Contractor License Practice Exam

If a Sole Proprietorship operates under a trade name, what must the owner do?

1. Register with the IRS

2. Apply for a business license

3. Register the trade name with the appropriate department

4. Notify the local chamber of commerce

The correct answer is: Register the trade name with the appropriate department

When a sole proprietorship operates under a trade name, it is essential for the owner to register that trade name with the appropriate department. This step is crucial to establish the legal recognition of the trade name and to protect the owner's rights to use it in business activities. The registration process ensures that the trade name is not already in use by another business and helps to prevent potential legal issues related to trademark infringement. Registering the trade name also provides transparency and accountability to consumers, allowing them to identify the business owner behind the trade name. This step can enhance credibility and trustworthiness in the marketplace. Additionally, many jurisdictions require this registration to comply with local business laws, making it a necessary action for lawful operation under a trade name. The other choices have their own purposes but do not specifically address the requirement to operate under a trade name. Registering with the IRS pertains to tax identification but is not solely linked to trade name use. Applying for a business license is often necessary but may not specifically cover the trade name aspect. Notifying the local chamber of commerce, while potentially beneficial for networking and community relations, is not a legal requirement tied to the operation under a trade name.