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How to Start a Sole Proprietorship in Maryland

Entreprenuers that are looking for the most simple way to start their single owner business in Maryland can choose to start as a sole proprietor. Establishing a business as a sole proprietorship in Maryland doesn’t require any formal steps, but you’ll need to complete additional filings and processes to operate under your business name in Maryland legally and ensure you comply with state and local regulations. This guide will outline the process to get your sole proprietorship started and compliant.

Keep in mind that a sole proprietorship does not protect your personal assets if you are sued. If you’re seeking liability protection you may want to consider forming a Maryland LLC instead. If you want more details on how an sole proprietorship is different from an LLC, visit our Sole Proprietor vs LLC guide.

1. Come Up with a Business Name

As with any business, the first step to starting a sole proprietorship is determining your Maryland business name. Having a memorable and unique business name is very important to success. Even if you have a name already in mind, it’s a good idea to brainstorm at least a few different names in case your preferred name is already in use. For more inspiration, check our our how to come up with a business name guide, where we go over 15 different tips to inspire your creativity.

Conduct a Business Name Search

After you have a couple names that you like, you’ll want to ensure that no one else is using those names by completing prelimary searches:

2. Register Your Business Name

The second step in starting a Maryland sole proprietorship is registering your buisness name. By operating as a sole proprietor there’s no legal difference between you as an individual and your business. As a result if you want to operate under a separate business name you’lll want to file a DBA. A DBA or “doing business as” name allows a business to use a name different than it’s legal name and you can file as many DBA names as you want or need. In Maryland DBA’s are also referred to as a “Trade Name”.

The filing and issuing of DBA’s for sole proprietorships is done at the state level in Maryland. To register your DBA you’ll need to submit your Trade Name application to the Maryland Department of Assessments and Taxation and pay a filing fee of $25 .

3. Obtain Business Licenses and Permits

Sole proprietorships are subject to business and professional licensing requirements. Business and professional licenses are issued at the federal, state, and local levels. The types of licenses and permits your business is required to file will vary widely depending upon the nature of your business and how it operates.

Federal Licenses and Permits

Most common types of businesses are not subject to federal licensing, however if manufacture or sell products that are regulated at the federal level you will need the relevant federal license before you begin operating. Below is a list of federal agencies from the U.S. Small Business Administration (SBA) that issue federal permits and licenses :

Maryland State Business Licenses and Permit Resources:

For information on state-level licenses and permits in Maryland visit the Maryland OneStop website.

Local Licenses and Permits

Local licenses and permits vary widely depending on where your business operates and the nature of the business, however the most common types of local licenses and permits include:

  • Operating License
  • Building Permits
  • Zoning and Land Use Permits
  • Health Licenses and Perits
  • Signage Licenses

Professional Licenses

If you work in a regulated profession you may also require a profressional license. These licenses are required to show proof that you have completed the required training or possess the required expertise to work in the field. There are a wide variety of industries where a professional license is required but some of the most common are:

  • Accountants
  • Electrictians
  • Financial Advisors
  • Hair Stylists & Barbers
  • Insurance Agents
  • Mechanics
  • Medical Professionals
  • Plumbers
  • Real Estate Agents

With how complex and time consuming the business license research process can be, we recommend using a service to determine which licenses you’ll need to apply for.

4. Get an EIN from the IRS

If you have employees, you are required to get an EIN. EINs are a nine-digit ID number issued by the IRS to identify businesses for tax purposes. You can apply for an EIN for free online using the IRS’ EIN Assistant.

If you don’t have employees, you are not required to get an EIN as a sole proprietor. However, it can be useful to get an EIN. They are often required to open a business bank account and can be used in place of your social security number for most business applications.

Important Note about Sole Proprietor EINs:

Since sole proprietorships are not viewed as separate from an individual, sole proprietor EINs are issued under their names, not their DBA names. As a result, you will only be issued 1 EIN as a sole proprietor for your lifetime. This will be used for any and all businesses you will operate as a sole proprietor. If you apply for an EIN as a sole proprietor and receive reference error 101, this likely means that you have already been issued an EIN previously. If you cannot recall your EIN or have not been issued an EIN previously, you will need to call the IRS Business and Specialty Tax Assistance line at 1-800-829-4933 and use the prompts related to reference number 101.

5. Open a Business Bank Account

The final step to making your California sole proprietorship a reality is to open a business bank account. It’s important to keep your business and personal transactions separate to prevent the co-mingling of funds. The easiest way to do this is to open a designated business bank account and use it only for business transactions. This will make it easier for you to complete your accounting and bookkeeping tasks.

Check out this helpful guide to learn how to opening a business bank account.

Other Items to Consider

Once you have established your sole proprietorship, you will also want to complete these important tasks:

  • Setup Credit Card Processing:
    Considering that over 60% of transactions are done via debit and credit cards, it’s essentially a requirement to accept credit card payments. We go over how to do this in our How to Accept Credit Card Payments guide.

  • Establish an Accounting System:
    You’ll need to determine the accounting method you will use for your business: cash basis accounting vs. accrual accounting. To learn more, check out our guide on small business accounting 101.

  • Get Business Insurance Coverage:
    As a sole proprietor, you lack personal liability protection, so getting adequate business insurance could be your only financial protection method. Learn more about business insurance here.