1. AOF Entrepreneurship Unit 3, Lesson 10 Legal Issues for Businesses Copyright © 2009–2012 National Academy Foundation. All rights reserved.

2. Starting a business involves making key financial decisions and performing certain legal activities All businesses must follow local, state, and federal laws and obtain applicable permits or licenses when starting and operating a business. Each business structure has its own set of legal requirements and tax laws that it must abide by. Why do you think different types of businesses have to pay different tax amounts?

3. There are many important steps that need to be completed when starting a business Register a business name Get a tax identification number Register for state and local taxes Obtain business licenses and permits Comply with zoning laws Understand your employer responsibilities

4. Sole proprietorships are the easiest, least expensive business types to create Sole proprietors: Have the simplest taxes of all the business types Publish a notice they are doing business as (DBA) their company name File with the IRS to obtain an Employer ID Number (EIN) File an annual return, using Form 1040 like most other workers Have you helped your parents or older siblings file their taxes? Did you notice what forms were included?

5. Partnerships also report business income as part of their personal income If you were starting a partnership, how would you ensure you could cooperate and avoid future conflicts?

6. There are many more legal issues to consider with corporations Must file as separate entities from their owners Are subject to double taxation, meaning that their revenue is taxed separately from the owners’ income Are required to have an Employee ID Number, issue stock certificates, and elect a board of directors Can take further deductions for expenses that are unavailable to sole proprietors or partnerships; they may also benefit from lower tax rates C-corporations: What are some of the benefits and drawbacks of organizing a business as a C-corporation?

7. Many smaller businesses set up S-corporations Must file as separate entities from their owners Are not subject to double taxation Are required to have an Employee ID Number and issue stock certificates; a board of directors is optional and the stock certificates can be held by the owner Can take further deductions for expenses that are unavailable to sole proprietors or partnerships S-corporations: What are some of the benefits and drawbacks of organizing a business as an S-corporation?

8. C-corporations require a board of directors, but other businesses may use a board of advisors Boards of directors: More formal than advisors Meet regularly Bound by government regulations Both groups: Provide strategic direction Review the budgets Elected and carefully chosen by officers or shareholders Boards of advisors: Less formal group Meet less frequently Have no legal status

9. Different companies require different legal permits and licenses to run their operations Sales Tax IDs are used by retail businesses to report sales taxes. Permits grant rights to hold special events like public concerts. Licenses grant rights to engage in an activity, such as selling liquor or serving food. Certificates verify rights and skills for entrepreneurs and businesses. Regulations are laws and rules governing how companies treat their employees, protect customers, and operate the business. Do you know what the sales tax in your region is? Is it the same statewide?

10. Other miscellaneous taxes exist for special cases like operating heavy machines or serving alcohol Some businesses are liable for excise taxes for: Driving very heavy trucks or tractors on public roads Gambling and taking bets Serving alcohol in a restaurant or bar Selling gasoline, cigarettes, or other items