Business Formation: Forming a Sole Proprietorship
June 16, 2014
As previously stated on this blog, forming a sole proprietorship, is the least costly way to create a new business. When forming a sole proprietorship, one usually only needs to acquire a business license, if required by the locality in which the business will operate, and make its goods or services available to the public. There are a few things you can do to add the more formal trappings of a business to your sole proprietorship. Registering a trade name and getting an Employer Identification Number (EIN) from the Internal Revenue Service (I.R.S.) are good ways to increase your business’s “footprint” on paper. Of course, like any business, a sole proprietorship should maintain separate business accounts for operations, payroll, etc.
Having both an accountant and a lawyer as part of your team are essential, even if you cannot afford to put either on your payroll. An attorney who serves as “general counsel” is the chief lawyer for a business; if that lawyer is independently contracted, and not on the business’s payroll, he is said to be “outside general counsel” for the business. Outside general counsel services are crucial to a business’s success, because legal services are necessary for every business, and are one area where cutting corners will usually result in expensive problems later. Taking a proactive, preventive approach to your legal issues can seem costly, but the preventive approach is often far less expensive than the alternative—litigation. Obviously, unless you’re a CPA, you also need an accountant for similar reasons. It’s better to pay a little for bookkeeping services in advance than pay a lot when you get audited, later.
In this author’s opinion, an important aspect of operating a sole proprietorship is establishing a strong trade name that will be the most visible part of the business’s brand. A sole proprietor can use a trade name, for example, “Nashville Guitar and Penguin Emporium.” Legally, the business is just the person—the sole proprietor—who operates it. So, all legal documents, contracts, etc. would provide the businesses name as something like: “John Doe d/b/a Nashville Guitar and Penguin Emporium.” The “d/b/a” means “doing business as,” and is used whenever a person or business is doing business under a trade name. Both sole proprietors and organized businesses can use trade names.
There really isn’t much more to creating a sole proprietorship than that. One thing that should be mentioned, in addition to reiterating the need for having both outside general counsel and a CPA on your team, is the necessity of a written business plan. A business without a written business plan is like an ancient sailing ship on the high seas without a map. It might be a sunny day with wind in your sails when you start out, but a storm is coming, and you’re going to get tossed around a bit. You better have a way to figure out where you are when that happens. A well-written, thorough business plan will keep you oriented on your priorities and help you stay on track, come what may.
Please bookmark www.ExecutiveLP.com and return over the next couple weeks as we continue the discussion on our blog about choosing the proper form or structure a business can take. If you need legal counsel—and we believe every business does—please contact Executive Legal Professionals and let us know what concerns you have. We will quickly follow-up with you and do all we can to see your legal needs are efficiently and effectively addressed by a qualified legal professional. If your need is urgent, please call Executive Legal Professionals at +1.615.669.6566.
This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction. View general information about this license; or view detailed legal information about this license.