Business Setup – Legalities
Legalities
The first thing a person does, when playing a board game like Scrabble is to arrange all the letters. If it is Monopoly, the first thing you do is arrange the money. You need to do the same thing when you start a business except it is the paper work and not the letters or fake money. You will have to follow the federal, state and local rules and regulations. You need to have knowledge of zoning, GST, and the different legal structures. You need to be knowledgeable about how to register your business name. Errors in any of these things could lead to problems down the road.
Legal Structure
You need to know how your business is going to be structured before you open the doors. Do you want to be the only owner or do you want to have a partner. Do you want your business to be incorporated? It is important that you know the ramifications of each structure so that you can decide which structure will suit you best.
• Sole proprietorship
This is a business with one owner. The business has no legal existence on its own. All profits go to the owner and all losses are the responsibility of the owner. The good thing about sole proprietorship is that it is the most basic business structure. The bad thing is that all business debt is the responsibility of the owner and must be repaid by the owner.
• Partnership
This is when a business is owned by two or more people. Again, the business has no legal existence on its own. The difference is that the profits and debt are split among the partners based on a scale that has been agreed upon or based on the investment made by each partner.
• Corporations
A business that is incorporated gives the business a legal existence on its own. Profits and liabilities are the responsibility of the corporation and not the owner. The negative for this protection is that there are higher taxes for corporations. This tax rate is lower for a smaller business.
Registering a business name
After you have decided on the legal structure of you business, it is a good idea to get the business name registered. It is better to get this done as soon as possible so that you don’t have to worry about someone else using the name or any issues with regulations latter on down the line. Most times you register your business name with the state but you need to get the specific rules for your locale.
Get the appropriate license
It is most likely that you will have to apply for a local business license in order to conduct business in your area. The exception to this rule is a home-based business. It is a good rule of thumb that you will need a business license if it is not a home-based business. Verify the local municipal zoning and land regulations that exist in your area.
Tax Requirements
It is most likely that you will have to get a federal tax number. You can apply for one with the federal government in order to charge small business taxes.
Get Help
The government is steadily trying to reduce the amount of red tape that it involved in business. States are attempting to do this as well by creating resources where you can get all the information that you need in one place. You can get information from workers comp, health taxes and name registration in one place.
Complying with Regulations
A good and constant relationship with your advocate and CPA is essential to make sure that you stay in compliance with all regulations. They are important contributors in making sure that all your paper work and records stay up to par and comply with all rules and regulations.
