Tennessee Sole Proprietorship

How to Become a Tennessee Sole Proprietor

Starting a sole proprietorship in Tennessee is straightforward. There’s no formal setup process or fees involved. To operate a Tennessee sole proprietorship, simply start working.

However, despite the simplicity of starting, there are some additional steps you might consider. While not strictly necessary, many sole proprietors find them helpful.

DBA Acquisition

A Tennessee 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.

In Tennessee, DBAs are sometimes referred to assumed names.To claim one, you should first check the business name availability using the state’s Business Name Availability Search. Then, you may register it with the state through the online Business Filings Wizard.

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.

Your sole proprietor business taxes consist of both state and local taxes.

State taxes commonly include sales and use tax. However, additional taxes (such as excise tax and franchise tax) may also be necessary depending on the nature of your business. To determine your state-level tax requirements, you’ll want to either consult the Tennessee Business Tax Guide or visit the Business Tax section of the Tennessee Department of Revenue.

Depending on the location of your business, you may also need to pay local taxes. To discover if your business is located in a city or county which has additional business tax, consult this comprehensive city business tax list. You may also choose to visit your municipalities local government website to ensure all local taxation requirements are met.

Obtain Business Licenses and Permits

There isn’t a requirement in Tennessee 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.

Which state-level licenses your business requires will depend on what goods and services you offer. Most state-issued licenses are industry based. For example, electricians, real estate appraisers, motor vehicle operators, locksmiths, and accountants will all need a specific license to operate lawfully. For a more complete list of industries that require licenses and further details on your sole proprietorship’s licensing needs, visit the Licenses & Permits Section of the Tennessee State Government.

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

For example, Davidson County, Chattanooga, and Montgomery County all impose specific licensing requirements on the businesses that operate within their jurisdiction.

Additionally, if your taxable sales are more than $10,000, you are required to obtain a standard business license from your county clerk. Even if your taxable sales is less, you may be required to obtain a minimal activity license from your county. More information on both of these licenses can be found on the Registration and Licensing Section of the Department of Revenue website.

What Is a Tennessee Sole Proprietor?

As opposed to a corporation or Tennessee 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.