New Jersey Sole Proprietorship

How to Become a New Jersey Sole Proprietor

Becoming a sole proprietor in New Jersey is straightforward. There’s no formal setup process or fees. Just start working, and you’re good to go. However, even though it’s easy to start, it’s a good idea to consider some extra steps along the way. While not necessary, many sole proprietors find them beneficial.

DBA Acquisition

A doing business as (DBA) name is a crucial part of many sole proprietorships, as it enables you to use an assumed name for your business, rather than your own personal name. The advantages of acquiring a DBA start with image ― most customers feel that an assumed name is more professional and trustworthy than doing business with a company that uses its owner’s personal name instead.

That said, sole proprietors can sign up for a business bank account using their DBA name, which is another step that goes a long way toward making customers feel more comfortable doing business with you.

Previous to claiming your DBA (sometimes referred to as a “trade name” or similar), you must first check it’s availability using the search tool and name guidelines located on the New Jersey state website. After confirming the intended name is available, sole proprietorships must file their new trade name with the local county clerk in the municipality where the business is located.

Determine Taxation Requirements

Sole proprietors without employees usually don’t need to acquire a federal tax ID number (EIN), because as a one-person business, you can typically just use your own social security number for most things an EIN is used for. Still, if you would rather not use your SSN for privacy purposes, it would be a good idea to get an EIN regardless.

Beyond that, the nature of your business will determine which taxes apply to you as a sole proprietor.

If your business sells goods or products within the state, you will likely be subject to the New Jersey’s use and sales tax. Thankfully, New Jersey makes it easy to determine your sole proprietorship tax obligations. You must simply register your business with the state either online or by completing form NJ-REG in the Business Registration Packet. After you’ve registered, your business will be notified regarding how to comply with New Jersey state tax requirements.

Obtain Business Licenses and Permits

There isn’t a requirement in New Jersey for sole proprietors to acquire a general business license, but depending on the nature of your business you may need other licenses and/or permits to operate in a compliant fashion.

New Jersey businesses may be required to meet a distinct set of professional and industry-specific licensing regulations. These are generally dictated by what type of business you operate.

Discovering which NJ licenses your business needs doesn’t have to be complicated. To find out which licenses you need, consult the NJ License and Certification Guide and review the Licenses & Permits page of the NJ business portal.

In addition, you should check to see if your business needs any licenses or permits on the local level.

Often, municipalities will have their own location-specific permits that your sole proprietorship will be required to comply by. For example, food retailers in New Jersey are required to comply by the Local Health Department’s licensing standards. Because licenses are regulated by differing branches, it’s best to contact your county government using this municipality search page and make an inquiry regarding what local licenses might be required for your business specifically.

What Is a New Jersey Sole Proprietor?

As opposed to a corporation or limited liability company (LLC), the sole proprietorship is not a legal business entity. The sole proprietorship is a one-person business that is not considered to be a distinct entity from the person who owns it, and it is frequently operated using the owner’s personal name.

Here are the three main things you need to know:

Tax Responsibilities

Because there’s no distinction between the owner and the business itself, sole proprietors don’t need to file business tax returns ― they instead simply claim any business profits or losses on their personal tax returns.

Contracts

Sole proprietors are allowed to sign contracts using their personal name, and along those same lines, customers can write checks to the business by using the sole proprietor’s name.

More Flexible

The other big difference between sole proprietorships and more formal business structures is the fact that sole proprietors are allowed to commingle business and personal assets as much as they want to. With LLCs and corporations, ownership is required to keep their assets separate from those of the company. The downside of this aspect for sole proprietors is that if your business is sued, creditors are free to pursue your personal assets like your house, car, personal bank accounts, etc. For corporations and LLCs, creditors are limited to your business assets.