Understanding Sole Proprietorships and DBAs
THE SOLE PROPRIETOR. A sole proprietorship, or simply proprietorship, is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. It is a "sole" proprietor in the sense that the owner has no partners. A sole proprietorship essentially means a person does business in their own name and there is only one owner. A sole proprietorship is not a corporation, it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship need not worry about double taxation like a corporate entity would have to. Most sole proprietors will register a trade name or "Doing Business As". This allows the proprietor to do business with a name other than his or her legal name and also allows the proprietor to open a business account with banking institutions. THE DBA. DBA is an abbreviation for “doing business as.” Certain jurisdictions may use the terms fictitious business name, trade name or assumed name instead of DBA. There are two types of DBAs. First, is the individual entrepreneur who opens a business under an assumed or fictitiouis name, such as Southwestern Stationers. To do this, the individual must file for a DBA with the city, usually posting in a lodal newspaper his or her real name now doing business as Southwestern Stationers. The second ty pe of DBA is where a company (LLC or Corporation) decides to open up a small or satellite business, division, or group and wants it known by another name. Such as, International Paper, Inc., now has a DBA called Contemporary Cards. In reality, this means that International Paper, Inc., is a DBA or doing business as Contemporary Cards. This, in turn, means that International Paper, Inc., is responsible for all debts and actions of the DBA Contemporary Cards. In this case, International Paper, Inc., files all papers and DBA statements for Contemporary Cards, and does so with the State. There may still be local registration and announcements necessary. THE INDIVIDUAL PROPRIETOR. An individual starting or running a business basically by himself, may choose to be a sole proprietor, or operate under a fictitiouis name as a DBA, or form a Limited Liability Company (LLC) or create a Corporation (either S or C Corp). Under the first two business approaches, the individual's personal assets are part of the business and vica versa. That is, there is no separation and no protections provided. In the latter two business approaches, the individual has the protecton of limited liability, that is, his liability in his business is limited to the assets of the business--his own personal assets cannot be at risk. THE MOM AND POP SHOP. This is where a husband and wife start a small business, either retail or service oriented. It can be selling over the internet or in a retail outlet, or it can be providing a type of service or home made product. In any case, the two may hire others to work for them, either part time or full time, either as employees or contractors. No matter the business, the product or service, or the location, the couple will have to decide whether they want to be a DBA, operate as proprietors under their own names, or establish a Limited Liability Company (LLC) or a Corporation (S or C Corp). Like above, under the first two business approaches, the individual's personal assets are part of the business and vica versa. That is, there is no separation and no protections provided. In the latter two business approaches, the individual has the protecton of limited liability, that is, his liability in his business is limited to the assets of the business--his own personal assets cannot be at risk. Interested in talking to one of our high-qualified staff? Email us at CONTACT US |
