OPERATIONS CONTENT PYRAMID

Business Definitions and Legal Overview

BUSINESS STRUCTURE VOCABULARY:

• Sole Proprietorship

• Limited Liability Company (LLC)

• Corporation

• Zoning Laws

SOLE PROPRIETORSHIP:

DEFINITION: A sole proprietorship is an unincorporated business owned and run by one individual, with no distinction between the business and the owner. The sole proprietor is entitled to all profits and is responsible for all the business’s debts, losses, and liabilities.

IMPORTANT FACTS: • No formal action is needed to form a sole proprietorship,

but the owner needs to obtain all necessary licenses and permits.

• If the sole proprietor chooses to do business under a different name, he or she will have to file for a trade name or DBA (doing business as) name.

• Because the sole proprietor and the business are one and the same, they are not taxed separately.

SOLE PROPRIETORSHIP:

DISADVANTAGES: • Unlimited personal liability: A sole proprietor is held

responsible for all the business’s debts and obligations.• Difficulty fundraising: Investors are less likely to invest,

because a sole proprietor can’t sell stock, and banks are hesitant to lend because of the potential headaches surrounding repayment if the business fails.

• Heavy burden: A sole proprietor is responsible for all the successes and failures of the business.

ADVANTAGES: • Easy and inexpensive start-up: A sole proprietorship is the

simplest and easiest business structure to establish, with very few associated legal fees.

• Complete control: A sole proprietor is not required to consult with anyone else before making decisions.

• Easy tax preparation: A sole proprietorship is not taxed separately, so it is easy to fill out tax forms. The tax rates are the lowest of rates for all business structures.

LIMITED LIABILITY COMPANY (LLC):

DEFINITION: A limited liability company is a hybrid type of legal structure that provides the limited liability of a corporation and the tax efficiencies and operational flexibility of a sole proprietorship. The owners of an LLC are referred to as "members."

IMPORTANT FACTS:• An LLC is not taxed as a separate business entity. Profits

and loses are distributed to the members, who report them on their individual tax returns.

• Articles of Organization must be filed to create an LLC. • Licenses and permits are required to set up an LLC; they

vary by state.

LIMITED LIABILITY COMPANY (LLC):

ADVANTAGES: • Limited liability: LLC members are protected from personal

liability for business decisions and actions. • Less record keeping: Operational ease is one of the LLC’s

biggest advantages; there is less paperwork and there are fewer start-up costs.

• Sharing of profits: LLC members distribute profits as they see fit; they decide who has earned what percentage of the profits and losses.

DISADVANTAGES: • Limited life: If a single member leaves the business, an LLC

almost always has to dissolve because of state laws, and the remaining members must settle all legal and business obligations.

• Taxes and costs: LLC members are considered self employed; therefore, they have to pay self-employment tax and buy their own benefits (social security and healthcare).

CORPORATION:

DEFINITION: A corporation is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are more complex than other business structures.

IMPORTANT FACTS:• Corporations may face costly administrative fees and

complex legal and tax requirements.• Corporations are generally suggested for established,

larger companies with multiple employees.• Business licenses and permits are required to start a

corporation.• Corporations are required to pay taxes.• Corporations offer the ability to sell ownership shares in

the business through stock offerings.

CORPORATION:ADVANTAGES: • Limited liability: Corporate shareholders are accountable only

for their investment in the stock of the company; they are not responsible for the company’s debts and actions.

• Ability to generate capital: Corporations can raise capital through the sale of stock.

• Corporate tax treatment: Corporation owners pay taxes only on corporate profits paid to them in the form of dividends.

• Attractiveness to potential employees: Corporations can offer competitive benefits and the potential for partial ownership through stock options.

DISADVANTAGES: • Difficult and expensive to start-up: Corporations are

costly and time-consuming operations to start.• Double taxing: Corporations are taxed twice: The

company pays tax when it makes a profit, and shareholders pay tax when they are paid dividends.

• Additional paperwork: There is an increased record-keeping and paperwork burden associated with corporations.

BASIC ZONING LAWS:

IMPORTANT FACTS:

• Zoning laws affect where business owners can locate their businesses. • Property is usually zoned as either commercial or residential, so a

commercial building cannot be erected in a residential zone, and vice versa.

• Before renovating an existing structure, a business owner must check with the local zoning authority to make sure the new design is in compliance with zoning laws.

• Business owners can find out how property is zoned by contacting the local planning agency.

• Local land-use attorneys can help business owners through the process to make sure all designs are compliant.

FEDERAL LICENSES AND PERMITS:

• Alcoholic Beverages

• Radio and Television Broadcasting

• Fish and Wildlife

ALCOHOLIC BEVERAGES:

THE BASICS:

• If you manufacture, wholesale, or import alcoholic beverages, or sell them at a retail location, you must register your business and obtain certain federal permits (for tax purposes) with the U.S. Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB).

• You will also need to contact your local Alcohol Beverage Control Board for local alcohol business permit and licensing information.

RADIO AND TELEVISION BROADCASTING:

THE BASICS:

• If your business broadcasts information by radio, television, wire, satellite and cable, you may be required to obtain a license from The Federal Communications Commission (FCC).

FISH AND WILDLIFE:

THE BASICS:

• If your business is engaged in any wildlife related activity, including the import or export of wildlife and derivative products, you must obtain an appropriate permit from the U.S. Fish and Wildlife Service.

LAWS AND REGULATIONS:

• Employment and Labor Laws

• Intellectual Property Laws

• Privacy Laws

• Workplace Safety and Health Laws

EMPLOYMENT AND LABOR LAW:THE BASICS: • Hiring employees to build a team brings with it new compliance

requirements for a business owner. • Employment and labor laws cover everything from preventing

discrimination and harassment in the workplace, workplace poster requirements, wage and hour requirements, and workers’ compensation rules.

WHAT YOU NEED TO KNOW: • Which federal employment laws apply to your business• Which state labor laws your business needs to comply with• What minimum wage is• The child-labor laws• What benefits your employees are entitled to

WHAT YOU NEED TO DO:• Obtain an Employment Identification Number (EIN).• Register with your states new-hire-reporting program.• Obtain workers’ compensation insurance.• Post all required notices in your place of business.

INTELLECTUAL PROPERTY LAW:

THE BASICS: • It is important to protect intellectual property. If you have a good idea, a

design for a product or logo, or an invention, you need to go through the proper steps to ensure that it is protected. If left unprotected, someone else can claim that it is their property and collect all the profits from it.

HOW TO PROTECT YOUR INTELLECTUAL PROPERTY: • Understand your intellectual-property rights and find the right

protection for your business.• Apply for a patent.• Register a trademark, logo, and/or wordmark.• Copyright your work.• Have employees sign a non-disclosure agreement.

PRIVACY LAW:THE BASICS: • Many business owners will handle sensitive employee and customer

information. It is the business owner’s responsibility to securely store and dispose of this information.

• Any and all financial data should also be properly secured and disposed of. • The Federal Trade Commission regulates and oversees business privacy

laws and policies that affect consumers.

STAY COMPLAINT WITH PRIVACY LAWS: • Protect consumer privacy: Share with your customers information about how

you will collect, use, share, and protect the consumer data you collect from them.• Protect child privacy: The law sets specific guidelines about the online collection

of personal information from children under 13. • Enforce data security and prevent identity theft: If you keep sensitive personal

information about customers or employees in your files, you are required to have a security plan in place to collect only what you need, keep it safe, and dispose of it securely.

• Safeguard sensitive financial data: If you offer customers financial products or services, such as loans, investment advice, or insurance, learn how to comply with information-sharing practices to safeguard sensitive data.

WORKPLACE SAFETY AND HEALTH LAW:THE BASICS: • As a business owner, you are required to provide employees with a safe

and healthy workplace.• The Occupational Safety and Health Administration (OSHA) requires that

employers must provide a workplace free from recognized hazards that cause, or are likely to cause, death or serious physical harm to their employees.

AVAILABLE RESOURCES FOR BUSINESS OWNERS: • On-Site consultation services: Get free advice from trained state -

government staff at your place of work.• State specific requirements: Some states operate their own job-

safety and health programs.• Training and educational programs: OSHA offers a wide selection of

training courses and educational programs for employers.• Compliance assistance: OSHA offers numerous guides to help

business owners identify the requirements that may apply to their particular workplaces.

ON GOING LEGAL RESPONSIBILITY:

Legal laws, permits, and responsibilities for business owners can and do change frequently. It is up to the business owner to stay abreast to all of these changes and make sure they remain in compliance.

Two Major Responsibilities:• Tax Obligations: It is important to know when your tax year starts for your

business. Filing federal and state taxes is done on a yearly basis, but the schedule may vary depending on your tax year. Obligations are different for state verses federal taxes, you will need to research in advance to ensure you are filing correctly.

• Yearly Licenses Renewals: Most licenses require yearly renewal. It is the responsibility of the business owner to keep track of any expiration dates and make sure all required licenses are renewed well in advance.