Whether you are looking to take a side hustle to the next level or set up a brand new endeavor, a sole proprietorship is one of the most common business structures selected by Wyoming entrepreneurs.
The process of forming a sole proprietorship in Wyoming is fast and inexpensive, allowing you to get up and running within minutes. However, you do need to comply with certain guidelines and Wyoming laws to ensure you do not put yourself – or your business – at any risk.
Read on to learn about how to start a sole proprietorship in the state of Wyoming.
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 Wyoming
1. Choose your business name
Wyoming law allows you to operate a sole proprietorship under a name other than your own name. While you can use your name, most people choose a specific business name. If you want to do this, you should first search the Wyoming Secretary of State’s website to see if the name you chose is taken or if something similar exists.
In Wyoming, a startup 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
- Include terms like “LLC” or “Corporation” when they do not match the business structure
- Use terms like education, college, or institution without Department of Education approval
- Imply that a non-banking institution is a bank or trust
2. File a trade name or fictitious name
You can operate a sole proprietorship under your legal name without filing any registration. However, if you want to do business under another name, you need to take the appropriate steps.
Once you have confirmed that the name you want to use is available, you can file an Application for Registration of Trade Name through the Secretary of State’s office. There is a $100 filing fee.
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 Wyoming 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.
Wyoming does not require a general business license in order to operate a business. However, every business must obtain a sales tax license or seller’s permit. Certain professions may also require permits and licensure in order to operate professionally.
Local governments in Wyoming may also require specific licenses in their jurisdiction. For example, the City of Cheyenne requires certain business types to have licenses that the state does not require. It is important to check with any town or county offices to ensure you meet all requirements.
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, you officially have your own business! 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?
A Wyoming 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 Wyoming?
Simple way to start a business
Wyoming 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 Wyoming?
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 for the purpose of income taxes.
The owners make tax payments on all of the income listed on their personal return, including income from business activity at the applicable rate for the year.
Wyoming does not have a state income tax, so your business income will not be taxed by the state, but there are federal taxes.
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 in Wyoming has an average effective rate of 0.56%, which is relatively low compared to other states.
Though they do not have an income tax, Wyoming does levy a sales tax on most goods and services of 4%. Many counties also have an additional 5% general purpose sales tax. Some groceries and prescription medications are exempt from these taxes.
In order to collect these taxes, a sole proprietorship must apply for a seller’s permit through the Wyoming Internet Filing System for Business and pay the associated $60 filing fee.
There is no general business license and therefore no fee.
However, you may pay for licenses in certain locations and for certain industries. For example, a general contractor in Cheyenne may pay between $250 and $650 for their permits and a bakery in Laramie would require a $100 food service license from the city in addition to a $200 food license from the state’s department of agriculture.
Wyoming requires a sales tax permit from any vendor who is engaged in the business of selling at retail or wholesale tangible personal property, admissions, or services that are subject to taxation. This includes online businesses in Wyoming.
Any business that provides a taxable good or service must obtain a sales/use tax license and follow all statutes that apply to a storefront business.
Wyoming is one of a few states that do not levy a state income tax. Because a sole proprietor will file all their business income and expenses on their personal taxes, you will not pay state income tax on any profit you make.
However, you are still responsible for filing income tax at the federal level and paying all income taxes to the IRS.
Most business structures are required to provide an annual report to the state of Wyoming on a regular basis in order to demonstrate they are meeting all of the state’s requirements for operating. However, sole proprietorships are one of the structures that do not have to provide this report as they do not have shareholders or business outcomes independent from their own individual taxes.
The federal government requires most businesses to have an Employee Identification Number for tax purposes. However, a sole proprietorship can operate under the owner’s Social Security Number and does not need an EIN unless they have employees and plan to file taxes.
Wyoming does not require an EIN or state equivalent because they do not have income taxes.
Wyoming state law requires that any business with employees carry workers’ compensation insurance, including sole proprietorships that have employees. This must be purchased through the state fund, though they can use a private insurer for gap coverage to include liability insurance. Some industries will require additional insurance, like businesses that own commercial vehicles.