If you have not formally registered your business, you run either a sole proprietorship or partnership DBA company. This means that you are “doing business as.” Your company may have a name, a solid client base, advertising campaigns and you may even be paying proper taxes on your profits via your personal tax return. But until your business is formally registered, your company is technically a DBA. As there are several practical potential consequences associated with this way of conducting business, it is important to understand what this means for you and your company legally.
“Doing Business As”
Until your company is formally registered, you are technically not legally allowed to conduct business within any given state. The formal registration process allows your business to legally incorporate and become subject to a specific tax structure. And while there are certain obligations tied to the formal registration process and the on-going matter of compliance, registering your business both allows you to legally conduct business without fear of penalties associated with non-compliance and protects you from other, potentially disastrous, liabilities. In addition, incorporating as an LLC will allow you to insulate your personal assets from many business-related liabilities.
Benefits of Becoming an LLC
As long as you conduct business as a DBA company, your personal assets will remain vulnerable to creditors and the courts in the event that your business cannot meet its debts, incurs losses or is held financially responsible for business-related wrongdoings. By incorporating as a limited liability company, your personal assets will become much more protected from business-related creditors and the legal justice system.
It is worth noting that until you formally incorporate, your business structure is treated as either a sole proprietorship or a partnership by default under the law. If you are running your business as a solitary owner, your DBA company is a sole proprietorship by default. If you run your business alongside one or more additional owners and/or major investors, your DBA business is considered a partnership by default. Neither sole proprietorships nor partnerships offer a personal liability shield as a feature of their inherent structures.
It is also worth considering that as a DBA company, all of your taxation must be accounted for on your personal return. Incorporating as an LLC will allow you to choose whether your company continues to be taxed as a sole proprietorship/partnership or as a corporation. If you choose to be taxed as a C-corporation, your business will be taxed at the corporate level and will allow you to keep your personal return free of business-related taxation liabilities.
Formal Business Registration Assistance Is Available
Don’t leave your personal your personal assets unprotected. If you are interested in converting your DBA company to an LLC, look to LawTrades for assistance with the formal business registration process.