Filing a Fictitious Name (DBA)
Your fictitious business name is a name other than your own under which you will be "doing business as" (DBA). You need to file for use of this name before you can legally use it to do business. This fictitious name links the name of the business to the actual proprietor (that's you). If you are opening a travel agency and you want to call it Odyssey, you need to establish that Odyssey is another name for you — the proprietor.
Check with your county clerk in the city where you will obtain your business license. You will need to post a newspaper notification of your DBA name and your intent to use it. Your published statement of intent may be used to file your DBA with the county clerk.
Form of Ownership
One of the first decisions that you will have to make as a business owner is how the company should be structured. This decision will have longterm implications, so consult with an accountant and attorney to help you select the form of ownership that is right for you. In making a choice, you will want to take into account the following:
- Your vision regarding the size and nature of your business.
- The level of control you wish to have.
- The level of structure you are willing to deal with.
- The business' vulnerability to lawsuits.
- Tax implications of the different ownership structures.
- Expected profit or loss of the business.
- Whether or not you need to reinvest earnings into the business.
- Your need for access to cash out of the business for yourself.
The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibilities for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume complete responsibil
ity for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.
Advantages of a Sole Proprietorship
- Easiest and least expensive form of ownership to organize.
- Sole proprietors are in complete
control, and within the parameters of the law may make decisions as they see fit.
Sole proprietors receive all income generated by the business to keep or reinvest.
Profits from the business flow directly to the owner's personal tax return.
- The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.
May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
May have a hard time attracting high-caliber employees or those who are motivated by the opportunity to own a part of the business.
Some employee benefits, such as owner's medical insurance premiums, are not directly deductible from business income (only partially deductible as an adjustment to income).
Federal Tax Forms for Sole Proprietorship
(only a partial list and some may not apply)
- Form 1040: Individual Income Tax Return
- Schedule C: Profit or Loss from Business (or Schedule C-EZ)
- Schedule SE: Self-Employment Tax
- Form 1040-ES: Estimated Tax for Individuals
- Form 4562: Depreciation and Amortization
- Form 8829: Expenses for Business Use of your Home
- Employment Tax Forms
In a partnership, 2 or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners.
The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, and what steps will be taken to dissolve the partnership when needed.
Yes, it's hard to think about a breakup when the business is just getting started, but many partnerships split up at crisis times, and unless there is a defined process, there will be even greater problems. They also must decide upfront how much time and capital each will contribute, etc.
Advantages of a Partnership
Partnerships are relatively easy to establish. However, time should be invested in developing the partnership agreement.
- With more than one owner, the abil-
ity to raise funds may be increased.
The profits from the business flow directly through to the partners' personal tax returns.
Prospective employees may be attracted to the business if given the incentive to become a partner.
The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
- Partners are jointly and individually liable for the actions of the other partners.
- Profits must be shared with others.
- Since decisions are shared, disagreements can occur.
Some employee benefits are not deductible from business income on tax returns.
The partnership may have a limited life; it may end upon the withdrawal or death of a partner.
Partnerships to be Considered
- General Partnership Partners. divide responsibility for management and liability as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.
- Limited Partnership and Partnership with limited liability.
Limited means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for short-term projects or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.
- Joint Venture Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and also distribute accumulated partnership assets upon dissolution of the entity.