Whether you are just starting out as a business owner or you want to formalize your established business, a sole proprietorship is the most common structure chosen by Oklahoma small business owners. The process is simple and doesn’t have to involve paperwork or registration, but you may wonder if this structure is the right choice. Read on to understand how sole proprietorships work in Oklahoma and why they may or may not be the right structure for each business.

What is a sole proprietorship?

A sole proprietorship is a business entity that refers to an unincorporated business with a single owner. This is the simplest possible structure to set up a business. While there can only be one owner, a sole proprietorship can have employees and obtain an Employer Identification Number (EIN).

As a sole proprietor, your business profits are taxed as a part of your personal income. This makes the process simple, but can also expose you to personal liability in some cases.

Who is a sole proprietorship best for?

A sole proprietorship makes sense if you:

  • Plan to start a business where only you are in charge and intend for that to be the case going forward.
  • Want to call your business something other than your legal name.
  • Plan to hire employees
  • Want to set up a business quickly

How to set up a sole proprietorship in Oklahoma

1. Choose your business name

Oklahoma law allows you to operate a sole proprietorship under a name other than your own. When you form a business, you can use your name, but most people choose a specific business name. If you want to do this, you should first search the Oklahoma Department of State’s website to see if the name you chose is taken or if something similar exists.

In Oklahoma, a business name must not:

  • Match any other company doing business in the state
  • Be misleading
  • Use any certain government agency terms or abbreviations like FBI or EPA

2. File a trade name

If you want to operate under a name other than your legal name, you must file for a trade name with the state of Oklahoma. You can do this by downloading the Trade Name Report Form from the state website and filling out information about you, your business, and the name you would like to use.

When you send in the form, you will also need to pay a $25.00 fee as a check mailed along with it. This should be sent to the Secretary of State, who will review and approve the request.

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 Oklahoma Department of Business and Professional Regulation, 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.

Oklahoma law does not require a general business license to be issued to sole proprietors, but there are other licenses and permits that can be necessary. Most of the Oklahoma regulations are industry-specific and you may need to obtain multiple to operate in compliance with the law. You can reference the Business Licensing and Operating Requirements page and sort by business type for information on these laws.

In addition to state laws, individual cities or counties in Oklahoma may require local permits and license. For example, Oklahoma City, Norman, and Tulsa all have specific local requirements that can be found on the individual municipalities’ websites.

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 startups to have an EIN and business plan to open a business bank account or apply for business loans.

Next steps

Once you have these pieces in place, your own business is ready to operate! You can begin thinking about things like marketing materials, landing your first clients, and how you want to grow over time.

How is a sole proprietorship different from an LLC or freelancing?

An Oklahoma LLC is a limited liability company that can be formed by one or multiple people. The primary difference in an LLC is that it is a separate legal entity from the owner. In other words, your business and your personal assets are separate. With an LLC, taxes are filed separately and the business’ liability does not translate to the owner.

Setting up a sole proprietorship is simpler than setting up an LLC because it does not have the same business tax implications.

If you’re freelancing, you might wonder if you need to set up a sole prop. If you plan to hire freelancers, then yes. To hire others, you need a business structure like a sole proprietorship.

If you don’t plan to hire anyone, you can continue to freelance and pay taxes on the income without setting up a sole prop.

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What are the advantages of a sole proprietorship in Oklahoma?

Simple way to start a business

Oklahoma sole proprietorships are incredibly easy to set up and do not require any filing process or fees at the outset. In fact, if you have done any freelance work or made money through a side hustle, you are technically operating a sole proprietorship. The simple and inexpensive start means you can quickly legitimize any business you are doing by opening a bank account and distributing formal marketing materials.

Your business remains yours

As the owner of a sole proprietorship, you have complete control of your business. Decisions will not need to take into account legal partners, shareholders, or partners, giving you the freedom to change your course or adjust as you learn about your business.

Easy transition to a corporation

Starting a business as a sole proprietor does not mean you will have to operate that way through the life of your business. At any time, you can convert a business to an LLC, corporation, or general partnership with the right paperwork and process. This allows you to feel out your business and settle on a model before you move to a corporate structure.

What are the cons of a sole proprietorship?

No personal asset protection

In a sole proprietorship, you are considered the same entity as your business, which means you are liable for any financial aspects of your business. If the business has a financial obligation that can’t be met, your personal money and property can be used to meet that obligation.

Less access to funding

A sole proprietorship may not be given the same access to business accounts and lines of credit as an LLC or a corporation. Government grants and funds awarded to small businesses are usually not available for sole proprietorships. You may also experience problems raising capital in the beginning since a sole proprietorship doesn’t carry the same credibility as an LLC or corporation.

Harder to sell your business

If your business grows to a place where you are profitable and have others interested in taking ownership, being structured as a sole proprietorship can present challenges. You would be subject to capital gains tax as part of the transaction, and any buyer would also be assuming liability for business debts.

How are sole proprietors taxed in Oklahoma?

Income taxes

With this type of business, 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 on their personal 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.

Oklahoma has a progressive tax structure, so individual business taxes will range from .5% to 5% depending upon what bracket the person is in and their filing status.

Other tax payments

As a self-employed individual, there are additional taxes necessary to pay. Based on the business’ income, the sole proprietor 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. The property tax rate in Oklahoma is 0.89% and will be applicable if a property that is used for business is owned.

The sole proprietorship also has to pay sales tax in most cases, which is about 4.5% at the state and local level.


Do I need to register a fictitious name with the State of Oklahoma? 

In Oklahoma, businesses are not required to register a fictitious business name if they choose to operate the business under their own name. However, some banks may not allow business bank accounts to be opened if the name is not officially registered. This can be filed through the state and protects anyone else from using the same name.

Does a sole proprietorship in OK need an Employee Identification Number? 

While other business structures are mandated to have an EIN, or employee identification number, the same is not true of a sole proprietorship. In these cases, the owner’s personal Social Security Number is used in place of an EIN. However, you can still choose to obtain an EIN, which may make it easier to open a business bank account and other tasks.

Do sole proprietors need insurance? 

Sole proprietorships are exempt from requirements to obtain workers’ compensation and other forms of insurance. However, they can still obtain general liability insurance for the business. This may be a good practice because sole proprietors are responsible for all liabilities, including the business’s debts and obligations. An insurance policy may be the only form of protection in place.

Can a sole proprietor in Oklahoma hire employees? 

A sole proprietor is able to hire employees. Doing so will incur additional taxes, including unemployment taxes for the state and federal employment taxes. They must also set up an account with the Oklahoma Tax Commission to set up withholding and self-employment tax.

Is owning a franchise a sole proprietorship? 

No, opening a franchise in Oklahoma is different in that you must assume the name of the brand and follow certain guidelines. A single owner of a franchise operates as a sole proprietor for tax and income purposes, but does not have the same freedom of a fully independent sole prop.

Can I change from a sole prop to an LLC or corporation? 

You can choose to convert a business structure at a later date after operating as a sole proprietorship. To do this, you will start the process of forming an LLC or corporation from the start, including registering the name and obtaining all necessary licensing. It is also important to look at changes in tax and employment law before making this change.

Can a sole proprietor have small business health insurance? 

Sole proprietors in Oklahoma do not usually qualify for the group health insurance available for small businesses unless they have at least one full time employee. Without an employee, they will need to apply for individual health insurance through the marketplace available to all individuals or through a licensed insurance agent.