With The Correct Business Structure Success Awaits
Just as every small business is different, so will the best option for said business. And, yes, as your company grows and changes, you can change the business structure. Consulting a respected, trustworthy tax attorney or business advisor is a good first step in determining which business structure will be the best option for you.
Once youve decided which legal structure and name youll choose for your business, the next step is to create a brand for your company. Here you can learn how to do that:
What Is Sole Proprietorship In California
The most common form of business ownership is a sole proprietorship. It is not considered a separate entity like a corporation but an extension of a single owner or individual. The company and the owner dont exist apart from each other. A sole proprietorship consists of an individual or a married couple. A business is liable for all debt, obligations that are attached to the business including the profits earned. Moreover, all business-related acts involving employees, delegating decisions, and management are attached to the sole proprietor. The life of sole proprietorship continues to exist until it goes out of business or once the owner passes away.
Searching The County Database
In many areas, you’ll be instructed to search the county or state database of registered fictitious business names before submitting your statement to make sure no one else has already registered the name you want to use. Typically, you can search a county’s database for free if you go to the office in person. Sometimes you can pay a fee for a staff person to do the search for you. If you want the clerk’s office to do the search, you must usually submit the request and fee by mail.
Remember, searching your county database won’t tell you if a name is trademarked. Someone in a different county, state, or even country might own trademark rights to that name. If so, and you go ahead and use that name for your business, you may well run into legal trouble, depending on your geographical scope and the products or services you sell. To avoid being accused of unfair competition or trademark infringement, it is wise to check neighboring counties’ FBN databases, look into state registries of corporate and LLC names, or even do a full international trademark search. Failing to do an appropriate search puts you at risk not only of lawsuits, but also of having to change your name down the line when you already have stationery, business signs, and invoices printed.
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How To Get Paid As A Dba Sole Proprietor
May 29, 2018 by
Getting paid when you work for yourself is not as straightforward as it might seem.
Sole proprietors must follow these guidelines for paying themselves so they do not get in trouble with the Internal Revenue Service or other US government agencies.
How can you get paid when you started your own business that is an unincorporated company, DBA sole proprietor? It appears simple, right? You sell a product or perform a service and you and get paid. That is how self-employment functions, right?
If only it were that easy. Whenever youre getting paid for something, the IRS along with a couple other national, state, and local agencies need a bit of it. For taxation purposes, if you are running the company as a sole proprietor as many freelancers, consultants and independent contractors perform, you do not pay yourself a salary and can not deduct your salary as a business expense. Instead, your income in the company is composed of the company gains and those get added to your income tax return.
So how can you work it out when you cannot wait until the end of the year to pay yourself a salary? How can you set things up so that you can pay yourself on a regular basis and be sure that the business expenses are monitored in a manner which makes accurate reporting to the IRS and other agencies simple at the end of the year?
Here is the best way to deal with paying yourself as the business owner and manager.
Am I a Sole Proprietor?
How Do I Start A Sole Proprietorship
Starting a sole proprietorship is simple, although the specific steps you take may vary depending on where you live. In most states, you need to follow these three steps to become a legal entity:
Steps to start a sole proprietorship
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What Exactly Is Doing Business As
In the U.S., a DBA lets the public know who the real owner of a business is. The DBA is also called a fictitious business name or assumed business name. It got its origins as a form of consumer protection, so dishonest business owners couldnt try to avoid legal trouble by operating under a different name.
When someone files a DBA, its normally circulated in some kind of newspaper . It lets the community know exactly who is behind a business.
Establish And Publish A Dba Statement
Doing Business As is also known as your fictitious name and is not required. Sole proprietors tend to file a DBA for practical reasons such as sales and marketing. The county clerks office requires a signed affidavit of your published statement within thirty days after the final publication. In the majority of California counties, the published DBA statement must be in a local paper once a week for four weeks. Just make sure that the publication you decide to go with will provide an affidavit with the county clerks office, after requirements are met. A DBA must be filed anytime you dont choose to use your last name or a different last name. It is important to keep in mind having a registered name with California doesnt protect or give you exclusive rights to use that name. Only when you register a trademark under that name it allows for an exclusive right to use that name.
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Changing Your Business Structure
You dont need to change your business structure to hire employees. But even though you can have employees in a sole proprietorship, you might choose to change your business structure. For example, switching from sole proprietor to LLC will separate your business and personal assets and reduce your personal liability.
This separation will protect you personally if your business is sued or gets into any other trouble. Lets say an employee gets hurt on the job and sues you. If you still operate a sole proprietorship, your personal assets might be at risk. But if you had switched to an LLC, your personal assets would be protected.
Use your own discretion to determine if your business should remain a sole proprietorship or if you should change business structures. An accountant or lawyer may be able to give you advice.
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Can A Sole Proprietorship Hire A Contract Employee
When you are a sole proprietorship and a small business, you’ll come to a time when you need to hire additional help. The help might be for a temporary project or because your business is growing, but not fast or large enough for a full-time employee. In these types of situations, a sole proprietor can hire a contract employee, more commonly referred to as an independent contractor.
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When Is A Dba Required In California
A DBA is always required in California when a sole proprietor, or any other business entity, wants to operate and sign legal documents under a different name. The only exception to this rule is if a sole proprietor incorporates his or her last name into the business name.
For example, if someone named John Smith wanted to start a business called “Smith’s Auto Repairs,” they may not need to file a DBA. However, if they wanted to call their operation “John’s Auto Repairs,” then a DBA would be required. A DBA would also be necessary if they wanted to choose a completely different name for their company, such as “A1 Auto Repairs,” or “Superior Auto Repairs.”
Many sole proprietors are required to file a DBA in the state of California. The only exception is when the owner’s last name is part of the business name. DBAs protect consumers, and at the same time, allow business owners to brand their operation appealingly.
The blog posts provided on this website do not, and are not intended to, constitute legal advice instead, all information, content, and materials available on this blog are for general informational purposes only.
Moving On To The Next Step
You’ll want to have your formal business structure decided before conducting any sales through DBAs, single or multiple sole proprietorships, and there are also other requirements to lock down.
From the administrative side, check with all local and state authorities to be sure you have the applicable permits and licenses needed to conduct business. To protect the assets of your company and avert a potential financial disaster, a comprehensive business insurance plan is a must-have.
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Does My State Require A Dba
Almost every state requires that a business file a DBA if it wants to conduct business under a name that is different from their currently registered one. This usually applies to all companies. Even if your local county or state doesn’t require a DBA for a business to operate under a fictitious name, we’d always recommend filing one, as DBAs can provide other benefits. The following states do not require DBAs to operate under a fictitious name.
|Businesses aren’t required to file a DBA in order to operate under a different name.|
How Do Income Taxes And Legal Liability Work In A Sole Proprietorship
A Sole Proprietorship is considered the same legal and tax-paying entity as its owner.
The owner is personally liable for the legal and financial debts of the business. So, if a Sole Proprietorship doesnt pay its bills or gets sued by a customer or vendor, the owners personal assets might be seized to settle those debts.
Sole Proprietorships are pass-through entities for income tax purposes. Business profits and losses flow through to the owners personal tax returns. Also, all of a Sole Proprietorships profits are subject to self-employment taxes thats because the owner doesnt receive a paycheck from which those taxes are deducted. Generally, Sole Proprietors must make quarterly estimated tax payments to the IRS, state, and local tax authorities throughout the year.
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What Is A Sole Proprietorship
A Sole Proprietorship is the simplest structure for operating a business owned by one person . By default, states will consider a single-owner business to be a Sole Proprietorship unless the owner files business registration paperwork to form an LLC or a Corporation. Sole Proprietors are not considered employees of their companies. They get paid by withdrawing funds out of their businesses for personal use.
Many freelancers, consultants, and other professional service providers work as Sole Proprietorships. The Sole Proprietorship structure is also attractive to entrepreneurs in other industries, too . Its common for entrepreneurs to start as Sole Proprietorships and then register their companies as formal business entities when they begin to grow or expand their businesses.
How Many Dbas Can A Sole Proprietor Have
You cannot create more than one DBA per state. However, if you want to create a DBA in another state, you can do so by filling out an application.4 min read
How many DBAs can a sole proprietor have is something that you should be mindful of before doing business as a sole proprietor. If you are an entrepreneur and youre ready to formally establish a business on your own, then you might want to form a sole proprietorship. When forming this type of business, you really dont have to do much except begin conducting business.
Unlike the Limited Liability Company , Corporation, and Partnership, the sole proprietorship doesnt require paperwork or fees to officially do business. Rather, if you begin offering services or products to the public, then you are said to be operating a sole proprietorship.
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What Taxes Are Associated With A Sole Proprietorship
While sole proprietors report income on their personal taxes instead of as a separate business entity, taxes can still be a big headache. Again, at the state and local levels, what you will be required to pay may vary. Generally, though, you will be responsible for:
- Federal income tax
- State income tax
- Self-employment tax
- Sales tax
Sole proprietors will also pay quarterly estimated taxes rather than just paying once a year. The estimated taxes include your income and self-employment tax. Estimated tax payments are owed if you expect to owe at least ,000 in taxes at the federal level and are due in January, April, June, and September.
Sole proprietors should also closely track their business deductions. These will help offset your income and result in lowering your tax obligation. A few common deductions include home office space, some retirement plans, health savings accounts , marketing, loan interest, bank fees, legal fees, and the internet.
There are ways to make the tax headache easier and let you focus more on the business. Employing a tax professional can help you with the guidance, preparation, and filing of your taxes.
Set Up A Sole Proprietorship
If youâre a sole proprietor, you run your own business as an individual and are self-employed.
To establish a sole proprietorship, you must:
- Choose a business name, for tax purposes, even if itâs your name
- Obtain licenses, permits, and zoning clearance
- Visit CalGold for more information
- File a fictitious business name statement with the county recorder
- Obtain an Employer Identification Number
- Visit the Employment Development Department for more information
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What Are The Advantages Of Having A Dba
A DBA can accomplish several things for a business owner.
“If a business wishes to rebrand itself without forming a new limited liability company or corporation, they can simply register a DBA instead,” Babbitt said. “If the business receives bad publicity, they may register a DBA to mislead the public into thinking the business is different.”
There are also some less obvious reasons to register more than one DBA. For example, there’s a scene in Parks and Recreation where Tom and Ben are looking for a tent for an event. The deal falls through with one tent company, so they call another one, only to find that it’s owned by the same person. In fact, that same person owns all the tent rental companies in a certain mile radius. Babbitt says that this actually happens.
“Some businesses will create multiple DBAs to create the illusion of competition,” he said. “For instance, four taxis could all have separate DBAs even though they are all owned by the same person.”
A DBA also comes in handy for entrepreneurs who want to make a distinction among their numerous businesses.
Finally, if you are a sole proprietor, it gives you the chance to build a brand under a name of your choosing instead of using your personal name. This helps you market better to your audiences and gets your brand out there in a way that is beneficial to your business.
Dba For A Sole Proprietorship
If you decide on a DBA for your sole proprietorship, you have some work to do before you start handing out business cards. When you make up a sole proprietorship name you have to register it with local government. That way, anyone who has issues with the company can find out who owns it and who needs to be sued. If you want to open a business bank account, you have to register the name first.
Usually you file the necessary paperwork with your local county government, Royal Legal Solutions says. Laws in some states say you must register with the secretary of state as well. Wherever you register should have a database of previously registered names available. To avoid confusion, you want one that doesn’t sound too much like an established business.
Each state sets its own rules for DBAs. Common rules say that you don’t need a DBA if your last name is incorporated into the business name. Frank Pryor doesn’t need a DBA for Pryor’s Landscaping, for instance, but he would for Frank’s Landscaping. Some names aren’t permitted. Oregon, for instance, doesn’t allow sole proprietorship names to include Inc., which would imply you’re a corporation.
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Do Not Neglect Or Put Off Registering Your Fictitious Business Name
By Peri Pakroo
Any name used for business that doesn’t contain the legal name of the owner/sole proprietor is called a fictitious business name . Fictitious business names are sometimes called assumed names, or “DBAs,” for “doing business as”as in, “Spikey Andrews, doing business as Coffee Corner,” or “Alibi Corporation, doing business as Ferryville Bait and Tackle.”
Most states require a business that uses a fictitious business name to register that name, usually with the county clerk in the county where its primary business site is located. Depending on your state, this requirement goes by different names: fictitious name certification, DBA filing, trade name registration, or something similar.
FBN registrations are typically done at the county level, although, in some states, you register your FBN with the secretary of state or other state agency. The registration process is covered in more detail below.
Do not neglect or put off registering your fictitious business name. Without proof of registration, many banks will not open an account under your business name.