Unincorporated vs. Incorporated Business
An unincorporated business is not registered with the state as a legal entity. Owners are personally liable for all debts. Most unincorporated businesses are sole proprietorships, owned and operated by one person. The Unincorporated Business Franchise Tax taxes certain unincorporated DC businesses with over $1,000 in gross receipts. There is no requirement to use a registered business name. However, benefits include building reputation and goodwill.
If an unincorporated DC business has $12,000 or less total gross income, it generally does not need to file a return. An unincorporated business means any DC trade or business conducted by an individual, trust, estate, partnership or other entity.
Determining the Right Business Model
Understanding these differences can help determine the right model. Incorporating can provide peace of mind that personal assets are protected from business liability.
DC Unincorporated Business Tax (UBT) Requirements
What is DC UBT? The unincorporated business franchise tax must be filed by DC businesses that are unincorporated. This includes partnerships, sole proprietorships, and joint ventures. The business must make over $12,000 a year from DC sources.
If a DC unincorporated business makes $12,000 total gross income, it does not need to file a return. An unincorporated business means any DC trade or business conducted by an individual, trust, estate, partnership, or other entity.
An incorporated business is separate from the owner. It has liability protection. An unincorporated business and owner are the same, personally bearing results. A difference regards liability for obligations. Incorporation protects owners. Unincorporated does not.
These differences help determine the right model. Incorporating provides assets are protected from liability.