In our “News” section we will be publishing a series of informational articles addressing setting up and growing your businesses.    This offering will deal with the types of business structure available to the entrepreneur.   We believe that setting up your business with the proper foundation and developing your sphere of business relationships is invaluable.    While we recognize that many of you visiting our website have already established  successful businesses,  we are beginning at the starting point for those who are launching into their own business for the first time.   We recommend that you take this information seriously even with a part time business.   You never know when that part time business will turn into something bigger than you expected and you want to be sure you are set up correctly from the beginning.   These articles serve only as ideas or tips to lead you in a positive direction; again, the implementation and liaison with other professionals is entirely up to you.

Business Name/Business Structure

A basic overview of our discussion will include

-          Who are some of  the people in your business sphere?

-           Purpose of establishing a business name

-           Choosing a business name

-          What is DBA and a Federal/Tax ID number?

-          Where to register

-          What is a sole proprietor

-           What is a partnership

-           LLP/LLC

-          S Corporation

-          C Corporation

1 - Your business sphere will  likely comprise an attorney to make sure you are set  up properly with your  choice of company status (we will delve into types of businesses later in this article) or/ and accountant to handle your  taxes  and appropriate tax deductions for business.   Another individual who will likely be in your sphere is an insurance agent.  Since you will be using your home and car for  your business,  a call to your agent will verify if you are properly insured.

2 - The purpose of establishing  registered business names allows you to take advantage of many tax deductions associated with home-based business.  

3 – We cover  choosing a business name in  Chapter #3 of our Simple 10 Point System.

4 –DBA stands for “Doing Business AS.”  A DBA is also known as a Fictitious Business Name.  If you plan to operate under a name other than  your own given name you will want to register it as a DBA.

In addition to registering a business name,  you may also decide to apply for a  Federal Tax ID number for  your business.  Some states allow you to use your Social Security number for your Tax ID number.

Before you register your DBA, check to see if the name is available.   Check with your local county clerk’s office, state department of commerce, or the state tax commissions office.

5 – Where to go to register – typically you can register  your business name and get your Federal Tax ID number at your local county clerk’s office or the state tax commission.   Check out our  link for www.sba.gov.   This site will show  you where to register your business for your individual state.    Always check with your attorney or accountant  if you have any questions.

The first steps to forming a legal business is choosing a legal business structure.   There are six main types of legal structures which we will cover and list some of the pros and cons of each.  

6 – Sole Proprietor – Most small businesses start as a sole proprietor because it is simple, inexpensive, and a quick  process to establish.   Only single owner businesses can be “sole” proprietorships.    To set up a sole proprietorship you generally contact the local county/state clerk’s office and apply for a DBA form (Doing Business As).   The cost to register is minimal.  You may also need to apply for a state/federal tax ID number,  check with your local office at the time. 

Sole proprietors  have some tax advantages over other types of legal business structures.   Because  the business is a sole proprietor, the business is treated as a single entity with  business income and loss reported on the owner’s personal  federal  tax  return.  In other words only being taxed once; whereas, with corporations, taxes are paid on profits and on employees personal salaries. 

A huge disadvantage of a sole proprietorship is that the owner is personally liable for the company.   If there is ever a lawsuit filed against the company, the personal assets of the owner could be at stake.  A very good reason to consider a different business structure for  business AND  I always differ to consulting  your attorney to determine which structure is best for you.

7 – Partnerships  - There is not much difference between a partnership and a sole proprietorship.  A partnership involves two or more people but unlike a sole proprietorship, the partners share the responsibility of the business.

If entering into a partnership, a key element would be to put everything in writing regarding the structure, set-up and function of the company as well as the responsibilities of each involved persons.  Keep in mind that someone needs to have the final say in the event of  a disagreement…a managing partner  and what the procedure would be in the event that one or some of people involved aren’t  performing as expected.   There is also a need to have, in writing, how profits (and losses) are to be disbursed.

There are two main types of partnerships – general and limited.   In a general partnership all the responsibilities are shared.  In a limited partnership there is a one general (managing) partner and the others are limited.  This type of partnership allows the general partner to have the flexibility and freedom to run the company as they see fit and the limited partner is protected in the event that  something were to go wrong.