Going Into Business – Part 1

As a would-be Race Director, I am planning on having dealings with a wide array of people. There will be runners, of course, but also potential sponsors, media, the city government and who knows who else. Setting up a race will involve running a business (albeit a very small, narrowly focused one). Nothing says I can’t conduct this business as myself. I can send all my emails, write all my checks, and fill out all the requisite paperwork simply as an individual. But is it enough to just be… me?

I am committed to putting on this race, and I would very much like to make it an annual event. If it goes well, who knows… perhaps another ultra in the future? Either way, I want to make this endeavor feel like a serious, professional effort. I’d also like to be able to write off any money spent along the way. To that end, I decided I will create a business entity to serve as the company putting on the race. This immediately requires a decision. What type of business entity? There are two options that would apply for me: a Sole Proprietorship or a Limited Liability Company.

In truth, a Sole Proprietorship only barely qualifies as a business entity. The business has no existence apart from that of its owner (me). However, it does afford you the opportunity to operate under a separate business name and have a bank account for the business, forming a very clean divide for an individual between their personal and business dealings. Setting up a Sole Proprietorship is very straightforward. There is minimal paperwork and the only outlay is the cost of filing and publicizing a Fictitious Business Name. When it comes time to do your taxes, you still do them as an individual but with a separate Schedule to track business income (and, perhaps just as importantly, expenses).

A Limited Liability Company (LLC) is an actual, legal business entity. It affords some degree of legal protection since the member(s) of an LLC are not liable for financial debts and obligations. It’s a newer, fairly popular form of business entity since it’s less onerous to create an LLC compared to actually incorporating. While it’s far easier than forming a true corporation, there are still some additional steps involved and some additional tax implications to consider.

After some consideration, I decided to set myself up as a Sole Proprietorship for the time being. I have familiarity with the process, having gone through it many years ago when I created my own software company. It’s straightforward, inexpensive, and won’t make me sweat anything on my 1040. Additionally, I don’t have any employees, so I don’t need to worry about that angle.

To that end, I’m following these four steps for establishing a Sole Proprietorship in California:

  1. Choose a business name.
  2. File a Fictitious Business Name Statement with the county recorder.
  3. Obtain licenses, permits, and zoning clearance.
  4. Obtain an Employer Identification Number.

So, my Fictitious Business Name¬†paperwork is in the mail. Stay tuned and I’ll post another update when I move on to the exciting world of business licenses and Employer Identification Numbers. I will also continue to update my Resources page with links related to creating a business entity.

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