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Fictitious Name Statement for Sole Proprietorship

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Question: 
When opening a business account, when should we require a fictitious name statement? We have been told that if the last name is in the title, we don't need one, but if it is questionable, such as Smith and Company, it may not be a sole proprietorship, and we have to require the name statement. If they tell us they are a sole proprietorship, and we open a NOW account, but the title is Smith and Co., how do we prove it really is a sole proprietorship?
Answer: 

Let's start with the title of the account. If it is a sole proprietorship, the account should be titled in the name of the individual, not in the name of the business. As for documenting (I won't use the word "proving" here) that the individual is a sole proprietor, banks have been struggling with the question for as long as I've been in the business (trust me, it's been a long time). Back in the day, as they say, a banker often just knew that a business was owned and operated by an individual.

Things aren't a lot better today. Some states may require a business to have some form of license to open its doors. That might be the case regardless of the form of ownership. If you can get your hands on a copy of that license, it may tell you what you need to know. In some cases, a sole proprietor only needs to register a business name when the proprietor's name (surname or full name, depending on the local law or regulation) isn't part of the business name.

One document that may help is a copy of the Schedule C or C-EZ filed with the individual's federal tax return. The documentation would be more complete if you also have a copy of the front of Form 1040.

If your institution doesn't want to insist on documentation of that type and if there aren't other documents that the business proprietor has to file with a government agency, your only remaining choice may be to obtain a statement or affidavit that the individual is a sole proprietor and listing any fictitious name or names he or she uses in operating his or her business.

First published on BankersOnline.com 7/12/10

First published on 07/12/2010

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