Georgia has good weather, a good business economy, and lots of natural wonders. It’s a great place to live and start a business.
Before you decide to start a business, like a sole proprietorship, in Georgia, you need to be aware of all the laws, rules, and regulations the state has regarding this type of business. Every state has its own sole prop laws and Georgia is no exception.
We’ve created a guide to help you in starting your sole proprietor business in Georgia with all the data along with guidelines and helpful links.
What is a sole proprietorship?
A sole proprietorship is a business structure in which the business is unincorporated and has a single owner. For tax and legal purposes, the business and the owner are considered the same entity. This is the simplest version of a business that one can form, and many people who freelance or sell goods are operating as a sole proprietor without realizing it. Because there is no separation between the business and the owner, the owner is personally responsible for all debts and litigation that the business is named in.
Who is a sole proprietorship best for?
By definition, a sole proprietorship is an unincorporated business with a single owner. Anyone looking to form a partnership or have multiple owners should choose a different structure. A sole proprietorship will be a good fit for someone looking to maintain total ownership of their business who is willing to take on the liability associated.
Because a sole proprietorship is simple to start and requires no fees or paperwork, it can be a good option for anyone who needs to get a business up and running quickly. It can also offer a good test case for a business idea without any upfront requirements.
It can be more difficult to get funding and credit in a sole proprietorship, so if investments are required, having capital at the start can make this structure easier.
How to set up a sole proprietorship in Georgia
1. Choose your business name
Georgia law allows you to operate a sole proprietorship under a name other than your own. While you can use your name, most people choose a specific business name. If you want to do this, you should first search the Georgia Secretary of State to see if the name you chose is taken or if something similar exists.
In Georgia, a business name must not:
- Match any other business name in the state
- Be misleading
- Use any certain government agency terms or abbreviations like FBI or EPA
2. File a trade name
In Georgia, you need to search the local county records to see if you can use your trade name. All trade names, or doing-business-as names, are filed with local county clerks.
Once you have the trade name you want, you need to write out the purpose and scope of the business, list all the owners with their names and addresses, and get the notarized signatures of all company owners.
There are required forms and some of them, like a Trade Name Application, may include some of this information and require a notary. The forms are different in various Georgia counties. You will need to pick them up from the Clerk’s Office of the Superior Court in the county where you will be basing your business.
You also need to pay a filing fee when you submit your paperwork to the clerk. The amount differs in all counties.
Georgia law requires you to publish a notice of your intent to hold a trade name in the county’s official legal organ, a designated newspaper, at least once a week for two consecutive weeks. That also requires a payment to the newspaper, which can vary. Keep the Publisher’s Affidavit as proof to the county that you published the notice.
It can take several weeks to get a trade name approved but, once approved, it will never need to be renewed.
3. Obtain licenses, permits, and zoning clearance if needed
Depending on the industry of your business, you may need to obtain a variety of business licenses or permits. This is managed by the Georgia Secretary of State, though some areas like health care are licensed by independent areas.
You should also explore local regulations like building permits and zoning clearances where appropriate.
Georgia doesn’t require a state business license for a sole prop but local cities and counties will likely require one for you to do business. Professional licenses may also be required for certain occupations like hairstylist, mechanic, nail technician, and other occupations. It’s illegal to operate without one.
There could be a need for zoning or other permits if the sole prop is a business run out of the home, depending on what the business is. In Georgia, local governments have no problem with someone like an accountant having a home office but could require extra permitting and zoning for an auto shop or salon.
4. Obtain an Employer Identification Number (EIN)
If you’re planning a new hire, you need to obtain an EIN. This nine-digit number is issued by the IRS and used for tax purposes when you need to report wages. You can file for an EIN online through the IRS website.
If you do not have employees, you can use your Social Security Number to file taxes and are not required to have an EIN. However, some banks will require new business owners to have an EIN to open a business bank account, so you may want one anyway.
Once you have these pieces in place, your own business is ready to operate! With a solid business plan, you can begin doing business, generate marketing materials, land your first clients, and plan for growth.
How is a sole proprietorship different from an LLC or freelancing?
Anyone who does work on a freelance basis can technically be considered a sole proprietor of their business. They will pay taxes individually and usually operate under their own name, assuming liability associated with their work. However, there are a number of ways the two can differ.
A sole proprietor is able to hire employees and is responsible for employment taxes, while a freelancer usually cannot do this without filing paperwork and effectively becoming a sole proprietor. Freelancers also do not have to adhere to the same local regulations that a business might and cannot purchase the same types of insurance. An independent contractor is considered somebody who has a relationship with external clients, while a sole proprietorship operates as a small business.
In contrast, an LLC is another form of business. An LLC, or limited liability company, must file articles of organization and register with their state. This also protects small business owners (or owners, as an LLC can have multiple) from personal liability, and the business is treated as a separate legal entity for tax purposes. Because of this separation, LLCs are often given larger lines of credit or more likely to attract future investments in times of growth.
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What are the advantages of a sole proprietorship?
Fast and inexpensive startup
Unlike other business structures, a sole proprietorship does not have to register with the state or pay the associated fees. If a fictitious name is being used, there may be a registration process for the trade name, but it is optional. This lack of paperwork and cost means that you can start a sole proprietorship almost immediately and without bureaucracy.
In a sole proprietorship, all profits and losses for the business are included in the owner’s personal income tax returns. This leaves the owner responsible for state, local, and federal taxes that include their business, but they are not subject to corporate tax rates or specific business taxes. Additionally, being self-employed offers tax credits and benefits to the owner.
Complete control over your business
The sole proprietor of a business has complete control and is responsible for all decision-making within the business. With no partners or shareholders, you are free to run your business as you choose and take risks without implicating others.
What are the cons of a sole proprietorship?
Because the owner and the business are the same in a sole proprietorship, it can leave the owner vulnerable in multiple ways. Any business debts are also considered a personal debt, and any lawsuits against the business also implicate the owner. If these result in collections or seizures, the owner’s personal property can be taken in order to meet the obligations of the business.
Difficulty with funding
If a sole proprietor wants to raise capital, they may have fewer options to do so. Without stock in the business to sell, investors are less likely to get involved. Banks may also be less inclined to offer credit because the owner will be responsible for the business loans in the end.
Risks of hiring employees
As long as they have a valid Employer Identification Number, a sole proprietor is able to hire employees as needed. However, if any legal issues arise related to an employee, it could put a strain on the owner as their personal assets are on the line for lawsuits and other costs.
How are sole proprietors taxed in Georgia?
With this type of business entity, taxes are a part of the personal tax return of each owner. Business profit is calculated and reported on a Schedule C form which is for Profit or Loss from Small Business.
A Schedule C will calculate the income of the business, including all income and expenses, along with the costs of goods sold and costs for home-based businesses. The rest of the calculation is the net income, which is the amount of taxable business income.
This net income is entered on the Schedule C and included with other income and losses the owner (and their spouse) report for the purpose of income taxes.
The owner then pays income tax on all of the income listed on their personal return, including income from business activity at the applicable rate for the year.
Georgia’s income tax rate is one of the lowest in the country. It is from 1% to 5.75% with the highest taxable bracket at $7,000 for single filers and $10,000 for married taxpayers who file a joint return.
Those filing taxes have two options of paying them in Georgia. You can pay it all at once with your first installment or pay it quarterly. Quarterly payments are due on or before April 15, June 15, September 15, and January 15.
As a self-employed individual, there are additional taxes necessary to pay. Based on the business’ income, the sole proprietorship must pay Social Security and Medicare taxes. If the business operates at a loss, the tax is not payable, but you will not receive benefit credits for that year.
There may be other employment taxes and property taxes that are applicable.
Georgia has a sales tax businesses must collect on goods and services. The sales tax rate is 4% but local cities and counties can implement a voter-approved special local option sales tax to pay for particular projects. That can increase the sales tax rate as high as 5%.
Local municipalities also collect property taxes and sole props that own buildings or have home-based businesses will pay property taxes as individuals since the business doesn’t exist apart from the business owner. Property in Georgia is taxed at 40% of its fair market value, which is the assessed value. There are exemptions such as homestead or senior citizen exemptions.
The fees vary from county to county but the average fee to set up a sole prop in Georgia is $160.
Georgia doesn’t require sole props to register their business name with the state. However, you do need to file your trade name with the clerk of court in your county.
Sole proprietorships are the most common form of business in Georgia.
The Georgia Department of Revenue requires you to register your business for taxation in Georgia. You can do that by establishing a Georgia Tax Center account.
Yes, sole props can apply for a business bank account with their DBA name, assuming they have their trade name approved.
Those who operate as a sole prop can write off vehicle expenses like gasoline, insurance, tires, batteries, maintenance and repair work.
Yes, you need a business license under your DBA name. It’s an important element of establishing your reputation as a legal business.
You can register for a sales tax permit online with the State of Georgia by applying through the Georgia Tax Center website.