chapter 7- preparing the proper ethical and legal foundation

Obtaining Business Licenses and Permits

• Businesses may need local, state, and/or federal licenses and permits to operate.
• Examples of businesses that require federal licenses and/or permits include those that sell or provide alcohol, firearms, animal transport across state lines, commercial fisheries, preparation of meat products, and radio and television broadcasting.

State Licenses and Permits

• Three categories of licenses and permits may be needed:
  • Business Registration Requirements: Some states require all new businesses to register with the state.
  • Sales Tax Permits: Most states and communities require businesses that sell goods and some services to collect sales tax and submit it to the state authorities.
  • Professional and Occupational Licenses and Permits: Examples include barbers, nurses, tattoo artists, and real estate agents who need to pass a state exam and maintain a professional license to conduct business.

Local Licenses and Permits

• Two categories of licenses and permits may be needed:
  • Licenses to operate a certain type of business, such as child care, barber shops, automotive repair, and hotels and motels.
  • Permits for engaging in certain activities, such as building permits, health permits, and signage permits.

Additional Requirements

• Fictitious Business Name Permit (dba): Needed if the business operates under a fictitious name.
• Federal Employee Identification Number (EIN): Required for businesses except sole proprietorships with no employees.

Choosing a Form of Business Ownership

• Four common legal entities:
  • Sole Proprietorship
  • Partnership
  • Corporation
  • Limited Liability Company

Sole Proprietorship

• A sole proprietorship involves one person, and the person and the business are essentially the same.
• It is a popular choice for start-up firms.

Limited Liability Company (LLC)

• Combines the limited liability advantage of a corporation with the tax advantages of a partnership.
• Does not pay taxes; profits and losses are passed through to the tax returns of the owners.

Advantages of a Limited Liability Company

• Members are liable for debts and obligations only up to the amount of their investment.
• Unlimited shareholders are allowed.
• Can elect to be taxed as a sole proprietor, partnership, S corporation, or corporation, providing flexibility.
• No double taxation, as profits are taxed only at the shareholder level.

Disadvantages of a Limited Liability Company

• Setting up and maintaining an LLC is more difficult and expensive.
• Tax accounting can be complicated.
• Regulations governing LLCs vary by state.
• Limited legal precedent available for owners to anticipate how legal disputes might affect their business.
• Some states levy a franchise tax on LLCs, which is essentially a fee for the benefit of limited liability.

This quiz covers the different types of licenses and permits required for businesses to operate, including local, state, and federal licenses and permits.