A sole proprietorship is a business that is owned and closely managed by a single individual. From a legal and financial perspective, the business and its owner are inseparable: the company's earnings are the owner's taxable income and the company's losses are the owner's personal responsibility. Because of this close link between a sole proprietorship and its owner, the title of a sole proprietorship is usually its owner's name. The company may operate under a different trade name, but the owner's name is still the primary title on legal and financial documents.
A trade name is a title that a company uses for branding purposes, to create an identity in customers' minds that is relevant to the products or services that the business provides. For example, a man named Joe Smith who owns a sole proprietorship that makes cheese cakes may choose to call his company "Divine Cheese Cakes" rather than "Joe Smith." From the customer's perspective, this business is known as "Divine Cheese Cakes," but this brand identity does not affect the legal title of the business, which will always be "Joe Smith."
When applying for business licenses, a sole proprietor has the option of listing a "DBA," which is an acronym for "doing business as." Registering this trade name on a business license application creates a legal connection between the trade name and the sole proprietor, allowing the business to legally use the listed title in its daily operations. Registering a DBA does not change the legal and professional title of the company. The process is to creat transparency and accountability by documenting the fact that the sole proprietor is using this trade name.
The owner's name is the primary title listed on a sole proprietor's bank account, enabling the banking institution to document the business earnings that qualify as tax liabilities for the individual owner. Despite the fact that the primary title on the bank account is the owner's name, a sole proprietor may choose to list his company's name rather than his own on his printed checks. Using a DBA title on printed checks helps to create a clear brand identity, and it is useful for identifying the company to suppliers who know it primarily by its trade name.
Schedule C, the IRS tax form used for reporting profit or loss from a sole proprietorship, asks first for the owner's name, and second for the business trade name, if the company is using one. The owner's name is the primary title of the taxable entity performing the business activity that is reported on the form. The business name is a piece of information that can be used to cross reference transactions, such as customer checks that have been written and deposited in the company's name.
