Question about DBA vs Company Name

[cerelife]

Sorry if this sounds obtuse, but I can't seem to find a definitive answer...or maybe I'm just not understanding it correctly.

Do I HAVE to incorporate to use my business name as opposed to a DBA?

A little background...my husband and I both work FT jobs that we love, but I'm lucky enough to work three 12-hour weekend shifts at a hospital, while my DH works M-F...so while I have lots of time to soap, I won't be available for weekend farmer's markets, etc., so he would go in my place...I would prefer to create a partnership (my husband and I filing business taxes on a Schedule C) as part of our joint return.
I guess what I mean to say is that I'm not looking for this to be my sole means of income, which is why I met with an accounting firm last month to see if this would even be a wise move on my part per the cost of selling...insurance (I plan to go with Soapmaker's Guild), business licenses and re-seller permits in the two states in which we intend to sell, etc. Not that I'm ever going to stop making soap, but it would be pretty sweet to at least break even, and a modest profit would be heaven!
They gave me the go-ahead and are ready to be pro-active in helping me avoid the IRS "hobby-loss" pitfall. We agreed that such a small business as I'm planning didn't need to be a LLC, and since I'll be purchasing insurance through SG, there was no real benefit to outweigh the cost and PITA of incorporating. BUT...I forgot to ask about how my company name/DBA works?!!
I REALLY don't want to waste billable hours on this if anyone on here can help me out!!
Thank you all in advance for any thoughts/advice!!

 

[cerelife]

And BTW...I REALLY want my company name to stand alone as it's special to me.
NOT wanting to go with a DBA!

 

[la-rene]

Where are you located?

 

[My Mountain Soaps]

DBA- Doing Business As, allows the parent company, lets say, "Cerelife, LLC.", to do business as other companies/businesses. Lets say Cerelife LLC. is your soaping company. But then you decide you want to have another booth at the farmers markets where you would sell jams, jellies, muffins. etc. That company is called "Sara's Goods". Now your advertisement on your second booth would only say "Sara's Goods" but all your paperwork, (Maybe even labels, etc I forget) would be required to say "Cerelife LLC. DBA Sara's Goods". I think that is required, but dont hold me to it. I have an LLC, and a DBA. very simple paperwork that one can file themselves. I would suggest that you do an LLC. limited liability corporation- basically what that means is that if you get sued, they can only go after your business, and NOT your personal things. You can do that and still do schedule c to reduce your taxes. We have now reached the extent of my knowledge. hope i helped, but i would still consult a professional versus me.

 

[soap_rat]

What MyMountain wrote is what I think the laws state, too. If you want to do business as anything other than your own name, you have to create a business entity of some sort.

SCORE offers free small business advice and I bet they either have something on their site that answers this, or you can talk to someone for free.

 

[la-rene]

Technically, an LLC only protects the members personal funds from creditors, lenders or others who are owed money by the company.

from: http://www.nolo.com/legal-encyclopedia/llc-basics-30163.html
An LLC owner can be held personally liable if he or she:

• personally and directly injures someone (I take this to mean if you are making it in your kitchen, you are responsible)
• personally guarantees a bank loan or a business debt on which the LLC defaults
• fails to deposit taxes withheld from employees' wages
• intentionally does something fraudulent, illegal, or reckless that causes harm to the company or to someone else, or
• treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.

This last exception is the most important. If owners don't treat the LLC as a separate business, a court might decide that the LLC doesn't really exist and find that its owners are really doing business as individuals who are personally liable for their acts.... ie: filing schedule C on your own taxes without your FEIN, having your business funds connected to your personal bank accts....

Though, apparently, the IRS regards a married couple LLC as a sole proprietorship regardless.... http://www.myllc.com/single-member-llc.aspx



Liability insurance is a must to cover you and your personal funds.


The reason I asked where the OP is from is it really depends upon where you are at the amount of hoops you will have to jump through to start a biz. I am in SoCal, LA specifically.

We (we are a General Partnership and I will tell why we picked this...) filed a DBA as a General Partnership under both our names. Then the Federal Tax ID under the DBA (needed for a separate bank acct... FYI if you are a vet, Chase gives Business Accts for Vets that do not require the minimum amounts). Then we obtained the sellers permit from CA BOE under the DBA, we had to submit our General Partnership agreement. Then, we had to file with the city for city taxes, again, using the partnership names and the DBA. No business permit was required. Married couples can act as a partnership under a different classification and it seemed to be a little easier.

So, for as far as I can tell, if you and your spouse want to work as a partnership or LLC, you can not have a business under one person's name as then it would be a sole proprietorship. Hence, you will need your DBA. But, honestly, that was the easiest part of the whole process (except for the newspaper filing and proof, but I paid a service to do that, so still... easy). (if someone knows something different, let me know!)

On to why we picked the partnership, to file as an LLC in CA costs $800 a year, regardless if you make money and have to pay taxes. If you incorporate out of CA and have a physical presence for sales in CA, you still pay $800 plus what ever your state charges you. Suck. Under the general partnership, we are required to pass all profits from the business on to each other, therefor all taxes are filed on our 1040's with a specific couple of forms and we can write off business expenses.

You can always change to an LLC in the future when the business can cover the cost if your state is like ours and is a vampire. FYI, if you physically do business in two different states, you will have to abide by all of the state regulations and taxes in both locations. If you ship to another state, you will only have to pay taxes and fees for your state. Taxes are such a pain. We had to input 600+ local Los Angeles Zip Codes, because we are in Los Angeles proper and our local tax rate is 9% and we are required to charge that to anyone in the Los Angeles area who orders from us.

Anyway, hope this helps. Sorry so long!!

 

[cmzaha]

Technically, an LLC only protects the members personal funds from creditors, lenders or others who are owed money by the company.

from: http://www.nolo.com/legal-encyclopedia/llc-basics-30163.html


An LLC owner can be held personally liable if he or she:

• personally and directly injures someone (I take this to mean if you are making it in your kitchen, you are responsible)
• personally guarantees a bank loan or a business debt on which the LLC defaults
• fails to deposit taxes withheld from employees' wages
• intentionally does something fraudulent, illegal, or reckless that causes harm to the company or to someone else, or
• treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.

This last exception is the most important. If owners don't treat the LLC as a separate business, a court might decide that the LLC doesn't really exist and find that its owners are really doing business as individuals who are personally liable for their acts.... ie: filing schedule C on your own taxes without your FEIN, having your business funds connected to your personal bank accts....

Though, apparently, the IRS regards a married couple LLC as a sole proprietorship regardless.... http://www.myllc.com/single-member-llc.aspx



Liability insurance is a must to cover you and your personal funds.


The reason I asked where the OP is from is it really depends upon where you are at the amount of hoops you will have to jump through to start a biz. I am in SoCal, LA specifically.

We (we are a General Partnership and I will tell why we picked this...) filed a DBA as a General Partnership under both our names. Then the Federal Tax ID under the DBA (needed for a separate bank acct... FYI if you are a vet, Chase gives Business Accts for Vets that do not require the minimum amounts). Then we obtained the sellers permit from CA BOE under the DBA, we had to submit our General Partnership agreement. Then, we had to file with the city for city taxes, again, using the partnership names and the DBA. No business permit was required. Married couples can act as a partnership under a different classification and it seemed to be a little easier.

So, for as far as I can tell, if you and your spouse want to work as a partnership or LLC, you can not have a business under one person's name as then it would be a sole proprietorship. Hence, you will need your DBA. But, honestly, that was the easiest part of the whole process (except for the newspaper filing and proof, but I paid a service to do that, so still... easy). (if someone knows something different, let me know!)

On to why we picked the partnership, to file as an LLC in CA costs $800 a year, regardless if you make money and have to pay taxes. If you incorporate out of CA and have a physical presence for sales in CA, you still pay $800 plus what ever your state charges you. Suck. Under the general partnership, we are required to pass all profits from the business on to each other, therefor all taxes are filed on our 1040's with a specific couple of forms and we can write off business expenses.

You can always change to an LLC in the future when the business can cover the cost if your state is like ours and is a vampire. FYI, if you physically do business in two different states, you will have to abide by all of the state regulations and taxes in both locations. If you ship to another state, you will only have to pay taxes and fees for your state. Taxes are such a pain. We had to input 600+ local Los Angeles Zip Codes, because we are in Los Angeles proper and our local tax rate is 9% and we are required to charge that to anyone in the Los Angeles area who orders from us.

Anyway, hope this helps. Sorry so long!!

And just try to shut down a corporation in CA if you have had any problems. I will never never have another corportion. They do not protect as much as one likes to think. We lost our asphalt company in the crash and it has been a nightmare. We found almost everything we did had to be personal guaranteed. Simple partnership is the best for small business and not nightmares of following corporate laws. We actually had another corporation that we sold and it was not fun either. 2 yr legal fight with a bad partner. Nope no corps for me... Oh yes and I still pay the $800 per year because I cannot get it shut down

 

[shunt2011]

I'm a sole owner. However in order to open a bank account I had to have a DBA which required me to have my business name background checked through the count clerks office to make sure it's the only one.

 

[Lindy]

I'm incorporated and the cost here in Canada is only $350 then a small annual fee depending on your province. There are some things an incorporation does protect you from that your insurance will not.

 

[cerelife]

Thank you all SOO much!!
I'll be going with the partnership/DBA. I had it in my mind that everything (my labels, flyers, website..etc) would have to have the DBA designation on it instead of just the financial/tax/legal stuff...so I guess the name thing isn't really as big of a deal as I was making it out to be.
@ la-rene...no worries about a long post! You gave me lots of useful info!! I plan to physically sell in Georgia and Louisiana and I've been doing my homework for both states' requirements...I also have a friend who is currently building my website. Yep, taxes are indeed a PITA and I'll be the first to admit that I'm in way over my head in that area! That's why I hired the accounting firm...sure, it cuts into any profit I might hope to earn, but they've been very reasonable about fees to go over my taxes quarterly (they recommended filing quarterly rather than monthly) to make sure I'm doing it right, but I figure it's money well spent to avoid my screwing it up completely, LOL!
@ soap_rat...thanks for the info about SCORE. I will def check it out

 

[soap_rat]

This thread has been an eye-opener for me, for one I didn't know that it would cost as much as it does for me to not only become an LLC but to file the stupid yearly report (I've now looked it up). Also, I thought incorporation was the best way to separate oneself from liability, but now it looks like incorporation separates you from liability for business debt, not product liability. Does that sound about right? So I'm looking into doing a general partnership and having even better liability insurance.

 

[Lindy]

Actually unless it can be proven that you intentionally did something neglectful, like not using preservative, the company does indeed protect you. However you should still carry insurance to cover the costs of any possible lawsuits as well as protect you against other liabilities.

 

[cerelife]

Soap_rat and Lindy: I did discuss this very issue with both the accounting firm and a lawyer friend of mine since as a healthcare professional, I'm well-versed in how broad a topic "negligence" can cover... our society is ridiculously litigious!!
The bottom line for me was that even if I chose to create a LLC for an initial $750 (not sure of the yearly fees after that since we discarded the idea), I would still need liability insurance.
Insurance through Soapguild is $400/year plus $100/year membership fees, and it covers you even if you are found negligent; or that's my understanding anyway! Someone please correct me if I'm wrong here!!
So for me, there was no real benefit to incorporating that I could see...and the tax issues got a lot more complicated/expensive with a LLC!
Lindy, help me out here if you would if I've got it wrong!! I'm really trying to make sure I do this the right way!!!

 

[Lindy]

Cerelife being in a different country and a different tax system. Here is why it works in Canada.

You incorporate in your province or federally which means extra-provinically in your province as well. By incorporating you get more tax breaks and can carry losses forward to the next year. Now I'm in BC so I have to pay less than $50 a year to remain in good standing in the province and nothing for my annual returns federally. The total cost for the initial incorporation for BC was $350 and the federal was $200.00. So since I don't have to pay big bucks every year to maintain my corporation (I do and did all the paperwork myself) I can afford the insurance annually as well.

There are hidden benefits to being an incorporation. You are taken more seriously when you are working on wholesale accounts, as they see you as a business rather than a hobbyist mind you it would be important that you have your tax numbers as well. That only applies if you plan on becoming a wholesaler and dealing with larger businesses. I ran the business for 18 months before making the change, but I am glad I did.

The corporation protects me in other ways as well. Let's say the very worst happens and I go broke, I can bankrupt the company without touching my personal assets. Not that anyone ever goes into business planning on going bankrupt, but the more you plan on building up your company the higher those risks become.

I doubt I will ever be a large company, but due to the fact that I want to give the impression of being a true business I chose to incorporate.

In short there were a lot of reasons why it made sense for me to incorporate but if all you plan on doing is markets and shows, there isn't any good reason to do it. I hope this rambling made sense.... LOL

 

[cerelife]

Thanks, Lindy! Your "rambling" made total sense I appreciate your help!!
The cost of incorporating seems to be higher here, and from the research I've done so far, it doesn't transfer state to state. Plus I'm required to have a re-seller permit for the different parishes of Louisiana where I would like to be a part of festivals. I'm not looking to make much of a profit at these festivals as I intend to donate at least 50% of my proceeds to the 'cause' behind the festivals...I don't really care much about making money (yeah, I will most likely never be a successful business-woman, LOL), but it would be sweet to not LOSE money by supporting my beloved Southern Louisiana. I figure that just enjoying being there and doing even a little to help is payment enough for me
An additional bonus (according to the accountants) is that I can claim not only the fees for my permits, but both travel expenses and my donations on our taxes...so it looks like a total "win-win" situation! We shall see if it really works out to be this sweet!
The accounting firm did advise me to get a tax number even on such as small business as I intend to create for a few reasons...one of which was to be taken more seriously by the IRS.

 

[Lindy]

It sounds like your situation definitely doesn't warrant an incorporation then....