This article is part three of a blog series explaining the journey of opening a business as a Latina immigrant in the United States. If you missed parts one and two, be sure to check them out!

A simple way to define a business is the act of exchanging a service or product for financial value aka money! Incorporating a company means you’ll report the activity you perform to the regulatory agencies. Different regulations and compliances are applied depending on the type of product or service offered and the size of your business. 

If you have already validated a market or idea, meaning people are paying you to provide a product or service: congratulations! Now, you might evaluate if it is the right time to take an extra step and incorporate your business. 

Here is one ultimate question you need to ask yourself: 

Will there be any legal or tax advantage in incorporating my business?

After incorporating Become Odara, I attended a financial literacy workshop hosted by Lori ​​Williams, an experienced business coach with the SDBC. It was during this workshop that for the first time, I questioned myself if incorporating was the right move for my company. I later connected with Lori and she confirmed my suspicion. 

Williams explained that it makes sense to become incorporated as an LLC when the type of activity you operate can lead you to be sued, for example, you are selling cakes and someone gets sick and sues you for not following food and health guidelines. Another reason would be if your company is making enough money, you could benefit from some type of tax advantage. Many people will form an S Corp. or be taxed as an S Corp. in order to achieve a tax advantage when the company’s profits reach a certain level. An LLC is a pass-through entity which means the corporation does not pay taxes but rather the profits are passed through to the personal tax returns. Simply put, an LLC requires less paperwork and more flexibility than other types of business formations, but not necessarily fewer taxes. When I reached out to Lori and asked if incorporating Become Odara as an LLC was the right thing to do, she broke it down to me in an email:

“Unfortunately, like many entrepreneurs, you have an incorrect understanding of the LLC business structure. The tax liability for a single-member LLC is exactly THE SAME as the sole prop that you once were. Both LLC and Sole props pay self-employment tax (about 15%). They are also responsible for paying the (employer) 15%, but that is a line item deduction on the tax return. Therefore the net payment is about 15%.

All you have achieved by incorporating as an LLC is possibly protecting your assets if you were to be sued by a client, which is highly unlikely. And you incurred additional expenses ($800 per year) and government regulations.” 

Become Odara offers marketing consultation services — which in comparison to a cake business, is less likely to be sued. Plus, as I mentioned in the first article of this series, the company is at a level that is still far from being profitable enough to incorporate to be tax advantageous. 

After my coaching session with Lori, we agreed that the best alternative for Become Odara at this moment was to continue to operate as a sole proprietorship. 

Here are the steps I took to terminate the company: 

1. Requested IncFile to grant me full access to the CA SOS website.

In my first article, I explained why I chose to work with a company like IncFile. Later, I learned something sketchy about these companies: they file the forms with the state and become the record owners, so you need to make a request for THEM to grant you full access to your business files. I had to reach out to IncFile four times before they gave me total access. I even called the California Secretary of State looking for assistance, and the government agent told me that, unfortunately, a lot of companies who work incorporating businesses for people will delay granting owners/members access or simply ignore their requests. After all, that’s their business model. They want you to use their service! Once I gained full access from IncFile, I was able to change my business records on the state website.

2. Closed my business account with Farmers & Merchants Bank.

3. Filled out and submitted a termination form.

The California Secretary of State makes it easy to terminate companies online, as long as you know how to ask the question on Google. I was fortunate to have Lori’s guidance to assist me with this step. There are two types of forms: a short one and a long one, each with a list of criteria. In my case, I couldn’t use the short form, which is used for companies who did not conduct business. Lori explained that even though I didn’t have contracts under Become Odara, I had opened a business bank account, which is considered conducting business. After all, I had to make a minimum deposit of $200 to start the account. BTW, if you want to know more about opening a business bank account - which is an entire story of its own, DM or email me!

4.  Waited 3-5 business days to see an update on Become Odara’s records on the CA SOS website

The CA SOS doesn’t send any documentation confirming that your business was terminated. You need to be diligent and check their website often. In my case, it took less than a week to see Become Odara’s records showing the status “terminated.” 

And just like that…Become Odara is back to being a sole-proprietorship company. I look at the time and money I spent incorporating the business as an investment in my education as an entrepreneur. I hope this article can help you not commit the same mistake, that way you can save your time and money and focus your attention on other areas of your company.

So if you are considering incorporating a business and have any questions about what type of business formation is best for you, I strongly recommend reaching out to the Small Business Development Centers (SBDCs) before making any decisions. Reading articles and watching videos online can never replace the value of a one-on-one conversation about your business’s story, background, and current situation. This is what I think is priceless about the work the SBDC does. Plus, you can schedule a call with a coach and be assisted in English or Spanish. Their service is free for members and funded by the U.S. Small Business Administration (SBA). 

If this article helped you in any way, please let me know. You can write an email to becomeodara@gmail.com or tweet me at @becomeodara or @anaclaraotoni. I would love to hear from you! 

Obrigada!

Odarize-se daily!

*I DID NOT receive compensation from the SBA or SBDC for writing this article.