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E-Law

Erie E-Law is a complimentary service of the Erie County Bar Association designed to make basic legal information available to you with ease. You can gain access to E-Law either by reading the information found below or by contacting us to request a copy of the transcripts.

Starting a Small Business

Posted on February 15th, 2019 at 11:48 AM

If you need to consult with an attorney or would like more information on starting a small business, please contact the Erie County Bar Association's Lawyer Referral & Information Service.

Are you thinking of starting a new business? There are many things to know and consider before you do. One of the first considerations is the form of entity you will use to operate your business. There are four types of business entities: (1) the sole proprietorship, (2) the partnership, (3) the limited liability company, and (4) the corporation. To add to the mix, there are several sub-categories of partnerships, limited liability companies, and corporations. The most notable thing about the sole proprietorship is its simplicity. A sole proprietor is simply an individual who owns and operates a business directly. This business may or may not have employees. The limited liability company is a popular choice for new businesses. How do you decide between these types of entities? The answer depends on the type of business and various legal and tax factors.

Once you have decided on the form of entity, next you must determine a name your business. If you have decided on a sole proprietorship, you can use your own name. If you have decided on a partnership, you can use the names of the partners. If you have decided on a certain kind of partnership, a limited liability company, or a corporation, you can register that name when the entity is created. Additionally, you can use a “doing business as” name that is different from the names described above. This “d/b/a” name is called a “fictitious name” in the Pennsylvania Fictitious Name Statute. That law requires anyone carrying on a business under a fictitious name to register that name with the Pennsylvania Department of State.

Please note that the registration of a fictitious name does not give the owner exclusive right to use a word, name or symbol in connection with the sale of goods or services. To do this you must establish a prior use and/or register a trademark. You also may be limited from using your desired name by an earlier business registration or someone else’s pre-existing trademark. 

After you have decided the form of entity and the business name, you will create the entity and register any fictitious name or names you plan on using.

Next, you will need to establish proper relationships with the federal, state, and local taxing authorities. All corporations, partnerships and most limited liability companies are required to obtain an “employer identification number” or “EIN” from the Internal Revenue Service (this can also be referred to more generally as a “taxpayer identification number” or “TIN,” which includes social security numbers and EINs). You may also need to register and obtain various tax numbers from the Pa. Department of Revenue. If you are operating as a sole proprietor, you will only need to obtain a separate EIN if you have employees or if you are required to file specialized federal tax returns, such as those relating to excise taxes, alcohol, tobacco, or firearms taxes. You can obtain an application for a EIN by contacting the IRS. Your attorney or accountant can also help you obtain an EIN.

If your business will be selling, leasing or licensing personal property or certain types of services, you are required to obtain a Sales and Use Tax License for your business by applying to the Pennsylvania Department of Revenue and then collect sales tax on your business’s sales and pay those taxes to the Department of Revenue. Whether you will need to collect and pay sales tax or similar taxes for other states depends on many factors, and you should seek competent legal and tax advice if doing business in more than one state.

Any business owner who has employees is required to comply with numerous requirements for the withholding and payment of income and employment taxes. You should contact the IRS and the Pennsylvania Department of Revenue to obtain the forms and instructions for complying with these requirements. Whether you have to register your business or establish a relationship with other states’ taxing authorities depends on your business’s location as well as the location of your employees. You should also contact the Pennsylvania Department of Labor and Industry for information regarding state unemployment compensation taxes. Fortunately, almost all the information required by the Department of Labor and Industry and the Department of Revenue can be submitted on one form, the PA-100.

Another obligation triggered by the hiring of employees is providing workers' compensation insurance. If you will have employees, you are required to provide workers' compensation insurance in order to pay claims resulting from employees who are injured on the job. Failure to maintain such insurance is a summary offense punishable by a fine or jail. You can obtain information regarding workers' compensation from the Pa. Department of Labor and Industry, Bureau of Workers' Compensation.

The purchase of an existing business raises additional considerations. Any agreement to purchase the assets of an existing business should be in writing and reviewed by a competent lawyer. If you are considering purchasing the assets of an existing business, you must consider the same issues discussed above regarding the form of the business that will operate those purchased assets. When purchasing the ownership of an ongoing business entity, for example if you are purchasing the stock of an existing corporation, you should consult with qualified professionals to help you navigate through the many legal and tax considerations that will arise.

There are many other legal matters you will need to consider when starting or acquiring a business. These will depend upon the type of business you are establishing. For example, certain types of businesses require specific federal, state, or local government licenses. Use of a building or other real estate may require obtaining an occupancy permit, building permit, zoning permit and the like. Other businesses may require protection for the business’s intellectual property. Yet other businesses may have environmental law issues. In addition, you will need to consider the types and amounts of insurance coverage appropriate for your business’s operations.

Some information about the permits and licenses necessary to start and operate a specific type of business in Pennsylvania can be obtained through http://www.paopen4business.state.pa.us or by contacting the Pennsylvania Department of Community and Economic Development at http://www.newpa.com or 1.866.GO.NEWPA.

Information is current as of 2/2019.