Your Business Structure Does Make A Difference
So you’ve decided to jump ship and join the hair business? Go you! The hair industry is booming! One of the most common questions amongst new business owners is, “How should I register my business”? The business structure you choose for your hair business, influences everything from day to day operations, to the tax you pay, and the personal assets that are at risk. Figuring out the right business structure for your hair business can be confusing, and ultimately frustrating! If you have no clue where to start, look no further, I'm here to drop some gems and will have you up and running in no time! Finding the business structure that creates the balance of legal protection and benefits you is the ultimate goal in figuring out how you should register your hair business!
But First, Did You Figure Out Your Business Name?Deciding what to call your business is not as easy as it sounds. The name of your hair business will tell your consumers about your business. You will need to create a name that is unique and memorable, but also industry related. Before you choose your hair business name, check for availability. Using a name another business is using is illegal. Try searching the internet on both state and federal databases to ensure your business is good to go. If the name is available, once you figure out how you should register your hair business name, register it with your state.
Business Name vs. Trade NameWhen it comes down to what to call your business, you’ll need to know whether to use your business name or trade name. Yes, there’s a difference, and it affects how you fill out legal documents as well as the business name you use for public usage.
What Is The Business Name?Your business name is the official name of the person or entity that owns the company. It’s pretty much your legal business name. You will use this name on all your government forms and your applications. Your legal business name is determined by how you set up your business.
Sole ProprietorshipIf you decide to register your hair business as a sole proprietorship, the legal name is your full government name. For example, if your name is Sarah Smith, and you own your hair business. Your legal name can be Sarah Smith Extensions.
PartnershipIf you are an owner of a partnership, the business name should include all the names in the partnership agreement. If there is not a business name stated in the contract, the partnership's legal name will be made up of the last names of the owners.
LLC’s and CorporationsLimited partnerships, LLC’S, and Corporations establish their legal name while they are registering their business structure. The legal name will be apart of your articles of corporation. The name does not have to include any of the owner’s name to be considered a legal name.
What Is A Business Trade Name Anyway?A trade name is a fictitious name of doing business as (DBA) name. If you want to operate your hair business under a name other than your company’s business legal name, you will need a trade name. Trade names are names for advertising and sales purposes for your hair business. Your hair business trade name is the name the public will see, like on signs and the internet. Your trade name for your hair business does not need to include LLC, Corp, or other legal endings used for your taxes and other forms. For example, McDonalds’s is a trade name. The company's legal business name is McDonald’s Corporation.
Should I Trademark It?If you use your trade name as an identifier of your products and services, your trade name then works like a trademark. Registering your trade name does not protect you from others using your name as a trademark. A trade name is not a form of intellectual property, to have an official trademark of your product or service names you want to go this route. Also, you must fill out a trademark registration. There are various trademark laws you need to adhere to. If your trade name is similar enough to a different businesses trademark there could be a lot of confusion, so be sure you aren’t infringing on that trademark. Trademark infractions can be costly, so be sure you follow all the business naming rules.
Changing The Name of Your BusinessAs your hair business grows, you may decide to change the name of your hair business. Partners may leave, some may join, and you may add a new line of products. In these kinds of cases, many steps will have to take place to change the name of your hair business.
Step one:Ensure no one else is operating with the name you would like to use, your new name must be different from existing business names.
Step two:Inform your secretary of state that you are changing your hair business name. Usually, the state provides an online form for you to complete. If you are a sole proprietorship, you must file a new DBA registration.
Step Three:Notify your federal and state tax agencies that your hair company name has changed. How you notify them depends on the business structure you’ve chosen.
- Sole Proprietorship
Step four:Change the name on your business licenses and permits.
Step five:Update all your business paperwork, for example, contract, agreements, bank accounts, any documents, and marketing material with your new business name. Let's figure out how you should register your hair business!
Sole ProprietorshipA sole proprietorship is the simplest business entity. One person is the sole owner and operator of the business. If you launch your hair business and you are the only owner, you are automatically a sole proprietorship with the state. Although you will still need to file for your local business permits or licenses.
- Easy startup
- No corporate formalities or paperwork requirements
- You can conduct most business losses on your tax returns
- Tax filing is easy, fill out and attach a Schedule C Profit or Loss From
- Business form to your income tax return
- As the only owner, you are personally liable for all of your business’s debts and liabilities. If your company incurs a lawsuit, they can take your personal assets. For example, your car, personal bank accounts, etc.
- There’s no separation of business and personal, so it is more difficult to secure a business loan and capital.
- It’s harder to build business credit without a registered business entity.
General Partnership (GP)Partnerships are much like sole proprietorships; the key difference is that there are two or more owners. There are two types of partnerships: General Partnerships (GPs) and Limited Partnerships (LPs). In general partnerships, all partners actively manage the business and share all the profits and losses amongst each other. Like a Sole Proprietorship, a general partnership is the default mode of ownership for multiple owner businesses. There’s no need to register a general partnership with the state. Most people form partnerships to lower their risk of starting a business. Instead of going at it alone, having multiple people sharing the struggles and successes can be helpful, especially in the beginning years. If you do decide to go this route, be sure to choose the right partner or partners.
- Easy startup
- No corporate formalities or paperwork requirements
- No need to absorb all the business losses on your own because there are partners to divide the profits and losses amongst each partner.
- An owner can deduct most business losses on their personal tax returns
- Each owner is personally liable for the business’s debt and liabilities.
- In some states, there is a joint liability, which is when each partner is personally liable for another partner's negligent actions and behavior.
- Disputes amongst partners can unravel the business and partnership.
- More difficult to get approved for a business loan or build business credit without a registered entity.
Limited Partnership (LP)Unlike your general partnership, a limited partnership is a registered business entity. To form an LP, you must file with the state. In an LP there are two types of partners: those who own, operate and assume liability for the business (general partners), and those acting as investors (limited partners, or sometimes called “silent partners”). Limited partners have no control over the business operations and have fewer liabilities than the general partners.
- An LP is a good option when needing to raise money because investors can serve as a limited partner without personal liability.
- General partners get the money they need to operate and can maintain the authority over day to day business operations.
- Limited partners can leave at any time without dissolving the business partnership.
- General partners are personally responsible for the business’s debts and liabilities.
- More expensive to form vs. a general partnership and requires filing with the state.
C- CorporationA C-Corp is an independent entity that exists separately from the company’s owner. Shareholders (owners), a board of directors, and officers have control over the corporation. Although one person in a C-corp can fulfill all of those roles, so it is possible to create a corporation with you in charge of it all. There are many more regulations and laws with this type of business entity, as well as tax laws that the company must comply with. Most small businesses pass over C-corps when trying to figure out how to register the business, but C-corps can be a good choice as the company grows and there's a need for more business protection.
- Owners (shareholders) do not have personal liability for the business's debts and liabilities.
- C-corps are eligible for more tax deductions than any other type of business structure.
- C-corp owners pay lower self-employment taxes.
- You can offer stock options.
- More expensive to form than a sole proprietorship and partnership fees range from $100-$500 based on your state).
- Face double taxation. The company pays taxes on the corporate tax return, and shareholders pay taxes on dividends on their personal tax returns.
- Owners can’t deduct business losses on their personal tax returns.
- There are various formalities that corporations must meet, such as holding board meetings, shareholder meetings, keeping meeting minutes, and creating bylaws.
S-CorpSimilar to a sole proprietorship S-Corp profits and losses pass through the owners’ personal tax returns. There's also no corporate level taxation for S-Corps. To organize an S-Corp, you will have to file an IRS form 2553. S-Corps are suitable for businesses that want a corporate structure but like the tax flexibility of a sole proprietorship or partnership.
- Owners (shareholders) don't have personal liability for the business's debts and liabilities.
- No corporate taxation and double taxation.
- S-Corps are more expensive to create.
- Requires state registration.
- There limits to issuing stock.
- You need to comply with corporate formalities.
Limited Liability Company (LLC)A limited Liability company has positive features from each of the other business entities. Like corporations, LLCs offer limited liability protection. They also have less paperwork and ongoing requirements, so they are more like a sole proprietorship and partnership. You can decide if you want the IRS to treat you as a corporation or a pass-through entity on your taxes. LLCs are popular among small business owners, including freelancers because it combines the ease of a sole proprietorship or partnership with the legal protection of a corporation.
- Owners don’t have personal liability for the business’s debts or liabilities.
- You have the decision on whether you want your LLC taxed as a partnership or a corporation.
- Not as many corporate formalities as an S-Corp or C-Corp.
- More expensive to create an LLC than a sole proprietorship or partnership.
- Requires registration with the state.
- Keep this in mind when thinking of how to register your hair business.