Starting a Small Business

When starting a small business, there are numerous steps which must be taken and many factors which should be considered. One of the first steps in starting a business is to determine the form of entity which will operate the business. There are basically four types of business entities: the sole proprietorship, the partnership, the limited liability company and the corporation. Other messages in the E-Law Library discuss the characteristics of partnerships and corporations. The most notable thing about a sole proprietorship is its simplicity. A sole proprietor is simply a lone individual who owns and operates a business directly. This business may or may not have employees.

Once it has been decided what form of entity will operate the business, it is important to determine the name under which the business will operate. The Pennsylvania Fictitious Name Statute requires anyone carrying on a business under a fictitious name to register that name with the Pennsylvania Department of State. A fictitious name is any name other than the proper name of the individual or registered name of the partnership, corporation, or LLC.

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. Trademarks are discussed in a different E-Law message.

One of the most important considerations in starting a new business is establishing proper relations with federal, state and local taxing bodies. All corporations, partnerships and limited liability companies are required to obtain an employer's identification number from the Internal Revenue Service, often referred to as a tax I.D. number as well as various tax numbers from the state Department of Revenue. A sole proprietor will only need to obtain a tax I.D. number if s/he has employees or if s/he is required to file specialized federal tax returns, such as those relating to excise taxes, alcohol, tobacco and firearms taxes. The application for a tax I.D. number can be obtained by contacting the IRS.

Any business owner who has employees is required to comply with numerous requirements for the withholding and payment of income and employment taxes. The employer should contact the IRS and the Pennsylvania Department of Revenue to obtain the forms and instructions for complying with these requirements. Whether numbers are necessary from other states is dependent on the Employer's location as well as the location of its employees. Employers should also contact the Pennsylvania Department of Labor and Industry for information regarding state unemployment compensation. Fortunately most all information required by the Department of State, the Department of Labor and Industry and the Department of Revenue can be submitted on one form (PA-100).

Another obligation which is triggered by the hiring of employees is that of workers' compensation. All employers within the Commonwealth of Pennsylvania 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 and/or a jail term. Information regarding workers' compensation can be obtained by contacting the Bureau of Workers' Compensation.

Finally, any business which will be selling, leasing or licensing personal property or certain types of services is required to collect sales tax on its sales and pay those taxes to the Department of Revenue. Such businesses must first obtain a Sales and Use Tax License by applying to the Pennsylvania Department of Revenue. Whether sales and use tax must be collected for other states is fact dependent and the company should seek competent legal and tax advice if doing business in more than one state.

The purchase of an existing business raises additional considerations. Any agreement to purchase the assets of an existing business should be in writing. When purchasing the assets of a business, the same consideration of form of business discussed above should be considered. When purchasing an ongoing business entity, there are several tax considerations for which a qualified professional should be consulted. Certain types of agreements are unenforceable unless they are in writing. These agreements should be reviewed by your attorney.

These are simply a few matters which must be considered when starting or acquiring a business. The remaining legal requirements will depend upon the type of business to be operated and the method of operation. 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. In addition, business owners need to consider the types and amounts of insurance coverage appropriate for their operations.

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.

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