Business formation is a necessary early step when starting a business, it can have an impact on how much you pay in taxes, the amount of paperwork your business is required to do. Any personal liability you may face, plus your ability to raise business capital. Organizing your business and providing structure for growth now, from the outset will make you more effective as your business grows.

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The purpose of registering your Business Name is to prevent confusion over who is legally responsible for the business. A legal requirement to conduct business in each state. Any individual, partnership or corporation seeking to do business must operate under a name not currently in use by another similar business name or trademark operating in the state. Check your state for the individual requirements for your business setup with the local government. Depending on the business type, may also require special permits. Visit SBA website to see updated links for each state to see what your requirements are.


Wikipedia defines sole proprietorship as a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity. The sole proprietor is the simplest way to operate a business. Operating as a sole proprietor requires no paperwork, all you do is simply go into business.  The owner just has to keep track of all the business income and expenses and report it on a Schedule C with their personal tax return. Although you do not have to file paperwork to set up a sole proprietorship, you may still have to acquire special business licenses and permits.


A DBA is setup with a fictitious business name, assumed brand or business name, or trade name.  It is a way for sole proprietors to use a business name without having to using their own personal name. Most states require a DBA to be registered with a state or county agency.  You alone own the company and are responsible for its assets and liabilities. Advantages are operating and advertising under business name. Prevent other businesses from using the name within your state. Operate with a bank account under your business name.


Employer Identification Numbers are a nine digit number issued by the IRS identifying a business entity for purposes of tracking the business and determining what taxes it and the parties related to the business owes the government.  Most banks require and EIN to open a business account and it can reduce the risk of identity theft. You can apply and receive your EIN in minutes on the IRS website.


The biggest drawback of the sole proprietorship or a DBA is the owner is personally liable for any debts of the business. If your business runs into financial trouble, creditors can come after your personal property and savings. Because there is no legal separation between you and your business, you can also be personally liable for any lawsuits brought against the business. This risk extends to any liabilities incurred because of employee actions.

Another drawback for sole proprietorship’s and DBA’s is the IRS, showing losses over three years could face an audit. Compered to 7 years for a LLC, to 15 years for an INC.  Speak to your account for the best course of action for you.

Click below to see different industries, business strategies, and how to get started.