How to Set Up a Sole Proprietorship in 4 Simple Steps

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Apart from their undisputed success, what do Coca-Cola, Dyson and IKEA have in common? Or, for that matter, eBay, Amazon and Mars Inc? That's right: as you've probably guessed from the title of this article, they all began life as a sole proprietorship.

Some of them, such as Coca-Cola, have grown into full-blown corporations, but others are still in the firm control of their creators. Dyson, for instance, is still owned and operated by its eponymous founder, as was IKEA until the death of founder Ingvar Kamprad in 2018.

Of course, these are extreme examples, but they represent just one of many reasons why sole proprietorship is the most popular type of business ownership for new entrepreneurs. Unlike partnerships, they consist of a simple structure, giving you total control over the business; unlike corporations, meanwhile, they are incredibly easy to establish, with minimal legal requirements.

Setting Up a Sole Proprietorship

To help get you set up as a sole trader, we've compiled an easy-to-follow guide on the steps you'll need to take, from a branding, financial and legal point of view.

Regardless of where in the world you are, this is how to start a sole proprietorship.

1. Find a Name

Do you want to establish a business empire in your own name? Well, with a sole proprietorship, you have the freedom to do so. However, in certain circumstances, it might be wiser to consider an alternative name for your fledgeling organisation.

This is especially important in the case of business sectors where consumer marketing plays a huge part; finding a name that will resonate with your product or service will make it easier to attract new customers. Indeed, ensure that you take the time to think carefully about your company's name and everything that it will entail in the long term, as changing it further down the line will likely cause a wide array of difficulties.


Once you zero in on a suitable moniker for your organisation, it is time to check if it is available. Registered businesses cannot share the same name for a wide variety of reasons, with legal protections in place to ensure that companies cannot infringe on the branding of other organisations.

Therefore, you will have to consult with the relevant business body in your jurisdiction. In most countries, there are government agencies that maintain databases of registered companies and business organisations, and you will have to access one of these depending on your locale.

It's not just about avoiding local problems, either; many larger corporations trademark specific names or terms for their products and brands. To avoid future lawsuits, it's also a good idea to check your local authority registers for existing trademarks and copyrights. 

Since maintaining an online presence is so essential these days, your chosen name should ideally also be available as a web domain (and as a series of social media handles). If you're particularly serious about your venture, you might want to apply for a trademark of your own, too.

2. Obtain the Relevant Licenses or Permits

Generally, compliance is not a major headache during the formation of a sole proprietorship business. In many jurisdictions, it is not mandatory for you to register this type of business with government authorities. 

From a legal perspective, however, it is always better to have some form of official recognition. This will be of great help in establishing the legal status of your business if and when a court case or dispute arises. 

Furthermore, registration procedures and expenses for this type of enterprise are usually modest, especially when compared to the mountain of paperwork and formalities involved in registering a corporation.

Permits and Licenses

It's also necessary to ensure that you have completed any essential industry-specific paperwork. For instance, if your business is heavily regulated by local, national, or even international law (such as in the case of food items and restaurants), then you will have to liaise with government departments to apply for and obtain any relevant permits or licenses. 

Likewise, if your business involves the movement of goods across provincial or foreign borders, such as with a haulage firm, you may also need to look at relevant government licenses and regulations – as well as keep an eye on any political or legislative changes that may affect them

Don't forget labour laws, either. If you're planning on hiring employees, you may have to register as an employer for compliance and tax purposes, depending on your jurisdiction. 

3. Separate Your Personal Finances

In a sole proprietorship, there is no distinction between the owner and the business as far as taxes and liabilities are concerned. If things go wrong and you find yourself in a mountain of debt, your personal assets and savings will be liable. Therefore, you have to be extra careful when dealing with the financial aspects of your business. 

One way to do this is to keep your personal finances completely separate from the company's. As a result, creating a separate bank account for your sole proprietorship firm should be the first port of call.

If you want to use credit cards for business expenses, do not use your personal card, either. Get another one exclusively for company use, and never use it for personal purposes (and vice versa). Consider using professional accounting software to get a grip on your finances, too; there is plenty of specialist apps in this area currently on the market. 


Tax laws vary widely from country to country, so it's difficult to give definitive advice here. However, in most cases, when you operate a sole proprietorship, you will end up paying taxes on all income earned from the business (usually in your own name).

Other taxes that focus on business organisations include sales tax and goods and services tax. Sole proprietors are liable to pay these to the government and must file returns in most cases.

4. Obtain Insurance

Given the lack of separation between your personal and business finances, it is imperative that you obtain some form of liability insurance (such as umbrella insurance) as a small business owner. For instance, property liability coverage is recommended even if you don't have office space and work out of your home. 

Even if you have some form of home insurance, it will not cover any damages caused by for-profit business activities. And if you use your car for business, consider notifying your auto insurance provider to get extended coverage, too.

Finally, health and disability coverages are also recommended unless you already have them in some form. This is one of the significant disadvantages of becoming your own boss; as an employee, you usually get these as part of the package from your company.


Many of the steps mentioned above are not strictly mandatory when starting a sole proprietorship (this simplicity is one of its greatest advantages, after all), but, given the often unpredictable nature of business, it is better to start your journey fully prepared. 

What might initially seem like a minor issue at the start of your sole proprietorship can snowball into a major headache later down the line, but these basic steps will remove a lot of that risk. It will help create a solid foundation on which your small business can build and grow into a major force, perhaps one day even rivalling the Coca-Colas, Dysons and eBays of this world.

What other tips would you give for starting a sole proprietorship? Let us know your thoughts and advice in the comment section below.