Starting a small business is often the culmination of a passion project that has been nurtured for years which makes it both an exciting and a challenging time for an entrepreneur. However, as with all things, there are certain important legal requirements that need to be fulfilled for small businesses or startups before they can begin their journey officially. These legal requirements may vary from state to state and country to country but here are some of the most general ones.
Register The Business Type Correctly
Small businesses can take many forms and before you begin operations you need to register with your relevant local body so that taxes and other paperwork can be correctly filed in the future. Small businesses typically fall under one of the following categories:-
- Sole Traders/ Proprietors– sole traders work only for themselves and they are the sole owners of a business with no partners. Any loss that the business suffers is a personal loss and most of the business’s funds are from the personal income of the entrepreneur. There is generally a reduction in the tax this small business has to pay but the business owner may be liable to lose collateral or personal assets if their liabilities or loan payments go unpaid.
- Partnerships– a partnership is a business between two people or partners. They both share the assets, liabilities, taxes, and other expenses equally working together to grow the business.
- Corporations– these types of companies have limited liabilities and the business is a separate entity from its owner.
- Private Limited Company– this form of company is private limited with friends, associates, or family members of the owners holding shares but minimal outside intervention or holdings. The law also recognizes the business and its owners as legally separate.
Every Business Needs A Name
Legally, your business needs to be registered with a distinctive name that is not shared by any other business. Check your local and state laws about the forms you need to fill out and the information you need to provide.
The key here is not to use the name or image of any other functioning business as that can amount to intellectual theft among other crimes. Fees are typically minimal for this sort of filing and you need to register within 40 days of starting your business.
The EIN
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The Employer Identification Number or EIN is for a business what a social security number might be for an individual. It is used when applying for external sources of finance, filing tax returns, or registering for various licenses. It is also needed to operate your business within the legal boundaries of the state.
Pay The Tax
Don’t make the mistake of thinking that just because you are a small business you will not have any taxes to pay. Even small businesses have to pay some taxes although in many cases grants and subsidies may be present to make it easier for new businesses to stay afloat and usually the tax levied is much smaller than what larger businesses have to pay annually.
A startup or small business owner needs to bear in mind that he/she will have to pay a calculated combination of different types of taxes. These include sales tax, estimated tax, employer tax, excise tax, self-employment tax, and income tax.
Depending on the initial scale of your business operations you can get by if you know how to use advanced accounting software or in some cases, you will need to hire an accountant for all the bookkeeping. If you miss tax payments you could incur all manner of legal trouble from fines to being ordered to suspend operations.
The Employees
As a small business, it is vital to hire employees that are competent and hardworking as many startups simply do not survive. Regulating the behavior and ethics of employees is very important as any charge on them is going to involve you as the business owner, and in many cases, you may even be held liable if the case goes to court. Have an Orlando criminal defense attorney on file to consult about incidences involving employee behavior towards customers or clients.
The IRS and most similar state organizations in other countries require a federal income tax withholding statement signed by all employees to be mailed to them. Furthermore, a federal wage and tax statement is also required for any employee who has been recently hired by your business.
The filing needed for outsourced or part-time work done by employees that are not permanently hired by the business may vary but these filings are also necessary for insurance purposes especially as it relates to employees (employee liability coverage).