By Jake Lawson, LLC Formation Strategist
Let me cut straight to the chase: Starting a sole proprietorship in Delaware is like driving without insurance—technically legal, potentially disastrous, and completely unnecessary in 2025.
After 15 years of helping entrepreneurs choose business structures, I’ve seen too many sole proprietors learn expensive lessons about liability protection. Delaware might be famous for corporate law, but that doesn’t make it a magical place for sole proprietorships.
Here’s the unvarnished truth: Sole proprietorships offer zero asset protection, limited credibility, and unnecessary complexity when you could form an LLC for just $110 and get actual legal protection.
But if you’re absolutely determined to go the sole proprietorship route—or if it’s genuinely your best option right now—this guide will walk you through the process while highlighting the landmines you need to avoid.
What Is a Delaware Sole Proprietorship? (The Uncomfortable Reality)
A Delaware sole proprietorship is the simplest business structure possible—so simple it barely qualifies as a structure at all.
Here’s how it works:
- You are the business, the business is you
- No legal separation between personal and business assets
- You’re personally liable for every business debt and lawsuit
- No filing required with the state (because there’s no entity to file)
Think of it this way: If your business gets sued for $100,000 and loses, they can take your house, car, personal bank accounts, and anything else you own to satisfy that judgment.
The Delaware twist: Unlike some states where sole proprietorships fly completely under the radar, Delaware requires you to get a business license and potentially register a trade name. So you get the worst of both worlds—bureaucratic paperwork with zero legal protection.
Delaware Sole Proprietorship Pros: The Short List
Let me be honest—the advantages are pretty slim:
1. Instant Setup (Because There’s Nothing to Set Up)
You become a sole proprietor the moment you start doing business activities with the intention of making money. No paperwork, no filing fees, no waiting periods.
Reality check: This “advantage” is like saying the best thing about not wearing a seatbelt is that you don’t have to buckle up.
2. Simple Tax Filing
Your business income and expenses go on Schedule C of your personal tax return. No separate business tax return required.
But here’s what they don’t tell you: Single-member LLCs have identical tax treatment by default, so you get the same simplicity with actual legal protection.
3. Low Startup Costs
No Delaware state filing fee since there’s no entity to register.
The catch: You’ll still need a Delaware business license, potential county trade name registration, and professional insurance (which costs way more than just forming an LLC).
Delaware Sole Proprietorship Cons: The Reality That Matters
1. Zero Liability Protection (The Deal Breaker)
This is the big one. Every business lawsuit, debt, or liability becomes your personal problem.
Real-world examples I’ve seen:
- Contractor’s customer slips and falls → homeowner’s insurance doesn’t cover business activities → sole proprietor loses house
- Consultant gives bad advice → client loses money → consultant’s personal bank accounts frozen
- E-commerce business sells defective product → product liability lawsuit → sole proprietor declares personal bankruptcy
2. Limited Business Credibility
Vendors, clients, and lenders take you less seriously as “Jane Smith” instead of “Smith Consulting LLC.”
Impact on your business:
- Harder to get business credit cards
- Customers may prefer working with “real” companies
- B2B clients often require you to have an LLC or corporation
- Banks may refuse business accounts without formal entity
3. Self-Employment Tax Nightmare
As a sole proprietor, you pay self-employment tax (15.3%) on all business profits. LLCs can potentially save thousands through S-Corp election as you grow.
4. Conversion Complexity
Converting from sole proprietorship to LLC later requires:
- Updating IRS records
- New business bank accounts
- Reissuing contracts and agreements
- Updating licenses and permits
- Notifying all vendors and clients
My experience: I’ve helped dozens of entrepreneurs through this conversion process. It’s a expensive, time-consuming headache that’s completely avoidable.
Step-by-Step Delaware Sole Proprietorship Setup
If you’re still determined to proceed (despite my warnings), here’s how to do it properly:
Step 1: Business Planning (Do This Right)
Before you start calling yourself a business, nail down these fundamentals:
Business Model Clarity:
- What exactly are you selling?
- How will you deliver your product/service?
- What’s your pricing strategy?
- Who is your target customer?
Financial Planning:
- Startup costs and ongoing expenses
- Revenue projections (be realistic)
- Personal financial runway (how long can you survive without profit?)
Risk Assessment:
- What could go wrong in your business?
- What’s your liability exposure?
- Do you interact with customers in person?
- Are you providing professional advice or services?
Pro tip from 15 years of experience: If your risk assessment reveals ANY significant liability exposure, stop here and form an LLC instead.
Step 2: Choose Your Business Name and Handle DBA Requirements
Default Name: Your legal first and last name (e.g., “John Smith”)
If you want a business name: You’ll need to register a “Trade Name” (Delaware’s term for DBA)
Delaware Trade Name Registration Process:
Where to file: County prothonotary office where you’ll do business Cost: $25 per trade name Required form: Registration of Trade Name Certificate
Delaware Counties:
- New Castle County (Wilmington area)
- Kent County (Dover area)
- Sussex County (Southern Delaware)
Filing process:
- Download and complete the trade name certificate
- Visit the appropriate county prothonotary office
- Pay $25 filing fee
- Receive your filed certificate
My recommendation: Unless you absolutely need a branded business name, skip the DBA and operate under your legal name. It’s one less complication and expense.
Step 3: Get Your Federal EIN (Do This Even Though It’s Optional)
You can use your Social Security Number for tax purposes, but getting an EIN is smarter for several reasons:
Identity Protection: Stop giving out your SSN to clients and vendors Employee Hiring: Required if you ever want to hire staff Business Banking: Many banks prefer or require an EIN for business accounts Professional Appearance: Looks more legitimate on invoices and forms
How to Get Your EIN (The Right Way):
- Go directly to IRS.gov (not third-party sites that charge fees)
- Use the online application (fastest method)
- Complete in one session (you can’t save and return)
- Have your information ready: Business name, address, reason for applying
Time required: 15 minutes Cost: $0 (ignore anyone charging for this free service)
Step 4: Get Your Delaware Business License (This Is Mandatory)
Unlike many states, Delaware requires ALL sole proprietorships to obtain a business license.
Delaware Business License Requirements:
Issuing Authority: Delaware Division of Revenue Cost: Varies by business type and revenue Application: Online through Delaware OneStop Business Portal
Required Information:
- Business name and address
- Owner information and SSN/EIN
- Business activity description
- Projected annual revenue
Processing Time: 1-2 weeks typically Renewal: Annual (fees vary by business type)
Additional Licensing Considerations:
Professional Services: May need state-specific professional licenses Retail/Food Service: Health department permits, sales tax registration Home-Based Business: Check local zoning requirements Regulated Industries: Additional federal or state permits required
My advice: Research licensing requirements thoroughly before starting operations. Getting shut down for operating without proper licenses is expensive and embarrassing.
Step 5: Set Up Business Banking (Separate Your Money or Lose Everything)
This isn’t optional. Mixing personal and business finances is called “commingling” and can destroy any chance of protecting personal assets later.
Required Documents for Business Bank Account:
- Photo ID
- EIN confirmation letter (if you got one)
- Trade name certificate (if filed)
- Delaware business license
- Initial deposit
My Recommended Delaware Business Banks:
For most sole proprietors: TD Bank
- Strong Delaware presence
- Reasonable business account fees
- Good online banking platform
For low-transaction businesses: WSFS Bank
- Local Delaware bank
- Competitive business account options
- Personal service approach
For online businesses: Mercury
- No minimum balance requirements
- Built for modern businesses
- Excellent mobile app
Step 6: Handle Tax Registration and Compliance
Federal Tax Obligations:
Income Tax: Report business profit/loss on Schedule C Self-Employment Tax: 15.3% on business profits Quarterly Estimated Taxes: Required if you owe $1,000+ annually
Delaware State Tax Obligations:
Income Tax: Delaware personal income tax applies to business profits Sales Tax: Required if selling taxable goods or services Gross Receipts Tax: Delaware’s unique business tax (small businesses often exempt)
My recommendation: Hire a Delaware accountant familiar with sole proprietorship requirements. The compliance complexity can quickly exceed the cost of professional help.
Delaware Sole Proprietorship vs. LLC: The Real Comparison
Let me break down the actual costs and benefits:
Sole Proprietorship Total Costs:
- Delaware business license: $75-200+ annually
- Trade name registration: $25 (if needed)
- Professional liability insurance: $500-2,000+ annually
- Total first year: $600-2,200+
Delaware LLC Total Costs:
- State filing fee: $110
- Registered agent: $100-150 annually
- Annual franchise tax: $300
- Total first year: $510-560
The math: You’ll often spend MORE on sole proprietorship insurance and licensing than just forming an LLC—and you still won’t have liability protection.
The Liability Protection Difference:
Sole Proprietorship: Your house, car, personal bank accounts, and retirement savings are all at risk in business lawsuits.
Delaware LLC: Only business assets are at risk. Your personal assets remain protected (assuming you follow proper procedures).
Real-world example: I worked with a consultant who gave advice that cost a client $50,000. As a sole proprietor, he faced personal bankruptcy. If he’d been an LLC, the worst-case scenario would have been losing his business—his house and retirement would have been safe.
When Delaware Sole Proprietorship Might Make Sense
I’m not going to lie to you—there are very few scenarios where I recommend sole proprietorships. But here are the limited cases:
1. True Bootstrap Situation
- You literally have $0 to invest in business formation
- You’re testing a very low-risk business idea
- You plan to form an LLC within 6 months
2. Very Low-Risk Activities
- Selling crafts at farmers markets
- Freelance writing with small clients
- Simple consulting with minimal liability exposure
3. Temporary Business Activity
- One-time project or event
- Seasonal business you’re testing
- Bridge while saving money for proper formation
My Honest Recommendation: Skip Sole Proprietorship Entirely
Here’s the reality: Delaware LLCs cost about the same as properly operating a sole proprietorship once you factor in licensing, insurance, and compliance costs.
Better alternatives:
Best Option: Form a Delaware LLC for $110 + registered agent fees
- Real liability protection
- Professional credibility
- Same tax benefits
- Easier banking and credit
Budget Alternative: Form in your home state if Delaware isn’t necessary
- Often cheaper than Delaware
- Simpler compliance requirements
- Local legal and tax familiarity
Professional Formation: Northwest Registered Agent for $39 + state fees
- Handles all paperwork
- Includes registered agent service
- No Delaware bias or upselling
The Bottom Line: Protect Yourself
Starting a sole proprietorship in Delaware is like building a house without a foundation—it might work temporarily, but it’s not built to last.
The costs of liability exposure far exceed the costs of proper business formation. I’ve seen too many entrepreneurs lose everything because they tried to save a few hundred dollars on entity formation.
My advice: Invest in an LLC from day one. Your future self will thank you when you have real legal protection and business credibility.
Ready to Start Your Business the Right Way?
Skip the sole proprietorship risks and form an LLC:
DIY Delaware LLC: File directly with Delaware Secretary of State for $110 Professional Help: Northwest Registered Agent for $39 + state fees Need Guidance: Delaware LLC Formation Guide with step-by-step instructions
Still considering sole proprietorship? Email me directly at jake@llciyo.com. I’ll give you an honest assessment of whether it makes sense for your specific situation.
About Jake Lawson: With 15+ years of business formation experience, Jake has helped over 1,200 entrepreneurs choose the right business structure. He’s particularly passionate about protecting entrepreneurs from unnecessary liability exposure and has seen firsthand the devastating impact of inadequate business protection. MBA in Finance (UT Austin), Certified Tax Consultant (CTC).
Disclaimer: This guide provides general information about sole proprietorships in Delaware. Business formation and liability protection are complex topics that vary by industry and situation. Consult with qualified legal and tax professionals for advice specific to your circumstances.