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VERMONT SECRETARY OF STATE - Jim Condos | |||||||
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128 State Street, Montpelier, VT 05609-1104 - Tel: (802) 828-2386 - Fax: (802) 828-2853 |
Ali Sarafzade - Director |
Often, the first choice after deciding to start a business is deciding
whether to operate the business individually or in the form of a "business
entity." We are all familiar with certain types of business entities such as a
corporation or partnership, but there are other types of business entities with
names like "limited liability companies", "close corporations", and "limited
liability partnerships". Surprisingly, one of the simplest ways to start a
business is without forming a business entity. A person can always do business
under his or her own name, or even a trade name, as a "sole proprietor." No
matter what you do, the form you choose will have legal and tax implications
which you must understand before you begin your business. While this guide can
help educate you about some of the issues involved, it is always wise to have
professional advice before you open the door to customers.
When a person decides to start a business,
goes out and picks a location, and opens the door to customers, that person is
operating as a sole proprietor. Basically, this means that the person owns all
the assets of the business, and is personally liable for all the debts of the
business. A sole proprietorship is not a separate taxable entity, but rather
income and expenses are accounted for in the person's own income tax
return.
For example a business such as "Jane Smith, Building and
Contracting" means that Jane Smith is in the building and contracting business.
When she buys supplies on credit at a store, she is responsible for the debt. If
she damages a customer's property while she is working, she could be held liable
for the damage. When she gets paid by a customer, the customer is paying her for
her work. These are all the simplest elements of doing business as a sole
proprietor.
A variation on doing business as a sole proprietor
under one's own name is doing business under a "trade name." A trade name is
simply a name that a sole proprietor uses instead of his or her own name. For
example, instead of "Jane Smith, Building and Contracting" it could be Jane
Smith doing business as "Restoration Building and Contracting Services." All the
tax and liability issues associated with doing business under one's own name are
generally the same as doing business under a trade name. The only
exception is that to do business under a trade name, a person must file a trade
name registration with the Corporations Division of the Secretary of State's
Office.
A trade name registration lets the public find
out who is the real, live person that is doing business under the assumed name.
If there was no filing with the Corporations Division, a customer, supplier, or
creditor of "Restoration Building and Contracting Services" would have no way of
knowing that they are actually doing business with Jane Smith. In addition, it
is the Corporations Division's job to make sure that two businesses are not
using the same name. Vermont law prohibits people from using any business name,
including a trade name, that is the same as, deceptively similar to, or likely
to be confused with or mistaken for the business name of any existing, validly
registered corporation, partnership, association or trade name.
Registration of an Internet ".com" name does not guarantee
that you can register the same name with the Corporations Division. Any ".com"
name must be available in Vermont before the Corporations Division can register
the name. Likewise, registration with the Vermont Department of Taxes does not
guarantee that you can register the same name with the Corporations
Division.
The trade name
form is relatively straight-forward. Here are some important pointers about
trade names:
After receiving your application, the
Corporations Division reviews it for form. The application will be denied if the
name is the same as, deceptively similar to, or likely to be confused with or
mistaken for the business name of any existing, validly registered corporation,
partnership or association. Do not spend money on signs, stationery
or other items until the Corporations Division approves your trade name
application. To save time, your application can include two or
three alternatives in case your first choice is denied.
A trade name may not include the words "Company," "Corporation,"
"Incorporated," or "Limited," or any abbreviation of these words, since these
words imply that there is a corporation. While a corporation may operate under a
trade name, its trade name cannot itself be a corporate name, that is, a name
with a corporate ending.
Under the common law, a
person claiming a pre-existing, established use of the name may challenge your
right to register and use the name.
Effective 3/1/04, the fee to file
a trade name is $40. The application must include the notarized
signature of the applicant. The law requires that the application be filed no
later than 10 days after a business starts. The filing is good for a period of 5 years.
Remember, whether you do
business under your own name or a trade name, a sole proprietorship means that
you are the sole owner, with all the responsibilities and liabilities that go
along with a business. While a sole proprietorship is simple, it is not
necessarily the best way to operate a business. Sometimes it makes sense to form
a business entity for liability, business, or tax reasons.