. They are easier to establish, with fewer legal restrictions, and the owner retains all of the business’ profits. They are also easier to dismantle.

On the downside, the owner of a sole proprietorship is personally liable for all of the business' debts and obligations. They are also limited in their ability to raise capital. Termination of the business will occur upon the sole owner’s death.

Pennsylvania allows sole proprietors to use their own name as the name of the business, or they can choose a fictitious business name or DBA (doing business as). In this instance, they register the name of the business with the Pennsylvania Department of State.

For example, if Jane Doe opens a store called “Jane Doe’s Shop,” she does not need to register with the agency, but if she opens a business called “Dreams and Rainbows Shop,” she would need to register the name.

When using a name that isn't the owner's, Pennsylvania requires a business' name to be distinguishable from the name of any other business in the state. The sole proprietor can conduct a name search on the agency’s website to see if the name has been taken. If the name is available, they can register it with the agency.

Filing a fictitious business name is mandatory in Pennsylvania. A sole proprietor must fill out the Registration of Fictitious Business Name form from the Department of State and pay a $70 filing fee to register the name.

A sole proprietor can have more than one fictitious name. However, if they have multiple businesses operating in different industries, they may want to create separate business entities for each.

In addition to the business registration form, the business owner must publish an advertisement of their fictitious business name in a local newspaper and legal publication in the county of the business location. If a county has only a local newspaper, they will run the ad in that newspaper.

The ad must include the name of the business, its principal address, the names and addresses of those listed in Box 4 of the registration form, and a statement saying the owner has applied or will apply for a fictitious name registration “under 54 Pa.C.S. (relating to names).”

Whether or not a business needs a license depends on the type and location of the business. Some professions, like those that are health-related, do need licenses, but associated professional boards would be responsible for licensing.

Business owners can seek further information regarding licensing through the Pennsylvania Bureau of Licensing and Occupational Affairs.

Business licenses, building permits and zoning clearances may also apply to a sole proprietorship. Owners should check with their municipal or county governments for additional information.

If a sole proprietorship has employees, the owner needs to get an Employer Identification Number, or EIN, from the Internal Revenue Service (IRS). The IRS requires business owners to use the nine-digit number to report the earnings of employees. Registering for an EIN is easy, free and is done through the IRS website.

Pennsylvania businesses, including sole proprietorships, must report state business taxes and file employee reports using their EIN when registering through the Department of Revenue, if they have employees.

Sole proprietors who do not have employees, do not need an EIN, as they can use their Social Security number when filing their taxes. However, they may want an EIN, as many banks require them to open business bank accounts. An EIN also lessens the risk of identity theft for the business owner.

Once a person decides on a name and registers it, gets a business license (if applicable) and an EIN, they should open a business bank account to keep their business and personal finances separate.

They should also have general liability insurance, as they are personally liable for the business’ debts and obligations. This kind of insurance policy may be their only protection should unforeseen events arise.

Depending on the sole proprietor’s specific business, they may also need to report sales and use tax and can get more information regarding this form the Pennsylvania Department of Revenue.