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Notary Bulletin

How to incorporate your Notary business

Choosing the right corporate structure for a Notary business affects everything from taxes to how much of your personal assets are at risk. Notaries already shoulder significant risks of being sued, but errors and omissions insurance won’t protect your home and other personal assets if your insurance doesn’t fully cover the cost of a lawsuit.

According to the U.S. Small Business Administration, business owners, including mobile Notaries and Signing Agents, should choose a corporate structure that gives them a balance of legal protections in case they’re sued, and benefits, such as deductions on their taxes. The right structure will depend on a host of factors, including where the Notary lives, the volume of business they conduct, whether they have employees and with whom they contract or subcontract.

“You’ll need to choose a business structure before you register your business with the state,” the SBA reported on its website. “Most businesses will also need to get a tax ID number and file for the appropriate licenses and permits.”

While a small business owned and operated by just one person may not be required to jump through some of those hoops, (which also depend on where the Notary lives), it’s good to remember that incorporating can provide serious financial benefits and protection in the future.

Here’s a breakdown of the different types of corporate structures, their benefits, costs and some considerations for Notaries and Signing Agents who want to take the next step.

Sole Proprietorships: The default model for most independent Notary businesses

Many independently owned Notary businesses fall under the sole proprietorship category. In fact, “you're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business,” the SBA notes. As a sole proprietor, you’re not considered to be a separate business entity; this means you can be held personally liable for debts, obligations and lawsuits.

Sole proprietorships can be a good choice for low-risk businesses, but there are other drawbacks, including the concern that banks may be hesitant to lend to these businesses, the SBA notes.

SCORE, the Service Corps of Retired Executives, notes in a post that the simplicity and ease of this structure may also come with limited growth opportunities: “If you have your sights set on growing your company by securing contracts with larger businesses, you may find their contracts stipulate your company must operate as an LLC or corporation.”

Optics also matter: “The mere visual of having ‘LLC’ or ‘Inc.’ after your business name can serve to give your business more clout in the eyes of potential customers, vendors and project partners.”

If you have a more complex business, are involved in higher-risk assignments worth greater sums of money or do contracting work, other business structures are worth considering. Marcy Tiberio, who owns a loan signing company, said she consulted a business attorney, an accountant and a financial advisor in determining what structure would suit her needs.

Corporation and Shareholder Corporation: Protecting your Notary business from personal liability

“I spoke to all three to get an idea of what I wanted to do,” she said. “Should I do a DBA (doing business as)? An LLC? It’s dependent on how you’re operating in your particular state. For me, it was better to become a shareholder corporation.”

With this structure, profits and some losses are passed to the owners’ personal income without being subject to corporate tax rates, according to the SBA. There are drawbacks: not all states tax these structures equally, and some states don’t recognize this setup at all.

Corporations offer the strongest protection to owners from personal liability, but the cost to form one is higher than other structures and they require extensive reports and records, the SBA says.

Tiberio said Notaries are often wary of spending money on things, but her attorney charged her just $1,000, which included the whole incorporation process from start to finish. “A thousand dollars isn’t a ton of money when you consider what you’re getting over the long term,” she said. “So many deductions!” There were also other pieces, such as retirement funds, that played a part in her decision.

According to LegalZoom, which offers legal incorporation services, corporations offer a wide variety of fringe benefit plans other structures don’t offer, “such as retirement plans, employee stock purchase plans, medical plans and medical reimbursement plans for costs not covered by insurance.”

LLC: Protecting a Notary’s assets from bankruptcy

Another common structure is the limited liability company, or LLC. This structure has some advantages, including protecting assets such as your vehicle, house and savings accounts in the case of bankruptcy or lawsuits, but people who own an LLC are considered self-employed, and so must pay contributions toward federal programs including Social Security and Medicare, the SBA says.

They may also expire after a limited time in many states — when a member leaves the LLC, a state may require for it to be re-formed with new membership, and these paperwork headaches can be a put-off.

Tracee Jordan, who owns 24 Hour Notary Houston, in Texas. chose the LLC structure for her business.  After starting her business, she immediately filed her name as a DBA (“Doing Business As”), but after significant research, she knew she needed to incorporate to take her business to the next level, she said.

At that point, she sought legal counsel and she and her attorney agreed on forming the LLC — she knew she wanted to separate out her personal assets from her company’s assets in case she’s sued, so the LLC ended up being her best choice.

Moving forward with your Notary business

Jordan recommended Notaries and Signing Agents reach out to local organizations that support small business owners, or other Notaries for mentoring. When she was doing her initial research, she simply started with Google and went from there. The SBA is also a good source to begin the search, and its affiliate, SCORE.

Jordan said Notaries need to distinguish between working in their business, such as doing their daily activities, and working on their business, including marketing and researching business structures.

Tiberio echoed that sentiment. “It doesn’t matter what you do, at the end of the day, you need other people to help you run your business — you don’t know everything,” she said. “I know you’re pinching pennies, but down the road, you recover (what you spend).”

She also suggested legal services with monthly plans Notaries may subscribe to for as low as $20 to $40 a month. These services can often file the paperwork and handle legal questions for these types of business concerns, she said.

Professionalizing a business can feel like an unnecessary and costly headache, but the long-term benefits may significantly outweigh the initial investment. At the least, Tiberio recommends, Notaries should establish a relationship with a qualified legal professional or accountant for questions — a referral fee could be kosher in one state but considered a kickback in another. It’s always better to be prepared and on the right side of the law.

 

 

 

 

2 Comments

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Mildred Bradley

16 Jun 2021

I am a new notary signing agent and would like to know more on how to set up my business. This was very informative. Would like to know more.

National Notary Association

17 Jun 2021

Hello. You may find this article and infographic helpful: https://www.nationalnotary.org/notary-bulletin/blog/2015/04/4-steps-successful-notary-business-infographic

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