There are many different entities you, as a business owner, can choose to have your business fall under.
A sole proprietorship is the easiest way to start a business however there are many risks that come with setting up your business as a sole proprietor. Page, Lobo, Costales and Preston APC would like to share the top 5 risks associated with running your business as a sole proprietor:
You run the risk of being sued personally. If you incorporate your business it provides a layer of protection between you and any losses your company may encounter. If you get sued as a sole proprietor, you can lose all your personal property in addition to your business holdings.
It is more difficult to get a business loan. If you apply for a loan as a sole proprietor, a lender will look at your personal finances. If they are less than stellar it may be difficult to receive a loan to help your business grow.
You are more liable as a sole proprietor. As a business owner you are held directly responsible for any losses, debts or violations coming from the business. If the business must pay any debts, they will be satisfied from the sole proprietor’s own personal funds.
You must pay self-employment tax. Some other tax benefits may not be deductible as well such as health insurance premiums for employees.
There is less stability of the business. If the owner becomes deceased or incapacitated, the business cannot continue. If the owner passes, the business is liquidated and becomes part of the owner’s personal estate to be distributed to its beneficiaries. This can result in heavy taxes to the beneficiaries.
Congratulations! Owning your own business is exciting and rewarding. Page, Lobo, Costales and Preston APC would like to share some tips for starting up your own business.
Page, Lobo, Costales and Preston APC helps small businesses get setup legally and would like to share some questions and answers for all you entrepreneurs out there. If you are setting up a new business, call The Law Offices of Page, Lobo, Costales and Preston.
Q: What type of business entity should I setup my business as?
A: You can begin as a “sole proprietor” to start doing business. It is easy and inexpensive to start as a sole proprietor however there is no legal protection for your personal assets. This means you have no limit to your personal liability for business failures or mistakes. If you want to limit your liability, set your business up as a corporation instead.
Q: Do I need a Federal Tax ID number?
A: If your business is a corporation, an LLC or has employees you need a Federal Tax Identification Number. Even if you are a sole proprietor you might want to get an EIN. If you do not have one as a sole proprietor, you can use your social security number however an EIN is more professional and less risky than giving out your SSN.
Q: What is a resale license?
A: A resale license will enable your company to purchase goods or materials for manufacture or resale without paying sales tax.
Q: Do I need to file a fictitious business name?
A: If you use any name other than your own, you will need to file a “doing business as” name. This will enable the public to know who is actually operating the company.
Have questions about setting up your business? Call us to get answers: 951-461-2500.