Illinois Sole Proprietorship

How to Become an Illinois Sole Proprietor

In Illinois, becoming a sole proprietor is straightforward. There’s no formal setup process or fees. To operate as an Illinois sole proprietorship, simply start working. However, even though it’s easy to start, there are some extra steps you might want to consider. While not necessary, many sole proprietors find them beneficial.

DBA Acquisition

An Illinois 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.

Before attempting to register a DBA in Illinois you’ll need to check the name’s availability using the state’s Business Name Database. After confirming that the name is not currently registered to another entity, you may claim it by completing a Certificate of Assumed Name form with the county clerk in which the business is located. Specific forms and fees will vary slightly between municipalities.

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.

In Illinois as with other states, sole proprietorships are considered pass-through entities that are taxed through the owner’s income instead of having extensive business tax liabilities. However, that doesn’t mean sole proprietors are exempt from all other business-related taxes. For assistance with determining your sole proprietorship’s tax liabilities and help on filing, visit the Business Tax page of the Illinois Department of Revenue website.

Obtain Business Licenses and Permits

There isn’t a requirement in Illinois 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.

Most state-issued business licenses in Illinois are industry specific and are determined by the goods or services which your sole proprietorship offers. For help establishing your business’s licensing needs, you’ll need to consult the Registration, Licenses, & Permits page of the Illinois government website.

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

Larger municipalities such as Chicago will often have their own licensing standards by which businesses operating within their jurisdiction will be required to abide.

What Is an Illinois Sole Proprietor?

As opposed to a corporation or Illinois 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.