Most new business owners have a grasp on the basic requirements, money, employees, and a viable product or service. State, county, or local governments, however, impose some of the most overlooked requirements. Keeping them straight will be a critical piece of your new venture. Here is a basic roadmap to follow.
Business Licensing & Regulation
At the state level, every business that is an entity other than a sole proprietorship (one individual) is required to register in some form. This typically means partnerships, corporations, limited liability companies, and any other entity that relies on an agreement between two or more persons or entities.
This licensing is the very basic registration of the business, which reserves the name of the business and records the principals and the registered contact. In the case of a corporation, this process is often referred to as incorporation. Closely related to this is the fictitious name statement often referred to as DBA (doing business as).
All entities regardless of the form must register the name under which they operate or do business (either through business registration or a DBA filing) unless it is a sole proprietorship that clearly provides the owner’s name, such as John Smith’s Bait & Tackle. All entities can also register a DBA other than the registered name. For example, XYZ Corp. may also DBA as Dry Cleaning Central.
Certain types of businesses or services will also require special business licenses. For example, most states regulate gaming, financial services, public accounting firms, real estate companies, collection agencies, mortgage lenders, vending machines, peddlers, traders, etc, just to name a few.
These types of businesses are not only regulated by the state, but also by county and local governments, which can often overlap and may all be necessary for a particular business. Remember, these required licenses typically apply even for home-based businesses. You can usually obtain a listing of business licenses through your local licensing and regulatory authority.
Professional Licensing & Regulation
In addition to licensing the business, you may also be required to carry a professional license. Typical examples are certified public accountants, architects, barbers, electricians, engineers, interior designers, real estate agents, home appraisers, etc. You will notice that many of these licenses are geared toward professionals that often operate as a home-based business. Consult your state and local licensing and regulation authority before establishing any professional practice.
Business Related Permits
Permits are often imposed by various governmental agencies in order to regulate a particular activity or as a quality control measure. We typically recognize these as zoning permits, building permits, electrical or plumbing permits. These can also include, however, environmental permits and a permit for home offices.
Most building-related permits are taken care of by subcontractors that you may hire to complete a particular job, but it is your responsibility to make sure that the proper permits are in place before moving forward as you will be responsible for any liability. Environmental permits, although mostly unrelated to the small business, may be required if you handle certain chemicals or regularly dispose of certain items. You should consult your state environmental commission for guidance.
Local zoning boards or even your homeowners association may impose certain restrictions on a home-based business, such as client visitation, signage and certain types of business activities. Be sure to check out all of the current regulations before you begin conducting business.
A frequently overlooked aspect of having employees (including yourself) or subcontractors is insurance. Many states impose specific requirements regarding maintaining workers’ compensation insurance for certain employees and or contractors.
Even if you are your company’s only employee, you still may be required to file with your state’s worker’s compensation board, even though insurance may not be required. Be sure to check with your state’s insurance commission or worker’s compensation commission in advance.
Licensing for Hospitality and Food Service
Another category of licensing, often managed by one or more separate agencies, covers most public eating establishments, places offering accommodations, nightclubs, etc. You will typically require a liquor license if you are going to serve or sell alcoholic beverages. Licensing typically requires training and a criminal background check. Many states will not issue a license to those convicted of a felony.
If you are planning to serve food or sell prepared food you will need to obtain a license from the department of health in your locality. This also applies to home-based establishments. Each state will have several types of licenses available depending upon your situation, each having a unique set of requirements. Many states will also require public buildings to receive inspections or approval from the local fire commission as to safety issues.
For hotels, B&Bs; or other businesses providing public accommodations, a hospitality license will be required, often as part of or in addition to a health department license. If food and or alcohol are served, additional licensing may be required as noted above.
As part of the licensing process, most states also impose a set of requirements on businesses for tax liabilities and collection. Any entity other than a sole proprietorship will be required to obtain an EIN (employer identification number) at the state level. This is applicable even if you do not have any employees other than yourself.
You will be required to pay unemployment tax, withhold state and local income tax (if applicable) and file personal property tax returns. Personal property tax is a special tax on the assets or property of the business, which may be collected at the state, county, or local level. You can inquire about your requirements at your state’s revenue and taxation authority.
If you sell a taxable product to an end-user, provide a taxable service, or regularly purchase non-exempt items for consumption from an out of state entity that does not collect sales tax, you will be required to obtain a sales tax identification number.
This will cover your collection of sales tax, meals tax, hotel tax, and your payment of use tax. This identification number is also what you will use to make tax-exempt purchases for items that are part of a manufacturing process or that you intend to resell. Be sure to review your state’s regulations very carefully as most business owners are unaware of use tax requirements.
Finally, as if these taxes were not enough, you may also be subject to special taxes applicable to certain businesses, such as fuel tax, cigarette tax, alcohol tax, and a host of other special taxes. Check with your local taxation authority for a complete listing.
Although not an exhaustive listing, the licensing, permit, and taxing information listed above should provide any prospective business owner with a reasonable guide to complying with the regulatory requirements of operating a business. A good place to start is the local chapter of the SBA (Small Business Administration), a local law clinic, or the Rotary Club.
Many states also provide comprehensive guides to starting your own business, offered either by the taxation authority, licensing and regulatory authority, or the small business development agency. Complying with all of the regulations in advance will allow you to focus all of your energy on your new business and your future success. Good luck!