Does Your Startup Meet Legal Requirements?
There are federal, state, local and, in some cases, regional requirements that may apply to your business. You're wise to thoroughly research this issue before starting your business, not only because you're a good citizen who wants to be in compliance but also because you want to prevent any costly surprises that might impact you adversely now or in the near future. Sometimes what you don't know can hurt you and your wallet.
At the federal level, your business will most likely need a license or permit if you're engaged in one of the following: dispensing investment advice; providing transportation services such as a trucking company; preparing food products; producing drugs; manufacturing tobacco, alcohol or firearms; or if you own a radio or TV station. If you're involved in any of the activities mentioned above, you can obtain government requirements by contacting the appropriate federal agency such as the securities and exchange commission, the interstate commerce commission and so on. Your trade or professional association should be able to assist you in determining if there are any federal agencies that have oversight for your type of business. You can obtain contact information for a trade or professional association by examining the Encyclopedia of Associations at your local library.
Also at the federal level are two tax registrations. Form SS-4 is used to apply for an employer identification number. The only businesses that don't need this number are sole proprietors with no employees. Otherwise, this number is required for reporting withholding taxes. Unless you're a sole proprietor with no employees, you can't report withholding under your personal social security number. The second registration applies only to those businesses that want "S" corporation status. To do so, fill out and send Form 2553 to the IRS.
If you employ workers, you must ensure that they fill out I-9 and W-4 forms. The former proves an employee's citizenship, and the latter provides necessary withholding information on the employee.
States license professionals such as CPAs, attorneys, nurses, doctors, dentists, architects, engineers and others.
If your state collects state income tax, you'll have to file an application to obtain a withholding number similar to filing for a federal identification number. You can obtain an application from your state's department of revenue or treasury department.
If you're selling a product, you'll also need a sales tax number to use in reporting the sales tax collected and remitted to the state. This form can also be obtained from your state's department of revenue or treasury department.
If you're an employer, you'll have to register with your state's department of labor to obtain a number to use in reporting unemployment compensation paid into an account on behalf of employees for possible compensation in the event of job loss. You'll also need to make sure they complete a state income tax withholding form similar to the W-4 form for federal withholding.
Many states require a basic business license for those who operate a business, even if it operates out of a home rather than a commercial location, and certain types of businesses may need special licensing as well if they serve food or alcohol, sell gasoline or operate a swimming pool, nursing home and so on.
Local governments may impose licensing or permit requirements for businesses that impact community health or the environment. They may also require that your business comply with building codes and zoning ordinances. It may also be necessary for you to pay local property taxes.
Still puzzled? Check with your local Small Business Development Center, a local CPA who works with start-up businesses or the local office of one of the national payroll companies that provide help to start-up companies with one or more employees.
Carlotta Roberts has a J.D. degree from Atlanta Law School. Having worked in the areas of business organization, contracts and employer/employee relations, she's been a consultant to small-business owners since 1981. She worked as a staff attorney concentrating in employment law issues before joining the Small Business Development Center national network in 1986. Currently area director for the Kennesaw State University Small Business Development Center near Atlanta, she has developed two nationally recognized programs: The Cobb Micro Enterprise Council, which won the Vision 2000 award for small-business development in 1999, and the Franchise Institute, developed to provide assistance to franchisees.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.