Sunday, May 17, 2009

Legal Issues Associated With Starting or Buying a Small Business

There are numerous legal issues to think about when it comes to starting or buying a small business. There are important legal requirements associated with registrations, permits and licenses, and you will need to meet all the laws for operating your particular business in your community. Regulations vary by industry, state and locality. It is important to make sure you have satisfied all the legal requirements associated with your business before you start operating.

Regulatory Considerations

Certain businesses are subject to restrictions on the legal form the enterprise must take. Some businesses, particularly those that require a “professional” license, may not be practiced in the form of a regular corporation, but are restricted to the modified ''professional corporation'' format. By contrast, some businesses may be operated only as corporations.

In addition to general and specific regulations of a business's activity, there may be legal obstacles to certain individuals engaging in a particular business. An example is state permit or license requirements that restrict who may engage in a particular activity based on certain educational or other background requirements.

Some licensing requirements are aimed at preventing those with criminal or otherwise ''undesirable'' histories from participating in some activities. Often, even if a licensing statute does not specifically call for good character in an applicant, a licensing official may have implied discretion to investigate an applicant's character and to deny the license on that basis.

Federal Requirements

With the exception of sole proprietors, most business types must apply for an Employer Identification Number (EIN) regardless of whether they have employees. Additionally, if you provide health insurance for your employees, you may need a National Standard Employer Identifier (NSEI) for your electronic health transactions.

Most businesses do not require a federal license or permit. However, if you are engaged in one of the following activities, you should contact the responsible federal agency to determine the requirements for doing business:

  • Investment advising
  • Drug manufacturing
  • Preparation of meat products
  • Broadcasting
  • Ground transportation
  • Selling Alcohol, tobacco or firearms

Federal registration of intellectual property, including patents, trademarks, trade names and copyright, provide business owners with exclusive use of intellectual property in the United States as well as in a large number of foreign countries.

State Requirements

Many types of businesses need to obtain some type of business or professional license or permit from a state government. While business licensing requirements vary from state to state, some of the more common types are listed below:

  • Business licenses. A state business license is the main document required for tax purposes and conducting other basic business functions. Many states have established small business assistance agencies to help small businesses comply with state requirements.
  • Occupations and professions. State licenses are frequently required for occupations as varied as building contractors, physicians, appraisers, accountants, real estate agents, private investigators, funeral directors, hairdressers and auto mechanics. Prior to opening a business, be sure that you know what the licensing requirements are for your particular occupation and that you have complied with all of them. Contact the state board governing your particular occupation for information as to licensing requirements. Certain occupations also require that you provide regular proof of "continuing education," to ensure that you keep up with changes in your occupational field.
  • Licenses based on products sold. Some state licensing requirements are based on the product sold. For example, most states require special licenses to sell liquor, lottery tickets, gasoline or firearms.
  • Tax registration. If the state in which you operate has a state income tax, you'll have to register and obtain an employer identification number from your state Department of Revenue or Treasury Department. If you're engaging in retail sales, you will need to obtain a sales tax license.
  • Trade name registration. If your business will only be operated in your local community, registering your company name with the state may be sufficient.
  • Employer registrations. If you have any employees, you'll probably be required to make unemployment insurance contributions.

Local Requirements

Nearly all businesses need a county or city license. This is a general license that grants you, as the business owner, the privilege of legally operating a business within a certain city or county jurisdiction. Fees are typically low and these kinds of licenses are easy to obtain, though application procedures may vary. Contact your city hall or county government offices to determine the kind of license you need and obtain necessary application paperwork.

Local permit requirements vary as well. Failure to have the proper permits may prevent your business from opening, force it to shut down and you may have to pay fines.

For specific requirements for your business you should contact a local business attorney to make sure you comply with all the necessary requirements. If you plan on starting a business in California, I can handle these issues for you and make sure you stay compliant throughout the life of your business.


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