Starting a Business: Legal FAQs

Q: What business licenses does a small business need?

A: The following are just some of the business licenses/permits that a small business might need: "doing business as" (DBA) registration (usually filed at the county level), city and/or county business license, fire department permit, sign permit, health department license, and liquor, wine, and beer licenses.

Q: Where do I get a business license?

A: Your state and local (city and/or county) government usually provides business licenses.

Q: What legal aspects do I need to consider?

A: Licenses required, zoning laws, and other regulations vary from business to business and from state to state. Your local Small Business Administration (SBA) office and/or chamber of commerce will provide you with general information, but you will most likely need to consult an attorney for advice specific to your enterprise and area. You also must decide about your form of organization (corporation, partnership, or sole proprietorship) and tax status (e.g., should you opt for Subchapter "S" status?).

Q: What is a "Fictitious Business Name"?

A: Businesses that use a name other than the owner's must register the fictitious name with the county as required by the Trade Name Registration Act. This does not apply to corporations doing business under their corporate name or to those practicing any profession under a partnership name. For more information, contact your state or local government.

Q: If I operate my business under my personal name, is it necessary to register it someplace?

A: In most states you do not need to register your own name if you are using it as your business name. To determine what the requirements are in your particular state, go to State Guide: Obtaining Licenses & Permits and find the specific laws related to registering your business.

Q: What are the advantages of forming a limited liability company?

A: The LLC is generally considered advantageous for small businesses because it combines the limited personal liability feature of a corporation with the tax advantage of a partnership or sole proprietorship. Profits and losses can be passed through the company to its members, or the LLC can elect to be taxed like a corporation. LLCs do not have stock and are not required to observe corporate formalities. Owners are called members, and the LLC is managed by these members or by appointed managers.

Q: What should I know about forming a corporation?

A: This is a complex business structure with more start-up costs than many other forms. A corporation is a legal entity separate from its owners, who own shares of stock in the company. It can be created for profit or nonprofit purposes, and may be subject to increased licensing fees and more government regulation than other forms. Profits are taxed both at the corporate level and again when distributed to shareholders. Shareholders are not personally liable for corporate obligations unless corporate formalities have not been observed. Observing such formalities provides evidence that the corporation is a separate legal entity from its shareholders. Failure to do so may open up the shareholders to liability of the corporation's debts. Corporate formalities include: issuing stock certificates, holding annual meetings, recording the minutes of the meetings, and electing directors or ratifying the status of existing directors. You are advised to always use the assistance of a qualified attorney when forming a corporation.

Q: What is the advantage of forming an "S" Corporation?

A: The structure of an "S" Corporation is identical to the "C" Corporation in many ways, but offers avoidance of double taxation. If a corporation qualifies for S status with the IRS, it is taxed like a partnership: the corporation is not taxed, but the income flows through to shareholders that report the income on their individual returns.