The legal requirements to starting a small business in Arizona - Research Paper Example

?Legal requirements for setting up a business in Arizona According to the World Factbook of CIA, as of 2005, Arizona ranked 21st among different s of U.S. If Arizona is listed as a country along with other countries of the world, it would rank 61st and stay ahead of countries such as Ireland, New Zealand and Finland. The fact that it is placed 39th in the country with respect to per capita income with an average person earning about $40,830 proves the support entrepreneurs enjoy in this part of the country. Therefore, the legal requisites to be satisfied while setting up a new business are designed to support new business ventures while ensuring safe and smooth transactions (“CIA – The World Factbook”). Basic business structures: Sole proprietorship vs. partnerships: An important question to be answered before setting up a new business is how the enterprise is to be structured. Based on the specifics of the business, one can choose to be the sole proprietor or include a number of partners in the business. Sole proprietorship, as a model of business, can be efficient when the enterprise is in its initial stages and the responsibilities within the organization are equally distributed among the staff. However, irrespective of how well-organized an enterprise is, a single owner has too much at hand and this overload of work can seriously hinder the growth of the enterprise in the long term. The owner has to take care of all aspects of the business and manage them alone. Hence, in such cases, business partnerships are more suitable compared to sole proprietorship in many ways. One does not have worry too much about debt liabilities, legal compliance and different responsibilities since every burden is now distributed among the partners. While partnerships are a great way to raise capital, they too come with disadvantages. As the saying goes, two people can be company whereas three becomes crowd. Hence, as the number of partners increases, so does the difference in opinions and disagreements. Therefore, it requires a patient and strong character to manage a partnership with minimal disagreements (“Business formation”). Corporation: A corporation takes a different approach in forming a business. Legally, it is a unique entity and is separate from the owners. It can enter into contracts and is taxable. The owners normally own a number of shares in the company. A board of directors chosen by such shareholders is responsible for every policy and decision taken on behalf of the corporation. A unique characteristic of this business model is that a change in the ownership does not affect the corporation. Moreover, in this model, every shareholder has a limited liability towards the debts of the corporation and any legal action taken against the corporation. Raising capital is relatively easy since it can be accomplished by selling the stock. However, forming a corporation needs more time and monetary resources. The tax too is higher than other business models. And since a number of federal, state and local bodies monitor these corporations, extensive paperwork is required in order to ensure that all regulations are followed (“Business formation”). LLC: An LLC (Limited Liability Company) is a hybrid business model which incorporates the best features of a corporation and those of a partnership. It combines the limited liability concept of a corporation with the tax efficiency and the ease of operation of a partnership. However, forming an LLC is more formal and complex compared to a partnership. The owners are also treated as members and the lifetime or duration of an LLC is normally fixed when the papers are filed. This duration can be extended on an as-required basis with the vote of members during expiration. An LLC is also limited in its inclusion of the characteristics of a corporation. At any time, it cannot incorporate more than two of the following four features which define a corporation: Centralized management, Limited Liability, extension of life, and the ability to transfer ownership interests easily. Though owners take part in management, they too have a limited personal liability for the debts of the corporation. However, it is more expensive to form an LLC compared to a sole proprietorship or a partnership (“Business formation”). Federal and state legal requirements: Irrespective of the model chosen, the legal requirements are different for a retail store and an online business. While they may seem very complicated and difficult to comprehend, it is important to understand that these requirements are designed for the welfare of the nation as a whole. These requirements help the government in uniquely identifying an organization, ensuring that public health and safety are not affected as well as helping you maintain a track of your transactions for taxation purposes (“Federal Requirements for Start-Up Businesses Arizona”). Federal regulations: At the federal level, the first set of requisites for a small business in Arizona is related to tax registrations. Every business structured as a partnership, sole proprietors who hire employees, LLC or corporation must apply for an Employer Identification Number (EIN) by filing the SS-4 form, which is available at the IRS website. However, in case of a sole proprietorship without employees, the Social Security Number can be used in place of EIN. If the business is a corporation and the owner intends to select an S corporation status, a form 2553 must be filed (“Federal Requirements for Start-Up Businesses Arizona”). For products and business activities monitored by federal agencies, a federal license or permit is required. The products or activities include trucking and public transportation, preparing meat products or producing drugs, providing investment advice, firearms, alcohol and tobacco based products. A number of other regulations need to be followed to ensure compliance of environmental standards set by the EPA (Environmental Protection Agency). For instance, if a polluted industrial property is bought and needs cleansing or if the residual end products of a manufacturing process are to be disposed, a license must be first obtained from the EPA (“Environmental Protection Agency”). In case of a business limited partnership, an LLC or a corporation, the owners share the proprietorship with people who are not actively involved in the business. Hence, such businesses have to adhere to federal securities rules which protect the investors from unscrupulous actions of owners. Such businesses must register their selling of different types of ownership interests with SEC (federal Securities and Exchange Commission). Though this process involves additional accounting and legal fees, small corporations such as those selling their stocks to a small number of people or those who are capable of handling the investment process independently are exempted from this registration (“Securities and Exchange Commission”). Other regulations such as using bar codes on their products, providing Employment Verification form (I-9) as mandated by the Immigration Act, devising the minimum wage in accordance with the state and federal labor laws are important in ensuring a smooth business operation (Wynn, n.d.). Home-based businesses which include online and other businesses conducted over the internet are required to adhere to the same laws which regulate businesses conducted from a commercial location. However, additional rules may be applicable based on the state and county of operation (“Arizona Commerce Authority”). State regulations: The state laws governing the registration of a business formed using one of the aforementioned structures are similar to the federal laws. The business can be named only after ensuring that the name of an existing business is not infringed. This can be done by comparing the new name with the names registered with the Secretary of State and the Arizona Corporation Commission. Registering a fictitious name or a business name is not mandatory in Arizona but is a widely accepted practice. While registering a trademark or a service mark is not mandatory within the state, registration of all trademarks and service marks to be used in interstate and foreign transactions can be done at the United States Patent and Trademark Office (USPTO) (“Arizona Commerce Authority”). In addition to these state laws, small, home-based or online businesses must follow the residential zoning rules, rules devised by the homeowners’ association and the property deed restrictions. The U.S.S.B.A. (Small Business Administration) consists of a list of such rules which can be accessed at the official S.B.A. website. The site also offers a Small Business Start Up Assessment Tool using which owners can check if their businesses are in compliance with these rules. Along with these laws, the website also offers tips for buying a home business franchise, raising finance for a home based business, marketing a home-based business and filing taxes. These tips, along with the FAQs and tools provided on this website are sufficient to verify if a small business complies with all the necessary laws (“Arizona Commerce Authority”). If the business is based in one of the unincorporated regions of the county, owners are required to verify with the local Planning, Development Services and Zoning departments. Other laws set forth by departments such as the Fire department, the health department and the Sheriff’s office. However, mobile businesses which are conducted across states or counties are required to check for the laws specific to each city or town directly. In case of taxable businesses, the taxes are decided based on the laws governing the taxation process in each city. It is important to remember that a blanket state license which can exempt owners from obtaining these local licenses does not exist (“Arizona Commerce Authority”). REFERENCES Arizona Commerce Authority. (n.d.). Retrieved from: http://www.azcommerce.com/BusAsst/SmallBiz/SBS/E1/HomeBased+Business.htm Business formation. (n.d.). Retrieved from: http://www.residual-rewards.com/business-types.html CIA – The World Factbook. (2011). Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html Environmental Protection Agency. (n.d.). Retrieved from: www.epa.gov/smallbusiness Federal Requirements for Start-Up Businesses Arizona. (n.d.). Retrieved from: http://articles.directorym.com/Federal_Requirements_for_Start_Up_Businesses_Arizona-r951773-Arizona.html Internal Revenue Service. (n.d.). Retrieved from: www.irs.gov Securities and Exchange Commission. (n.d.). Retrieved from: www.sec.gov/info/smallbus/qasbsec.htm U.S. Small Business Administration. (n.d.). Retrieved from: http://www.sba.gov/content/zoning-laws-home-based-businesses Wynn, R. (n.d.). Small Business Legal Requirements: Legitimizing Your Business From A-Z. Retrieved from: http://clearviewpublications.com/small-business-newsletter-entrepreneur/business-articles/small-business-legal-requirements.htm Read More