The current economy has created a stressful situation for employees worried about their job security and for the unemployed who are discouraged in their job searches. A promising option is to become self-employed as a small business owner. Having your own business can be flexible and personally rewarding, but the small business owner should also understand the accompanying responsibilities in terms of compliance with the local governing body. Direct sales, for example, is an area where small business owners often misunderstand their role as a business separate and distinct from the company whose products they are selling.
Independent distributors, sometimes called independent consultants, are not actual employees of the companies whose wares they sell. The agreement the distributors enter into is not an employment contract. Rather, the agreement allows the new business owner to (1) order wholesale goods from the company; (2) sell the products at retail pricing predetermined by the company; and (3) use the company’s promotional materials. In order to comply with local ordinances, the direct sales business owner must still register with the appropriate city or county as an independent business. In California, most cities or counties also require a business tax or license for business activities performed within the corresponding city/county limits. This means that the business owner must also register with any out of city or county locations where business activity will take place. The failure to obtain the proper business licenses and pay the required fees can result in monetary penalties assessed by the city and/or county.
Most cities provide their specific requirements and applications online for the prospective business owner’s convenience. In preparing a business license application, it is very important for the seller to consider the following:
• Unless specifically authorized to do so in the agreement executed with the wholesale company, the independent distributor cannot use the company’s name in its registered business name. The business license application will ask for the name of the new business. As a standard business practice, the terms of the independent distributor agreement, in most cases, do not permit the seller to use the company’s name in the title of the business.
• The independent distributor must not engage in business activities until receipt of the business license, unless the county or city authorizes operations pending license approval.
This blog entry was written and researched in large part by attorney Francesca Svarcas and has been reprinted here with her permission. If you have questions or concerns regarding making your independent business compliant with the local ordinances, then contact Ronnie Gipson at (415) 655-6820 or Gipson@higagipsonllp.com.
