How To Start An Oklahoma Sole Proprietorship

Choosing the right business structure is one of the most important first steps when starting a new business. The business structure defines your company’s legal status, outlining your liability, tax obligations, and other responsibilities.

In this guide, we’ll explain what a sole proprietorship is, outline the advantages and disadvantages, and provide a step-by-step process for registering your business as a sole proprietor in Oklahoma.

Related: How to start a business in Oklahoma

What is a Sole Proprietorship?

A sole proprietorship is a business structure where the owner and the business are legally the same entity. There is no distinction between personal and business assets and liabilities. The owner has complete control of the company and is entitled to all profits. However, they also take on all the risks, debts, and legal liabilities of the business.

Some other common business structures include:

• General partnership: Owned by 2 or more partners who share control and profits but also share liability.
• Corporation: A separate legal entity owned by shareholders. The corporation is responsible for liabilities and debts.
• Limited Liability Company (LLC): A hybrid corporate structure that provides personal liability protection like a corporation but allows pass-through taxation like a partnership or sole proprietorship.

Related: Business Structure Overview

Sole Proprietorship Advantages

There are several benefits that make a sole proprietorship appealing to many small business owners in Oklahoma:

• Ease of setup: Since there is no formal registration to create a sole proprietorship, you can get started right away.
• Low startup costs: A sole proprietorship has very low startup costs compared to other business structures. You don’t have to worry about legal fees or registration costs to form or maintain this entity.
• Tax simplicity: Business income and expenses are reported on your personal tax return. You avoid the potential double taxation of income that happens with corporations.

Sole Proprietorship Disadvantages

However, there are also some downsides to consider:

• Unlimited personal liability: As a sole proprietor, you personally take on all business debts and legal liabilities. Your personal assets are at risk if the business can’t cover costs.
• Difficulty raising capital: Sole proprietors can only raise funds through personal loans or investments. You cannot sell shares in a sole proprietorship to raise business capital.
• Potential tax disadvantages While tax filing is simpler, you might face higher taxes on business profits due to self-employment taxes.

With low startup costs and minimal paperwork, a sole proprietorship allows you to get your business up and running quickly. However, it’s important to understand the implications of personal liability and tax responsibilities before deciding if this business structure is right for your company. If limiting personal liability is a major concern, forming an LLC may be a better option than a sole proprietorship in Oklahoma. The LLC structure provides liability protection similar to a corporation.

Related: How to form an Oklahoma LLC

Steps to Start a Sole Proprietorship in Oklahoma

Starting a sole proprietorship in Oklahoma is a straightforward process, but there are a few steps to take care of to ensure everything is set up legally.

Step 1: Come up with a Business Name

As a sole proprietor in Oklahoma, you can operate under your full legal name. However, if you want to do business under a specific business name or “DBA” (doing business as), you’ll need to register it.

For example, Amanda Smith is starting a cupcake bakery business in Tulsa. Instead of operating under her own name, she wants to do business as “Cupcake Corner.” In this case, Amanda will need to register the name Cupcake Corner as her official DBA name.

Step 2: File for a Trade Name or Fictitious Name

In Oklahoma, there are two name registration options for sole proprietors:

• Trade Name: Registered with the Oklahoma Secretary of State, a trade name provides the strongest protection as other businesses in the state won’t be able to register a similar trade name. Before registering, check that your business name has not been registered by another business in Oklahoma.
• Fictitious Name: Filed with the County Clerk in the county where your business is located, filing the Certificate of Fictitious Name doesn’t provide any protection from others using it.

In either case, registration doesn’t protect it from being used by businesses in other states. For that, you would need to apply for a trademark with the U.S. Patent & Trademark Office (USPTO).

Step 3: Research Business License Requirements

Business licensing and registration vary based on the nature and location of your business. Here’s what you need to know in Oklahoma:

• Local business license: Oklahoma doesn’t have a state business license, but your city might require one. Check with local officials or the economic development office.
• Sales tax permit: If you’re selling products or certain services, apply for an Oklahoma sales tax permit. This is part of the Oklahoma Business Registration process through the Oklahoma Tax Commission.
• Occupational license: Certain professions, like contractors, personal trainers, and barbers, require specific state licenses in Oklahoma.
• Employer Identification Number (EIN): An EIN from the Internal Revenue Service (IRS) is necessary if you plan to hire employees. While not always required for sole proprietors, some banks might ask for an EIN to open a business account. If not, your social security number can be used.

Wrapping Up

Starting a business is a serious decision that involves many steps. By now, you should understand the concept of a sole proprietorship and how to start one in Oklahoma. Hopefully, this guide has given you a good foundation to make an informed choice about the right structure for your business.

We would love to hear more about your ideas and plans! Do you think a sole proprietorship is the best option for your situation in Oklahoma, or are you considering a different structure, such as an LLC or a corporation? Share your thoughts and reasoning in the comments below. Don’t hesitate to post any questions, too.