There are many things to consider when starting a business. Here are answers to some frequently asked questions about the legal aspects of starting a business.
Q: What types of licenses would a small business need and where do I get them?
A: The business licenses and permits that a small business will need will vary depending on the business industry and the location of the business. Business licenses and permits are issued at the federal, state, city, and/or county levels. All businesses will usually need a city and/or county business license, while most businesses will also need a federal employment identification number (EIN). You can check to see if you need an EIN and apply on the IRS website. Depending on your business industry, you made need other federal business licenses as well.
Q: What will my tax obligations be for my business?
A: While your tax obligations will vary depending on the type of legal structure you choose for your business, there are a few start-up tax issues to be aware of. First of all, it is imperative that you keep good records. You should also be sure to keep your business and personal taxes separate. Businesses can also deduct certain business expenses, which can lower the taxes your business owes.
Q: What are my options for legal structures for my business?
A: The available legal structures for businesses include sole proprietorships, partnerships, limited liability companies, and corporations. Each type of structure will have its own requirements for formation and maintaining status. The tax status and owner's personal liability will also vary depending on the type of business structure.
Q: What is a fictitious business name?
A: A fictitious business name is a name that is different from the legal business name on file with the state (for a sole proprietorship, it would be the business owner's name). Generally, fictitious business names must be registered with the state and/or county. Since registration requirements vary from state to state, it's important to check with your state laws regarding fictitious business names.
Q: What is a corporation?
A: A corporation is a legal entity that is separate from its owner, which means that owner is shielded from personal liability (except for certain situations). Corporations are subject to double taxation – profits are taxed both at the corporate level and when distributed to shareholders. In order to maintain corporate status, the corporation must observe various formalities such as conducting annual meetings, recording meeting minutes, electing directors, and issuing stock certificates. While corporations are a popular business structure, they are complex and have more start-up costs than other legal structures.
Q: What are the benefits of having a limited liability company?
A: A limited liability company (LLC) combines the best aspects of a sole proprietorship and a corporation. Like a corporation, the owner of an LLC is protected from personal liability. However, unlike a corporation, an LLC is not required to observe corporate formalities. There is a tax advantage to forming an LLC as well. An LLC is not subject to double taxation (like a corporation), but rather enjoys pass-through taxation, which is similar to a partnership or sole proprietorship.
Getting Legal Help
Being in compliance with all applicable laws and regulations when starting a business can help prevent trouble for your business in the future. A business organizations attorney can provide guidance as to the correct steps in starting your business, including information on which business licenses you will need and the best business structure for you.
For more related information and resources, you can visit FindLaw's Small Business Law section.