Many ISOs remain a sole-proprietorship because incorporating is usually more costly and time consuming. Often there are initial legal costs, as well as filing costs, annual fees, and reports to file. You can use a service to do all this for you. Here are the names of two such companies:
1) The Company Corporation, in Delaware (302-575-0440), and
2) Collins & Bell, Inc., in Nevada (800-794-5419).
Many businesses incorporate in Delaware because it is both easy and inexpensive, and the Company Corporation is a Delaware expert. Collins & Bell specialize in Nevada, but can help you incorporate anywhere.
Until recently, the major advantage of incorporating was the image value it brings to a business. The tax considerations, and even the liability protection afforded by incorporating, were not pluses for many businesses.
Lately, however, it's a whole new ball game. Depending on your income, you may pay less in taxes if you incorporate (Federal tax rate below $50K in taxable income, was only 15% in 1995) than if you stay a sole proprietor.
Also, another good reason many small businesses should consider incorporating is that the IRS, and many state income tax authorities, have declared war on independent contractors.
We are hearing stories that tax authorities, in at least one case, declared the ISO was not an independent contractor with three or four client products, but rather an employee, with three or four part-time jobs. This determination of course meant the loss of all deductible expenses and a near doubling of tax liability. Now, before you panic, it was an isolated example. To determine your course of action you must determine how independent you really are from the products and/or services you represent.
If you do not incorporate, and plan to do business under any name other than your own, you must register that name as fictitious or as a D.B.A. (Doing Business As) name. Fees and requirements for D.B.A. registration and the cost of publication in a newspaper vary throughout the country, but are generally less than $50.00.
Once you have your D.B.A., you can take the paperwork to your bank and open an account in the name of your new business. Registraring will not protect your business name so that others cannot use it; however, incorporating will stake out your business' name.
States require corporations to have a unique name so as not to confuse the public. Contact the state office that registers corporate names (usually the secretary of state) and see if the name you want is available. If so, reserve it and then incorporate using that name.
To protect your name beyond the boundaries of your state (for those of you who are thinking on a grand sales scale), consider establishing a trademark or service mark. Another way to find out if the name you want is available, is to call the ABI Network (800-808-4636); this costs $4 and up for a successful search.
Finally, consider joining an association of professionals like yourself (two are listed in the "Resource Guide" of this Green Sheet). These organizations can often tell you what the other Independent professionals like you are doing about these issues.
The Green Sheet does not provide legal or tax advice, but will attempt to answer, in general, any question that you may have. We stress that you should see a tax or legal advisor that can address your specific tax or corporation establishment needs.
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