Starting a small business in the US is a wise idea, as these small enterprises are the backbone of the American economy. No matter how exciting a new venture may sound, it may also be quite a challenge to establish a small business. After a business type has been identified, a business plan determined, the location chosen, and how the business is financed, you will be faced with the legal aspect of your project.
Legal Aspect of Starting a Small Business
In business, legal matters are high up the ladder of importance and priority. One of the first legal steps you may have to take is to establish the legal organization of your business; whether it is a sole ownership, corporation, partnership, cooperative, limited liability company, or even a non-profit enterprise.
Doing Business As (DBA)
Legally, before you set up your small business, you are required to register the ‘Doing Business As’ name. If the name you choose for your business is your name, with no addition whatsoever, you can skip this step, but for all other names that are not your name, you must register with the relevant authorities. This, in the US, is done through the state authorities. Note that it is not a requirement in all states to register a DBA.
Once your chosen name has been approved, you will then need a specific tax identification number. This is acquired from the IRS, and also the revenue agency at the state level. Local taxes are mandatory, but each state has its own tax obligations. Almost all states impose a business income tax, which depends on how your business is legally structured; whether a sole ownership, LLC, and so forth. There are also federal employment taxes that are paid by business owners to the state. All US states require payment of workers’ compensation insurance as well as unemployment insurance taxes. If your small business is located in one of the below states, payment for temporary disability insurance is obligatory:
• New York
• Puerto Rico
• New Jersey
Generally, it is important to know about business tax, general tax, workers’ compensation insurance, and unemployment insurance taxes when setting up any small business.
After successful registration and tax compliance, you may require permits and licenses for you small business. Most of the time, permits are required for business activities that fall under regulation by federal agencies. Some of these include businesses dealing with firearms, alcohol, import of animal or plant products across states, aircraft operations, wildlife activities, commercial fishing, and the like.
When an employer-employee state exists in your small business, you must comply with employer responsibilities and regulations. Before you hire any employee, you must have a valid Employment Identification Number (EIN) necessary for taxation reporting to the IRS. As a good employer, you must keep employment tax records for no less than 4 years. You must submit your employees’ federal income tax withholding forms to the IRS and annually present wages paid to the Social Security Administration.
As a major rule, look into zoning regulations, environmental laws, building codes, and taxation when setting up a small business. Information pertaining to legal matters in business is available in state government offices and online on the US small business administration website, which is also run by the government.
At Gutglass, Erickson, Bonville & Larson, we understand the challenges of dealing with legal issues for your business and we are here to help. Give us a call and we will be happy to answer all your questions. Call us today at (414) 273-1144.