Legalities That Your Small Business Has to Abide By

When you run a small business, you’re going to have a whole host of responsibility on your hands. However, it’s extremely important that you prioritise legal requirements of you. This will help to keep your business operating as smoothly and properly as possible. Here are some of the different areas that you need to focus on from the start of your professional venture!

Deciding the Structure of Your Business

While it isn’t a legal necessity to determine the structure of your business, it is an essential step that allows you to complete the following steps that are legal requirements. There are various business structures to choose from. Here are the most common!

Sole Proprietorship

If you want complete control over your business, a sole proprietorship may be the way to go. However, your business assets and entities will not be considered separate from you. You will be held personally liable for any debts that your business may develop. This is generally a good idea for first time business owners who are testing the waters before forming a more formal company.


A partnership brings two or more people together to own a business as a team. Limited partnerships (or “LPs”) have one general partner who has unlimited liability and other partners have limited liability. Limited liability partnerships (or “LLPs”) give limited liability to every owner, protecting each individual from debts against the partnership and ensuring that nobody is held responsible for the actions of other partners.

Company Registration

One of the first legal steps that you have to take when setting up a small business is to legally register your company. By doing this, you will make it a distinct legal entity. If you have followed the above advice and have already decided the structure of your business, this will be a whole lot easier. There are cases where you might not need to register your business. If you are operating as yourself under your legal name, you don’t have to register, however, you may still want to consider doing this in order to make the most of personal liability protection, legal benefits, and tax benefits.

Registering with Federal Agencies

The majority of small business don’t really need to register with federal agencies if they want to become a distinct legal entity. The main reason for doing this would be to benefit from trademark protection or to register themselves as tax-exempt.

Registering with State Agencies

All businesses that are LLC, a corporation, a partnership, or nonprofit will usually have to register with their state in order to operate business activities within the state. You can determine the state you need to register with by determining which state you run a commercial property within, conduct regular meetings and interviews within, generate a significant portion of your revenue from, and have employees working in. Depending on the state that you are registering with, you will have to register online or file paper documents.

Setting Up As a Non-Resident

If you are not a native resident, you will have to follow all of the above steps and more to legally register your company. There are, of course, going to be more tax issues surrounding an individual or business that wants to generate money and then take the money elsewhere overseas. You will also have to deal with:

  • Visas and immigration.

  • S Corporation, C - Corporation Versus LLC Tax Comparison (as “S” Corp status is not available to non-citizens.

  • Where exactly the company is going to be incorporated.

  • Where exactly the company will be doing business.

  • The type of business, as this will allow for the right licences, registrations, and permits to be requested and provided.

  • Staffing needs (and consequently needs regarding location and commercial property size).

When registering with federal agencies or state agencies, you will generally have to provide your business name, your business location and details of company ownership, management, and directors. You will also need to provide details of any registered agents and the number and value of shares that your corporation holds.

Apply For Relevant Licences and Permits

Once you have registered your company, you may have to apply for a variety of licences and permits on both a federal and state level.

Federal Licences and Permits

If your business’ activities are monitored on a federal level by a federal agency, you may have to apply for licences and permits if you work in:

  • Agriculture - importing or transporting animals, animal products, biotechnology, or plants that cross state lines.

  • Alcohol - manufacturing, importing or selling alcoholic beverages.

  • Aviation - operating aircraft or transporting goods or people via the air.

  • Firearms - manufacturing, dealing in, or importing any firearms or explosives.

  • Fish and Wildlife - importing wildlife.

  • Fisheries - engaging with commercial fishing.

  • Maritime Transportation - providing oceanic transport or shipment via sea.

  • Mining and Drilling - mining or drilling for natural gas, oil, or other mineral sources in federal land.

  • Nuclear Energy - producing commercial nuclear energy or distributing nuclear materials.

  • Radio and Television - broadcasting via radio, television, wire, satellite, or cable.

  • Transportation and Logistics - operating an oversize or overweight vehicle.

State Licences and Permits

States generally monitor a wider variety of business activity than the federal government, so it would be too lengthy to list all of the different types of state licences or permits that you could obtain here. If you contact your state or read your given state’s website, they will be able to inform you whether your business requires specific licences and permits to operate legally!

Obtaining Tax ID

It is extremely important that your business complies with federal tax laws, state tax laws, and local tax laws. The first step towards achieving this is to obtain federal and state tax ID numbers. These are also often referred to as an “Employer Identification Number”, or “EIN”. They essentially function like a social security number for your small business and allow your business to pay taxes effectively!

Federal Tax ID

If you intend to carry out any of the following activities, you will need a federal tax ID:

  • Pay employees

  • Operating as a partnership

  • File tax returns for employment, excise, or age-restricted goods

  • Withhold taxes on income (other than wages) paid to a non-resident

  • Use a tax deferred pension plan

  • Work with specific types of corporations

State Tax ID

If you are going to be paying state taxes, you need a state tax ID. If you are unsure of whether you need to pay state tax, conduct research into the state you are registered within and how much you have to earn throughout the fiscal year in order to start paying tax. This information can generally be found on each given state’s tax website.

Filing Tax Returns

Once you have obtained your tax IDs, you may have a little break, as you will only have to file tax returns once every fiscal year. It is an absolute legal requirement that you pay your taxes due and the money that paid is used towards bettering the country as a whole and the state that you are operating within. It is generally put towards defence, transport, infrastructure, and other institutions that we all have access to. Now, if you are not used to filing tax reports, you may find the process a little confusing at first. There are all sorts of forms to fill out, there will be all sorts of evidence that you have to provide, and you may get a little lost along the way. The best thing to do is use services by Brown Smith & Wallace. Dealing with tax specialists significantly simplifies the entire process. You will have the helping hand of someone who has been educated in everything to do with the tax systems, and who can file the report on your behalf. This lifts a weight from your shoulders and you can focus your attention and efforts on other areas of your business’ development. Just make sure to get started well in advance of the return deadline, as this will help to avoid late filing or late payment and the fees that are concurrent with this.

Maintaining an Annual Report

If you have shareholders in your business, you will need to maintain an annual report. This is a document that discloses information to shareholders. It shows them the state of your company and informs them of any changes that have been carried out. It is generally composed of:

  • An opening letter from the CEO

  • Financial data

  • Results of operations

  • Market segment information

  • New product plans

  • Subsidiary activities

  • Research and development activities

As you can see, there’s a whole lot that you need to keep in mind when it comes to ensuring that your business operates legally. But, as you familiarise yourself with each area, you will soon get into the swing of things!