Jake Lawson here. Let me start with some straight talk: starting a sole proprietorship in Indiana is dead simple—almost too simple. No paperwork, no filing fees, no state approval needed. Just start doing business and boom, you’re a sole proprietor. But before you get excited about saving money, let me walk you through why this “easy” option might cost you big time down the road.
What Exactly Is a Sole Proprietorship in Indiana?
A sole proprietorship is the most basic business structure you can have—it’s essentially you doing business under your own name. There’s no legal separation between you and your business. You are the business, and the business is you.
In Indiana, the moment you start doing business activities with the intention of making money, congratulations—you’re operating as a sole proprietorship. No forms to file, no state approval needed, no registered agent required.
Sounds great, right? Well, hold that thought.
The Brutal Truth: Why I Rarely Recommend Sole Proprietorships
After helping over 1,200 entrepreneurs launch their businesses, I’ve seen exactly what happens when people choose sole proprietorships to save a few bucks upfront. Spoiler alert: it usually doesn’t end well.
Here’s the reality check most formation guides won’t give you.
The One Massive Downside That Changes Everything
Zero liability protection. Let me be crystal clear about what this means:
- Someone sues your business? They’re actually suing you personally.
- Your business can’t pay a debt? Creditors can come after your house, car, and personal savings.
- A customer gets injured at your business? Your personal assets are on the line.
- You make a business mistake that costs someone money? You’re personally liable.
I’ve watched sole proprietors lose their homes because of business lawsuits. It’s not pretty, and it’s completely avoidable.
The Other Problems People Don’t Talk About
Credibility Issues: Try getting a business loan or landing a big client as “John Smith” versus “Smith Consulting LLC.” The difference is real.
Banking Headaches: Many banks won’t open business accounts for sole proprietorships without jumping through extra hoops.
Growth Limitations: Want to bring in a partner later? You’ll have to shut down the sole proprietorship and start over with a new entity.
Tax Complications: Everything flows through your personal return, which can push you into higher tax brackets and limit deduction opportunities.
When a Sole Proprietorship Might Make Sense (Rare Cases)
I’m not completely against sole proprietorships. There are a few situations where they might work:
- Testing a side hustle with minimal risk (like selling crafts on Etsy)
- Service businesses with virtually no liability (like freelance writing from home)
- Very short-term ventures you plan to convert to an LLC quickly
- When you literally can’t afford the $95 to form an LLC in Indiana
But even in these cases, I usually recommend saving up the $95 and forming an LLC instead.
How to Start a Sole Proprietorship in Indiana (If You Insist)
Alright, you’ve heard my warnings and you still want to go this route. Here’s exactly what you need to do:
Step 1: Make the Decision (That’s Literally It)
Congratulations—you’re now a sole proprietor. No forms to file with the state. No approval needed. The moment you start doing business activities with the goal of making money, you’re operating as a sole proprietorship.
But wait, there’s more you should do to operate legally and professionally…
Step 2: Choose Your Business Name and Get a DBA (If Needed)
By default, your sole proprietorship operates under your legal name. So if you’re Sarah Johnson, your business is “Sarah Johnson.”
But what if you want to operate as “Johnson Marketing Solutions”? That’s where Indiana’s Assumed Business Name (aka DBA – Doing Business As) comes in.
Here’s Indiana’s rule: If you’re doing business under any name other than your first and last name, you must register an Assumed Business Name with the county recorder in each county where you operate.
How to Get a DBA in Indiana
- Decide on your business name (make sure it’s not already taken)
- Find your county recorder’s office using the Indiana Recorders Association map
- File the Assumed Business Name form (forms and fees vary by county)
- Pay the filing fee (typically $10-30 depending on your county)
Pro tip: Some counties let you file online, others require in-person visits. Call ahead to save yourself a trip.
Step 3: Get an EIN from the IRS (Highly Recommended)
Technically, sole proprietors can use their Social Security Number for everything. But that’s a terrible idea for several reasons:
Identity theft protection: Why give out your SSN to every client and vendor when you could use an EIN instead?
Professional appearance: Having an EIN makes you look more legitimate to banks and clients.
Future planning: If you ever hire employees or convert to an LLC, you’ll need an EIN anyway.
Banking requirements: Some banks require an EIN to open business accounts.
How to Get Your EIN (Free from the IRS)
- Go directly to IRS.gov (ignore the scam sites that charge fees)
- Click on “Apply for an EIN Online”
- Fill out the application (takes about 10 minutes)
- Get your EIN immediately (it’s really that fast)
Warning: Only use the official IRS website. There are dozens of scam sites that charge $50-200 for something that’s free from the government.
Step 4: Check License and Permit Requirements
Indiana doesn’t require a general business license for sole proprietorships, but your specific industry or location might have requirements.
State-level requirements: Most service businesses don’t need special licenses, but regulated industries (healthcare, finance, food service, etc.) definitely do.
Local requirements: Your city or county might require business licenses, permits, or zoning approvals. Check with your local government offices.
Industry-specific licenses: Are you a contractor? Barber? Real estate agent? You’ll likely need professional licenses.
Resource: Check the Indiana Business Owner’s Guide for comprehensive licensing information.
Step 5: Open a Business Bank Account
This is critical, even for sole proprietorships. Mixing personal and business finances is a recipe for disaster come tax time.
What you’ll need:
- Photo ID
- Your EIN confirmation letter (if you got one)
- DBA filing (if you registered one)
- Initial deposit (varies by bank)
Pro tip: Call banks before visiting. Some have specific requirements for sole proprietorships, and policies vary widely.
Step 6: Set Up Your Record Keeping
From day one, you need to track:
- All business income
- Every business expense
- Receipts for purchases
- Mileage for business travel
- Home office expenses (if applicable)
My recommendation: Use accounting software like QuickBooks Self-Employed or FreshBooks. The monthly fee pays for itself in time saved and deductions found.
Step 7: Understand Your Tax Obligations
As a sole proprietor, you’ll report business income and expenses on Schedule C of your personal tax return (Form 1040).
Key tax considerations:
- Quarterly estimated taxes: If you expect to owe more than $1,000, you’ll need to make quarterly payments
- Self-employment tax: You’ll pay both the employer and employee portion of Social Security and Medicare taxes (15.3% total)
- Business deductions: Track everything—office supplies, equipment, mileage, home office expenses, professional development
Recommendation: Hire a CPA who specializes in small businesses. The tax savings usually exceed their fees.
The Indiana-Specific Details You Need to Know
County Recorder Variations
Each Indiana county handles DBA filings differently. Some have online systems, others require paper forms. Fees range from $10-30. Marion County (Indianapolis) has different rules than rural counties.
State Tax Registration
You might need to register with the Indiana Department of Revenue for:
- Sales tax (if you sell products)
- Withholding tax (if you have employees)
- Other industry-specific taxes
Local Ordinances
Indianapolis, Fort Wayne, and other major cities have their own business license requirements. Don’t assume what works in one city applies to another.
Why I Still Think You Should Form an LLC Instead
Look, I’ve walked you through how to start a sole proprietorship because you asked. But let me make one final pitch for why an LLC is almost always the better choice:
The Numbers Game
- Sole proprietorship setup cost: $0-50 (for DBA filing)
- Indiana LLC setup cost: $95 state fee
- Difference: Less than $50
The Protection Comparison
- Sole proprietorship liability protection: Zero
- LLC liability protection: Your personal assets are protected
- Value of that protection: Potentially everything you own
The Tax Reality
- Sole proprietorship taxes: All income hits your personal return
- Single-member LLC taxes: Exactly the same (but with more deduction opportunities)
The Credibility Factor
- Sole proprietorship credibility: Seen as less professional
- LLC credibility: Viewed as a “real” business by clients, vendors, and lenders
Making the Smart Choice for Your Situation
Here’s my decision framework for Indiana entrepreneurs:
Choose a sole proprietorship if:
- You’re testing a very low-risk side business
- You literally cannot afford $95 right now
- You plan to convert to an LLC within 6 months
- Your business has virtually zero liability exposure
Choose an LLC if:
- You interact with customers in person
- You provide any kind of professional advice
- You handle other people’s property or money
- You want to be taken seriously by banks and clients
- You plan to grow the business
- You have any significant personal assets to protect
The Bottom Line
Starting a sole proprietorship in Indiana is incredibly easy—maybe too easy. While you can literally start one today for free, the lack of liability protection and professional credibility often makes this the expensive choice in the long run.
For most entrepreneurs, spending an extra $95 to form an LLC is the smartest $95 they’ll ever spend. It’s the difference between putting everything you own at risk and protecting your personal assets while building a legitimate business.
My recommendation: Unless you’re in one of the very specific situations where a sole proprietorship makes sense, save yourself the future headache and form an LLC instead. Your future self will thank you.
Frequently Asked Questions
“Can I convert from a sole proprietorship to an LLC later?”
Yes, but it’s a pain. You’ll need to:
- Form a new LLC
- Transfer all business assets to the LLC
- Update contracts with clients and vendors
- Notify the IRS of the business structure change
- Update bank accounts, licenses, and permits
- Potentially re-negotiate agreements
It’s much easier to start with an LLC from the beginning.
“Do I need a business license in Indiana?”
It depends on your business type and location. Indiana doesn’t require a general business license, but specific industries and localities have their own requirements. Check with your city/county and industry regulatory bodies.
“How are sole proprietorships taxed differently from LLCs?”
For single-member LLCs, there’s no difference. Both are “pass-through” entities where business income and expenses flow through to your personal tax return. The LLC just gives you liability protection with the same tax treatment.
“What if I want to have business partners?”
You can’t have partners in a sole proprietorship. By definition, it’s a single-owner business. If you want partners, you’d need to form a partnership, LLC, or corporation.
“Is a DBA required in Indiana?”
Only if you’re doing business under a name other than your first and last name. If you’re operating as “John Smith,” no DBA needed. If you want to operate as “Smith Consulting,” you need to file an Assumed Business Name.
Ready to make the smart choice for your Indiana business? Whether you decide on a sole proprietorship or LLC, make sure you understand all the implications before you start operating. I’ve seen too many entrepreneurs make decisions based on short-term savings that cost them big in the long run. Get the facts first, then choose the structure that truly fits your situation and goals.