Opening any legal business entity these days big or small requires paperwork and a lot of it. Even if you are just interested in expanding on what you already have you will have to look into licensing, business permits, registrations and so much more to become a legally operating business. The small business association has laid out five steps to help entrepreneurs give their feet off the ground and running legally. Crossing all the t’s and dotting the i’s are an important first step in learning the rules to run and compete in the small business world.
1) What type of small business structure your small business will run as?
- Sole Proprietorship: This business structure runs under only one owner who pays income tax on profits from the business as if it is personal income. It is the simplest business to run however you assume all the risk.
- Partnership: This business structure runs with two or more individuals own a company. Not only do they share equally in the risk but also the rewards of the business.
- Corporation: This business structure is what is the most common to businesses. A business is formed under the laws of the state and is a separate entity from the owners. This is beneficial because the risk is shared and limited to the businesses assets and not those of individual owners. The business has a legal existence above and beyond the owners.
- S Corporation: This business structure is similar to a corporation but allows for certain tax benefits and allows business profit and losses to be passed on to shareholders. There are certain rules that need to be followed with S corporations so look into those before you begin setting up this type of business.
2) Business Name Registration
In order to legally run your business under something other than your name you must register the businesses name with the government. This will allow you to register for an employer tax id number, all licenses and permits too. Your name is required on all documents, forms and applications that are needed to run your business.
3) How to you get a federal tax identification number?
If your business will have any employees you will need to obtain an identification number from our federal government. If you are running a sole proprietorship and you are the only employee you may use your social security number. You may apply for an employer identification number online or by calling the internal revenue service directly.
4) What about the state?
As with the federal government your state and local governments will have to assign your business an identification number. Also, if you are selling any type of goods you will need to obtain a vendor license/state tax permit. Each state government has rules governing small businesses. It is best to check with them to determine what is required.
5) Getting License and Permits
Each type of business requires different permits and licenses. For instance, if operating a restaurant you need special food handling permits. You must obtain specific industry permits before you open the doors for business.
The small business association provides information designed to give new business owners a look into what it is going to require just getting the business idea going. It is not just about having a store front and claiming that you are going to sell a product. As you can see a lot goes into the background of opening a business. Look to other small business owners and the SBA for information on getting the wheels spinning for your new venture.