In New Hampshire, starting a small business, particularly a sole proprietorship is possible without filing any legal documents with the state. All of the licensing and permits can be done within the city or county. So if you are thinking about turning your passions and skills into a full-fledged money-making business, you can do it by starting a sole proprietorship in New Hampshire.
Many people think that it is hard to start a self-sustaining business, and this is what makes them back out at the last minute. If you are good at something or have good business ideas for products and services, starting a sole prop and making money is your next step.
Lucky for you, this article will have all the information you need from choosing a name, filing for a trade name, getting the necessary permits, paying taxes, and more. Basically, all the information you need to get your business off the ground in New Hampshire will be in this article. But first, let’s start by defining what a sole proprietorship is.
What is a sole proprietorship?
The simplest and most common business entity used to start a business in the United States is called a sole proprietorship. These businesses are formed when a single owner creates an unincorporated business and runs that business as an individual.
In a sole proprietorship, there is no legal entity created, so there’s no difference between the owner and the business. This means the owner is entitled to all profits raised through the business and files them as part of their personal income taxes. However, this also means that any debts and losses are attributed to the individual, as well as them being implicated in any lawsuits brought against the business.
Who is a sole proprietorship best for?
If you are planning to start a business along with a partner or multiple partners, a sole proprietorship is not an option. The structure will be a good fit only if you plan to operate your business entirely independently, or with employees who report to you as the owner.
Many people choose a sole proprietorship if they need to quickly start their business or want to avoid filing fees and paperwork. In fact, if you are running the business in your own name, there is no paperwork to fill out at all to register your business. This allows the business to get up and running quickly with no friction.
A sole proprietorship comes with personal liability and it may be more difficult to secure a line of credit or investments.
How to set up a sole proprietorship in New Hampshire
1. Choose your business name
New Hampshire 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 New Hampshire Department of State’s website to see if the name you chose is taken or if something similar exists.
In New Hampshire, 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 most states, it is not a requirement to get a trade name, but it is mandatory for New Hampshire sole proprietorships. If you want your business name to be different from your legal name, you can file for a trade name. Getting a DBA or trade name will allow you to operate or do business under a different name. It is ideal for small businesses to get a trade name, as it makes the business more legitimate and trustworthy in the eyes of potential clients.
To file for a trade name in New Hampshire, you can fill out the Application for Registration of a Trade Name, and submit it to the New Hampshire Secretary of State. It might take 4-6 weeks to get filled, and the filing fee costs $50.
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 New Hampshire Department of Business and Professional Regulation (DBPR), 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.
In New Hampshire, you can get a local business license in Manchester, Nashua, and Concord, and the price depends on the location of your business. You might also need to obtain a zoning permit, building permit, and signage permit depending on your business.
Some sole proprietors like accountants, barbers, artists, etc., need an occupational license. And other businesses might need more licenses and permits to legally operate. For a full list of licenses and permits in New Hampshire, you can visit the NH Department of Revenue Administration.
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 small 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! 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 LLC, or limited liability company, is another common structure used for small businesses in the United States. While an LLC can have a single owner, it can also be owned by multiple people working together. The key differentiator for an LLC is that it offers protection of the owner’s personal assets. As a separate legal entity, an LLC is liable for debts and legal obligations, but the owner cannot be personally liable for these items. If the business fails, the owner could file for a business bankruptcy without owing business creditors their own money.
If you’re wondering about the difference between freelancing and setting up a sole prop, you’d set up a sole prop if you plan to hire other writers to work with you. A freelancer, or independent contractor, can’t hire people, but a sole prop can.
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What are the advantages of a sole proprietorship?
Simplified tax preparation
For the owner of a sole proprietorship, tax preparation is not much more complicated than it is for any other private citizen. In preparing personal taxes, the owner will include all profits and losses related to the business, which is calculated as a part of their income or expenses. This also means the tax rate stays at their individual rate as opposed to higher business and corporate tax rates.
Less paperwork and fees
To register most types of business, the state requires you to file your business name for inclusion in their directory and pay a fee. The sole proprietorship does not have to do this. There will be some paperwork and fees involved if you require licenses or permits, or you plan to operate under a fictitious name.
The sole proprietor of a business is responsible for everything, both good and bad. While liability is placed on that owner, they also enjoy complete control of their business. Any business decisions will be solely their responsibility, without worrying about pleasing shareholders or disagreements with a partner.
What are the cons of a sole proprietorship?
No asset separation
In a sole proprietorship, there is no legal separation between the assets of an owner and the business. While this makes things like taxes simple, it also means there is no delineation between the liabilities of an owner and their business. This means that if the business is not successful, the business’s debts fall to the sole proprietor, and if they cannot pay, it is their personal assets that will be seized. In the case of a lawsuit where money is owed, the same is true.
Single point of failure
When only one person is responsible for an entire business, it means that they are the single point of failure. If a sole proprietor passes away, becomes incapacitated, or is incarcerated, the business is usually not able to survive. While a corporation can be taken over as a legally separate entity, a sole proprietorship must be run by the owner.
Less availability of funding
With this business structure, finding startup funds could be tough. Many banks and investors do not like to offer funds to sole proprietors, as they cannot gain shares of the company or be sure that business debts will be repaid. Many government grants and business loans also exclude sole proprietorship.
How are sole proprietors taxed in New Hampshire?
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) reports 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.
New Hampshire has both BPT or business tax profits, which is a tax on business income, and BET or business enterprise tax, which is a tax on a business’ enterprise value tax. These apply to all business structures, including sole proprietorships.
New Hampshire has a flat rate for the BPT, which is 7.7%. In most states, Sole proprietorships are not required to pay federal or state income tax. Instead, the income is distributed to the sole proprietor’s personal income tax. However, that is not the case for NH.
In New Hampshire, sole proprietorships are required to pay BPT and BET. However, the sole proprietor does not owe state tax payments on the income received from the business.
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.
Aside from the BPT and BET, you also need to pay property tax and other taxes, depending on the nature of your business. To check the taxes you need to pay for your business, you can register with e-File New Hampshire.
You don’t necessarily need a lawyer or attorney to start a sole prop in New Hampshire or any other US state for that matter. However, every business is unique and there may be some instances where starting an LLC or partnership is a better fit for the nature of your business. If that is the case, you can always get legal advice if you are not sure.
It depends on your business. Filing a trade name costs $50, but you also need to file for different licenses and permits, which could amount to more or less $500. However, some smaller home-based businesses do not need to file a ton of permits. In that case, you only need to worry about the cost of starting your sole prop yourself, such as production costs, equipment, and other expenses.
You don’t need to separate taxes for your business for sole proprietorship. You just need to simply report all your business income and losses on your personal income tax return. Unlike traditional employees, you don’t have anyone withholding taxes from your paycheck, not unless you are still working while operating a sole proprietorship.
You need to make four estimates each year, paid at 25%. It is paid on the 15th day of the 4th, 6th, 9th, and 12th month of the taxable year if the tax liability is greater than $200. You can always contact Taxpayer Services at (603) 230-5920 for any questions about tax and revenue.