How to Start a Sole Proprietorship in Montana (2025 Guide + Why Montana LLCs Are a Better Deal)

By Jake Lawson | Updated January 2025

Here’s my straight talk: I’ll walk you through exactly how to start a Sole Proprietorship in Montana, but I’m also going to explain why it’s probably not your best choice – especially in a state where LLCs cost only $35.

After helping 1,200+ entrepreneurs launch businesses across all 50 states, I’ve seen thousands of situations where people choose Sole Proprietorships because they think it’s “free” or “simpler” – then discover they’ve exposed their personal assets to unlimited liability for the sake of saving $35.

Here’s the complete Montana Sole Proprietorship guide, plus why a Montana Single-Member LLC is almost certainly the smarter choice for your business.

What Is a Sole Proprietorship in Montana?

A Sole Proprietorship in Montana is the most basic single-owner business structure. It’s not really a “business entity” at all – it’s just you, operating under your own name or an assumed business name, personally responsible for everything the business does.

The moment you start doing business activities with the intent to make profit – whether that’s freelance writing, cattle ranching, craft sales, or any service – you’re automatically operating as a Sole Proprietorship under Montana law. There’s no paperwork to file, no state fees to pay, and no formal registration required.

Here’s the critical problem: You have zero liability protection. Every business debt, every lawsuit, every obligation becomes your personal responsibility. Client gets injured at your business? They can come after your ranch, house, and personal savings. Business can’t pay its debts? Creditors can seize your personal assets.

The Montana Sole Proprietorship Reality Check

Let me break down what you’re actually getting with a Sole Proprietorship in Montana:

The Supposed Advantages:

• Zero formation costs: No state filing fees or paperwork required
• Simple tax filing: Business income reported on personal tax return (Schedule C)
• Complete operational control: You make all decisions without partners or boards
• Easy startup: Just start doing business

The Serious Disadvantages:

• No liability protection: You’re personally liable for all business debts and lawsuits
• No business credit separation: Business debts tied to your personal credit score
• Limited professional credibility: Clients and vendors may view you as less established
• Difficult banking: Harder to open business accounts and get business loans
• Complex conversion: Converting to LLC later requires multiple steps and complications

The Montana-Specific Considerations:

• Assumed Business Name option: Can file DBA for just $20 (online only)
• No state business license required: Montana doesn’t require general business licenses
• EIN highly recommended: Protects your Social Security Number in business transactions
• Incredible LLC alternative: Montana LLCs cost only $35 with excellent asset protection

After 15 years in business formation, here’s my honest assessment: Sole Proprietorships are high-risk structures that make sense only in very limited circumstances, especially when Montana LLCs are among the most affordable in the nation.

How to Start a Sole Proprietorship in Montana (Complete Process)

Despite my strong reservations, here’s exactly how to operate as a Sole Proprietorship in Montana:

Step 1: Business Foundation and Planning

Define Your Business Structure Since you’re automatically a Sole Proprietorship once you start doing business, focus on planning:

• Your business model and revenue streams
• Target market and competitive positioning
• Startup costs and funding sources
• Primary business address (can be home, ranch, or office)
• Marketing and branding strategy

Choose Your Business Identity Decide whether to:

• Operate under your legal name (Sarah Johnson)
• File an Assumed Business Name (Sarah Johnson doing business as “Big Sky Consulting”)

Step 2: Register an Assumed Business Name (Optional but Recommended)

If you want to operate under a business name rather than your personal name, Montana makes it straightforward:

Montana Assumed Business Name Process:

• File Registration of Assumed Business Name online only (no mail option)
• Pay $20 state filing fee
• Renew every 5 years
• Use for business banking and marketing

Why you should consider an Assumed Business Name:

• Professional appearance and branding
• Easier marketing and customer recognition
• Often required for business bank accounts
• Protects your privacy in business transactions

Step 3: Obtain an EIN (Highly Recommended)

While not required, getting an EIN (Employer Identification Number) is one of the smartest moves you can make:

Benefits of Having an EIN:

• Identity protection: Use EIN instead of Social Security Number on business forms
• Banking requirements: Most banks require EIN for business accounts
• Future expansion: Required if you ever hire employees
• Professional appearance: Shows you’re serious about your business

How to Get Your EIN:

• Apply free through IRS website (takes 10 minutes)
• Never pay for this service – it’s always free from the IRS
• Receive confirmation immediately

Step 4: Research Business Licensing Requirements

Montana doesn’t require a general business license, but you may need specific licenses:

Potential Licensing Requirements:

• Industry-specific licenses: Professional services, food service, healthcare, construction, etc.
• Local permits: City and county business permits
• Professional licenses: Individual licensing for certain professions
• Sales tax permit: If selling tangible goods

Step 5: Set Up Business Banking and Accounting

Open a Business Bank Account This is critical for any business, even a Sole Proprietorship:

• Separates business and personal finances
• Makes tax preparation much easier
• Provides professional appearance to customers
• Creates clear financial records for tax purposes

Most Montana banks require:

• Photo identification
• EIN confirmation letter (if you have one)
• Assumed Business Name registration (if applicable)
• Initial deposit

Implement Basic Accounting Set up systems to track:

• Business income and expenses
• Receipts and invoices
• Tax-deductible business expenses
• Quarterly tax payment estimates

Step 6: Understand Tax Obligations

Montana Sole Proprietorship tax requirements:

• Report business income/loss on Schedule C of personal tax return
• Pay self-employment tax on business profits
• Make quarterly estimated tax payments if owing $1,000+ annually
• No separate business tax return required
• May need to register for Montana sales tax if applicable

Montana Sole Proprietorship vs. Single-Member LLC: The Real Comparison

Here’s the honest cost-benefit analysis:

Formation Costs:

• Sole Proprietorship: $0 (plus optional $20 Assumed Business Name)
• Montana Single-Member LLC: $35 filing fee

Difference: $15-35 to get complete liability protection

Ongoing Costs:

• Sole Proprietorship: $0 (Assumed Business Name renewal every 5 years for $20)
• Montana Single-Member LLC: No annual fees or reports required

Ongoing difference: Essentially identical

Liability Protection:

• Sole Proprietorship: Zero protection – unlimited personal liability
• Montana Single-Member LLC: Complete protection of personal assets

Tax Treatment:

• Sole Proprietorship: Business income on personal tax return
• Single-Member LLC: Identical tax treatment (disregarded entity)

Bottom line: For $35 more, you get the same tax benefits plus complete liability protection. This is the best $35 investment you’ll ever make in your business.

Why I Rarely Recommend Sole Proprietorships

After tracking hundreds of Montana business formations, here are the real-world problems I see:

The Liability Horror Stories:

• Ranch equipment accident: Client injured, sued for $750,000, lost family ranch
• Service contract dispute: Consulting client claimed damages, personal savings garnished
• Product liability issue: Craftsperson’s product caused injury, home mortgage at risk
• Vehicle accident during business: Sole proprietor’s truck accident during delivery, personal assets exposed
• Professional error claims: Accountant’s mistake cost client money, personal assets seized

The Professional Credibility Problems:

• Banking difficulties: Hard to get business loans or lines of credit
• Client perception: Some clients won’t work with “unincorporated” businesses
• Vendor relationships: Suppliers hesitant to extend credit to sole proprietors
• Insurance complications: Business insurance more expensive and limited
• Contract limitations: Some government and corporate contracts require incorporated entities

The $35 Question:

Is saving $35 in LLC filing fees worth risking your house, ranch, retirement savings, and financial future? I’ve never met a Montana entrepreneur who thought so after understanding the real risks.

When Sole Proprietorships Actually Make Sense

In my 15 years of experience, Sole Proprietorships work in these very limited situations:

1. Testing a business idea (under 90 days) before formal formation
2. Extremely low-risk activities with minimal liability exposure (like writing or basic consulting with no physical component)
3. Very limited income (under $3,000 annually) where $35 LLC fee is prohibitive
4. Short-term seasonal work that won’t become a real business
5. Immediate cash flow needs where you need to start earning money before you can afford LLC filing

Even in these cases, I usually recommend saving up the $35 for a Montana LLC for the protection it provides.

The Smart Alternative: Montana Single-Member LLC

Instead of a Sole Proprietorship, consider a Montana Single-Member LLC:

Formation Process:

1. Choose LLC name and verify availability
2. File Articles of Organization with Montana Secretary of State ($35)
3. Obtain EIN from IRS (free)
4. Open business bank account (easier than with sole proprietorship)
5. Get required licenses (same as sole proprietorship)

Montana Single-Member LLC Advantages:

• Liability protection: Personal assets protected from business debts and lawsuits
• Same tax treatment: Identical taxation as sole proprietorship (disregarded entity)
• Professional credibility: Banks, vendors, and clients understand and trust LLCs
• Easy banking: Simpler to open accounts and establish business credit
• Investment ready: Much easier to bring in partners or investors later
• No ongoing fees: Montana has no annual report or ongoing LLC fees

Total Additional Cost:

$15-35 more than Sole Proprietorship for complete liability protection

This represents extraordinary value for asset protection.

How to Convert Montana Sole Proprietorship to LLC

Already operating as a Sole Proprietorship and want to upgrade? Here’s the conversion process:

Conversion Steps:

1. Form the Montana LLC following standard formation process
2. Transfer business assets to the LLC (may require new contracts)
3. Update business licenses to reflect LLC ownership
4. Open new LLC bank accounts and close proprietorship accounts
5. Update contracts and agreements with clients and vendors
6. Change business insurance policies to LLC name
7. Update marketing materials and business documentation

Tax Implications:

Most sole proprietorship to single-member LLC conversions are tax-neutral, but consult with a Montana CPA to confirm your specific situation.

Montana Business Structure Recommendations

Based on your situation, here’s what I typically recommend:

Single Owner, Low Risk:

• First choice: Montana Single-Member LLC ($35)
• Alternative: Sole Proprietorship (only if extremely cash-constrained)

Single Owner, Any Risk:

• Only choice: Montana Single-Member LLC ($35)
• Never: Sole Proprietorship (risk too high)

Multiple Owners:

• First choice: Montana Multi-Member LLC ($35)
• Alternative: Montana Corporation (if seeking investment)

High-Growth Ventures:

• Delaware LLC or Corporation (if seeking venture capital)
• Montana Corporation (if staying local but scaling rapidly)

Montana-Specific Business Advantages

State Business Environment:

• Extremely affordable LLC formation ($35)
• No annual report requirements for LLCs
• Business-friendly regulatory environment
• Strong agricultural and outdoor recreation economy

Geographic Benefits:

• Access to western U.S. markets
• Growing tourism and outdoor recreation industries
• Low cost of living and operating expenses
• Strong logistics connections to major markets

Tax Considerations:

• No state sales tax (one of only 5 states)
• Reasonable state income tax rates
• No franchise taxes on LLCs
• Pass-through taxation advantages maintained

Frequently Asked Questions

Do I need to register my Sole Proprietorship with Montana?

No, Sole Proprietorships exist automatically when you start doing business. However, you may want to register an Assumed Business Name if using a business name.

Can I hire employees as a Sole Proprietor?

Yes, but you’ll need an EIN and must handle payroll taxes, workers’ compensation, and employment law compliance.

What happens if I get sued as a Sole Proprietor?

You’re personally liable for all business debts and judgments. Creditors can seize your personal assets including your home, vehicles, and savings.

How are Sole Proprietorships taxed in Montana?

Report business income and expenses on Schedule C of your personal tax return. Pay self-employment tax on profits.

Can I have a business bank account as a Sole Proprietor?

Yes, and you should. Most banks require an Assumed Business Name registration and/or EIN to open business accounts.

What’s the difference between an Assumed Business Name and an LLC?

An Assumed Business Name is just a “doing business as” name – it provides no liability protection. An LLC is a legal entity that protects your personal assets.

Is a Montana LLC really worth the extra $35?

Absolutely. The liability protection alone is worth thousands of times the additional cost, and you get identical tax treatment.

Do I need an Independent Contractor Exemption Certificate (ICEC)?

Not required for sole proprietorships, but you can obtain one from Montana Department of Labor & Industry if needed for specific contracts.

The Bottom Line on Montana Sole Proprietorships

Sole Proprietorships are simple to start but create enormous personal risk for minimal cost savings. With Montana LLCs available for just $35 with no ongoing fees, there’s rarely a good reason to choose unlimited liability over complete asset protection.

My advice after 1,200+ business formations: Invest the $35 and form a Montana Single-Member LLC. The liability protection is worth far more than the minimal cost, you get identical tax benefits, and you’ll have significantly better professional credibility with banks, vendors, and clients.

If you’re absolutely determined to operate as a Sole Proprietorship, follow the steps in this guide and make sure you get an EIN and register an Assumed Business Name. But seriously consider whether saving $35 is worth exposing your personal assets to unlimited business liability.

Ready to form a Montana LLC instead? I’ve created a comprehensive Montana LLC formation guide with step-by-step instructions, cost breakdowns, and my tested service provider recommendations. Get the complete Montana LLC guide here.

Still have questions about Montana business structures? I personally respond to every entrepreneur navigating business formation decisions. Contact me directly – I’ll help you choose the structure that actually protects your interests.

Want professional help with Montana LLC formation? I’ve tested every major service and recommend Northwest Registered Agent for their excellent customer service and privacy protection features. They’ll handle your Montana LLC formation professionally and include registered agent service.

Jake Lawson is an LLC formation strategist who has guided over 1,200 entrepreneurs through U.S. business formation across all 50 states. He founded llciyo.com to provide unbiased, experience-based guidance for business structure selection and formation.