Step 8 Complete Your Legal Legwork

Common Requirements

Although legal requirements vary geographically and by type of business, some of the most common start-up essentials include:

(1) Obtaining a federal Employer Identification Number (EIN). The EIN allows the federal government to keep track of an employer's tax withholding amounts for employees and any funds paid to independent contractors. Although a sole proprietor is free to use his or her Social Security number instead, many business forms require an EIN, so all business owners should consider applying for one. To get one, simply file IRS Form SS-4.

(2) Applying for state and city business licenses. Contact the business license bureau in your city or county to find out what kind of business license, if any, you need to purchase. Also, check with any local or state agencies that may have jurisdiction over occupational licenses related to your type of business. Failure to obtain all necessary licenses and permits in advance of opening day may result in significant fines or ultimate business closure.

(3) Obtaining state sales tax and resale tax certificates. If you will be selling goods directly to the public, you'll need a state sales tax certificate so that you can submit sales tax payments to the state for every item you sell. If you will be buying raw materials wholesale from distributors, or will be selling goods wholesale to shops and other distributors, you'll need a resale tax certificate so that no sales taxes will be collected for such transactions. To obtain these certificates, or to find out if your particular business requires one, contact the agency that is responsible for sales tax collection in your state.

(4) Investigating zoning restrictions. Zoning laws may affect you when establishing your new business, especially if you live in an urban setting or wish to operate your business legally from home. Because zoning laws are typically used to protect neighborhoods from intrusive businesses, you need to investigate all applicable ordinances in your area before cementing plans for the type of workplace you desire. In most areas, you should contact your local city hall to learn about zoning laws in your community.

(5) Registering your business name. If you are including your full legal name as part of your selected business name, you can skip this step in most states. However, if you will be conducting your business using a fictitious name (that is, any business name that does not contain your full legal name as part of it), you will be expected to file a DBA ("doing business as"), also commonly known as a fictitious name statement. DBAs exist to inform the public that you are launching a business using a name other than your own. Filing the DBA generally takes place at the county clerk's office.

A business writer for the past eight years, Kylo-Patrick Hart has run a successful homebased consulting business since 1989.

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This article was originally published in the January 1997 print edition of Entrepreneur with the headline: Step 8 Complete Your Legal Legwork.

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