This week was all about the legalities of creating a new business. We focused on two different topics: legal structures and licenses and taxes. One thing I hadn’t thought about before, but that was very apparent in our class discussions, was how different the laws, licenses, and taxes can be from state to state and especially when you’re in a different country.
Legal Structures
There are a lot of different legal structures but I decided on forming a sole proprietorship. Sole proprietorship’s are the simplest types of businesses to setup, but they also have their own risks. A sole proprietorship means that there is only one person involved in the business and can either be filed under the owner’s name or you can file a Fictitious Business Name. Fictitious Business Names are registered through the county that you live in, so in my case I could register online using the Los Angeles County Registrar-Recorder/County Clerk Online Business Filing & Registration System. The only potential downfall of a sole proprietorship is that you as the owner are liable if something goes wrong, so if someone sues the company or something your personal assets are at risk.
Licenses & Taxes
One thing I didn’t know was that business licenses are different from state to state and that only certain types of businesses actually require a business license. In my class the cost of business licenses varied from $15 to $300 so it is very important to do some research before setting up a business so you’re prepared for the initial costs. My business idea, a blog/affiliate marketing site, does not require a business license, but the list of businesses can be found here for LA County: Business Activities that Require a Business License. For a sole proprietorship you are basically considered self employed and can file a 1040 form for taxes. If you make over $600 from an affiliate company, rather than sending a W-2 form they will send a 1099-MISC form for taxes. One thing I also hadn’t thought about was that being self employed means you need to set aside money for taxes every month, otherwise you’ll end up paying a large sum at the end of the year.
