A sole proprietorship is a specific type of business model, run by a single person. They are considered to be the sole owner; as such, they can be held personally responsible for any debts or liabilities of the business. To put it another way, the business and the owner are treated as a single entity, as opposed to being treated separately as corporations and limited liability companies are.
Some common examples of sole proprietorships include, but may not be limited to:
- Freelance writers;
- Direct sellers;
- Fitness instructors;
- Graphic designers or artists;
- Home-based business owners;
- Bookkeepers or tax preparers;
- Etsy shop owners; and
- Local shop or restaurant owners.
Additionally, an individual does not need to adhere to any specific requirements in order to form a sole proprietorship. To be considered the owner of a sole proprietorship, you must simply meet the following criteria:
- If you perform any of the roles listed above;
- If you have total control over your work; and/or
- If you conduct a business activity that fulfills this definition.
There are many characteristics which are unique to sole proprietorships. The defining feature is that they generally consist of a single business owner who not only owns all of the assets and maintains control over the entire business, but can also be held legally responsible for the wrongdoings of any employees. Because a sole proprietor can be held fully liable for the unlawful actions of their employees and any other debts incurred by the business, creditors can take legal action against both the assets of the business as well as the personal assets of the owner.
Additionally, the business will continue to exist for as long as a business owner desires. Alternatively, if the owner of a sole proprietorship dies, the business will become part of the owner’s estate and cease to exist. The exception to this would be if it is left to beneficiaries who take on the business. A sole proprietor is also free to transfer all or some of their business by selling company assets.
Finally, something that sets sole proprietorships apart from other types of business structures is how they are taxed. Any profits or debts that are associated with the business are also directly tied to the owner. As such, a sole proprietor is required to pay personal income taxes on profits, and must report any losses coming from the business.
What Does “Doing Business As” Mean?
“Doing Business As” is a legal term which denotes that the trade name which a business is operating under is not the legal name of the actual person who owns the business. The actual person or organization who is responsible for the business files under a different or “fictitious” name. This is generally because the public will recognize the business easier.
Doing business as is commonly referred to as “DBA”, or “d/b/a/”. The defining feature of filing under DBA laws is that the person can create a new business operation without being subject to all of the filing associated with starting an entirely new business. DBA is ideal for sole proprietorships who are seeking to expand operations.
An example of this would be if a general company, GenericCorp. LLC, wishes to expand into the food business. The company may decide to do business under an entirely different name that the public can recognize more easily, such as FoodBiz. In this example, GenericCorp. will be held liable for FoodBiz’ activities, even though the operations are listed under the new name.
Most states have dictated that filing under DBA laws means that the company, or person who is legally responsible for business, must record both the actual and any fictitious names in the County Recorder’s Office. This is done in order to protect consumers, as well as allow them to hold the correct party liable for any legal violations.
In this specific example, the company would need to register both names, GenericCorp and FoodBiz. They would also need to indicate which company is liable (GenericCorp), and the name under which they are doing business as (FoodBiz). Their records might read as: “GenericCorp., doing business as FoodBiz”.
What Are The Advantages And Disadvantages Of DBA?
There are many advantages and disadvantages for those who choose to file under a fictitious name. Some examples of the advantages associated with “doing business as” include:
- Creation of New Business Name: DBA allows a sole proprietor or small business to create and use a new business name. As previously mentioned, this is referred to as a “fictitious name,” and is different from the owner’s personal name. This is generally a name that the public can recognize more easily. Payments, advertising, and other transactions can be done under the fictitious name;
- Minimal Costs: Although the cost of filing under DBA varies by jurisdiction, it can cost as little as $10-$50. This is considerably less expensive and faster than creating an entirely new corporation. It is important to note that as filing requirements are different from state to state, they sometimes involve publishing information on the new name in a local newspaper; and
- Allows For Multiple Filings: A single business entity is allowed to file for several different operations, and conduct business under several different names. This is ideal for businesses that want to expand but are still organizing under a main umbrella organization. An example of this would be those who are in the website or franchise business.
Some common examples of drawbacks and disadvantages associated with d/b/a include:
- Not a Trademark or Copyright: A fictitious name is not considered to be the same as a copyright or trademark. While two businesses cannot file under the same name, a DBA name is not protected. As such, it can possibly be copied by another business with slight alterations; and
- Confusion of Names: Filing under a wrong name can lead to fraud charges. This may occur if the organization has filed to conduct business under several different names. Fraud may also occur if the business intentionally seeks to mislead the public by using their fictitious name.
Can I Sue a Company That Is Listed Under a Fictitious Name?
Yes, you can sue a company that is listed under a fictitious name. However, you would need to first understand the difference between a fictitious name and the actual name of the company that is responsible for any violations of law. A fictitious name may give no direct indication of the entity that is actually, legally responsible for the business’ operations; only a company bearing an actual name can be held legally liable.
If you have suffered harm caused by a company that is operating under a fictitious name, you should conduct a search of county records in order to determine which company can be held liable. You should also determine what names they are doing business under. An attorney can help you conduct the search of county records should you require any assistance.
Do I Need An Attorney For Issues Associated With Doing Business As?
If you are a sole proprietor interested in DBA, or if you are experiencing any issues associated with DBA, you should consult with an experienced and local corporate lawyer. An attorney will be best suited to helping you understand your rights and legal options according to the laws of your state.
As previously mentioned, a business attorney can help you conduct a search of county records in order to determine who can actually be held legally liable. Additionally, your attorney will also be able to represent you in court, as needed.