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Sole-Proprietorship

 

Frequently Asked Questions (FAQs)

  1. Why do I need a DBA?
  2. What is required to file a DBA?
  3. What is required to file a DBA?
  4. What are the advantages and disadvantages of filing a DBA?
  5. How do I change a DBA name?
  6. How do I close or end my DBA name?
  7. If I change the business address, am I required to update the DBA records?
  8. How do I update the records if the ownership has changed (i.e. sold business)?
  9. What are the differences between a sole-proprietorship, partnership, corporation, and LLC?

1. Why do I need a DBA?
A "DBA" is an acronym for "doing business as" and is also referred to as a fictitious business name, trade name, or assumed name. DBA registrations are required when the business name being used is different from the owner's or entity’s legal name. Below are some examples of when a DBA is required:

  • If John Smith starts a sole-proprietorship called "Donut Factory," he must file a DBA because his actual legal name does not appear in the business name. However, if he decided to use the business name "John Smith's Donuts" then a DBA registration is generally not required, but is still recommended.
  • If Jane Doe and Janet Smith start a partnership called "Top Notch Consulting", they must file a DBA because their actual legal name does not appear in the business name. However, if they decided to use the business name "Doe & Smith Consulting Services" then a DBA registration is generally not required, but is still recommended.
  • If Widgets Investments Inc. (the corporation's legal name) is created to run a restaurant named "Hamburger World", then a DBA must be filed. However, if they only use their legal name "Widgets Investments Inc." to conduct business, then a DBA registration is generally not required, but is still recommended.

Even if you are exempt, filing a DBA is still recommended because most financial institutions will not open a business bank account until they receive proof that a DBA has been registered.

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2. What is required to file a DBA?
State law will determine the requirements for filing. Generally, any person or legal entity may file a DBA whenever they need it. In addition to the filing, some states require that the DBA name(s) be legally published in order to give legal notice to the general public of the business name(s).

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3. How long does a DBA last?
State law will determine the term for a DBA. In California, DBAs are valid for five (5) years from the filing date and in Nevada, the term depends on the county that your business is located at (some counties are 5 years and some are unlimited). You must renew your DBA on or before the expiration date. Failure to renew your DBA on time will result in the expiration of your DBA filing. For more information regarding expiration, please visit our more information section.

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4. What are the advantages and disadvantages of filing a DBA?
Generally, a DBA is required if your business is structured as a sole-proprietorship or a partnership (this is because your legal name will be different from the business name). By structuring your business as a sole-proprietorship or a partnership, you will keep ongoing business costs low and filing requirements simple. However, one of the main disadvantages is that sole-proprietorships and partnerships do not offer any liability protection. This means that each owner will be jointly and severally liable for all business debts, lawsuits, and other claims.

If you are a Corporation, LLC, or other legal entity that is filing for a DBA, you already have liability protection and there are generally no disadvantages to filing a DBA. The filing of a DBA will allow your legal entity to use more business names.

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5. How do I change a DBA name?
You can change your DBA name by first filing a "termination/abandonment" of DBA for the old name and then re-registering a new DBA filing with the new business name.

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6. How do I close or end my DBA name?
You can close or end your DBA name by filing a "termination/abandonment" of DBA.

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7. If I change the business address, am I required to update the DBA records?
Yes, you are required to file an updated DBA to document all "material" changes. A change of the business address, business structure, and business name are all considered material changes.

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8. How do I update the records if the ownership has changed (i.e. sold business)?
If the business is being sold, the current owner should file for a "termination/abandonment" of DBA. Afterwards, the new owner should take ownership of the DBA by re-registering the DBA.

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9. What are the differences between a sole-proprietorship, partnership, corporation, and LLC?
Below is a chart to help you compare the differences between the most common business structures:

  Sole Proprietorship Partnership LLC S-corporation C-corporation

Ownership

Requirement
1 owner. 2 or more owners. 1 or more owners.

Between 1 to 100 owners. Click here for details.

1 or more owners.
Liability Protection No, the owner is personally liable No, the partners are personally liable. Yes, generally the owners are protected from personal liability. Yes, generally the owners are protected from personal liability. Yes, generally the owners are protected from personal liability.
Perpetual Existence No, this structure ends when the owner dies or withdraws. No, this structure ends when the owner dies or withdraws. Maybe, a LLC’s life will depend on the state of formation. Yes, a corporation continues to exist after an owner dies or withdraws. Yes, a corporation continues to exist after an owner dies or withdraws.
Taxation Profits are only taxed at the individual level, also known as “pass through taxation.” Profits are only taxed at the individual level, also known as “pass through taxation.” Flexible tax structure (LLCs can choose to be taxed as a sole proprietorship, partnership, S-corp, or C-corp). Profits are only taxed at the individual level, also known as “pass through taxation.” Profits are taxed at the corporate level and any profits distributed to the owners will be taxed again at the individual level, also known as “double taxation.”
Self Employment Tax Yes, profits are typically subject to SE Tax. Yes, profits are typically subject to SE Tax. Maybe, it will depend on the tax structure selected. No, profits are typically not subject to SE Tax. No, profits are typically not subject to SE Tax.
Passive Investment Income Yes, this structure can be used for passive investment income (i.e. rental income, royalties, etc.). Yes, this structure can be used for passive investment income (i.e. rental income, royalties, etc.). Yes, this structure can be used for passive investment income. However, there is a 25% income rule if you elect to be taxed as a S-Corporation. No, this structure is not ideal for passive investment if the investment income exceeds 25% of the company’s gross profits. Yes, this structure can be used for passive investment income (i.e. rental income, royalties, etc.).
Professional Services Yes, this structure can be used professional services (i.e. doctors, lawyers, etc.) Yes, this structure can be used professional services (i.e. doctors, lawyers, etc.) Maybe, it will depend on the state where business is being conducted. Yes, this structure can be used professional services (i.e. doctors, lawyers, etc.) Yes, this structure can be used professional services. However, there is a special federal PSC 35% flat tax.
Formalities Few formalities. Business must comply with DBA laws. Few formalities. Business must comply with DBA laws. Must comply with state reporting requirements, if any. Corporations must hold annual meeting and comply with state reporting requirements. Corporations must hold annual meeting and comply with state reporting requirements.
Disadvantages No liability protection and must also pay SE tax on income. No liability protection and must also pay SE tax on income. Higher start-up cost, more formalities, and higher maintenance cost. Higher start-up cost, more formalities, and higher maintenance cost. Higher start-up cost, more formalities, higher maintenance cost, and double-taxation.
Advantages Few formalities and low start-up costs. Few formalities and low start-up costs. Few formalities and low start-up costs. Personal liability protection and possible SE tax savings. Personal liability protection and the ability to retain earnings and to split income.
Usage For businesses that have low liabilities or new start-ups with low capital. For businesses that have low liabilities or new start-ups with low capital. For businesses that have low liabilities or new start-ups with low capital. For businesses that have low liabilities or new start-ups with low capital. For businesses that want personal liability protection and prefer to keep some or all of the profits within the business.

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