Small businesses are businesses that are owned and operated privately with a relatively low volume of sales and a small number of employees. U.S. small business standards vary by state and on an industry-by-industry business. Small businesses are becoming more popular due to the ease of operation, and because certain tax deductions for small businesses are commonly available.

Generally speaking, a small business is defined as having less than 500 employees for manufacturing industries and less than $7 million in annual income for non-manufacturing industries. Small businesses usually take the form of a corporation, partnership, or sole proprietorship.

What Types of Laws Govern Small Businesses?

The laws governing small businesses mostly cover license requirements related to the type of activity that the entity engages in. Failure to meet the legal requirements for small businesses can result in penalties such as fines, jail time, or a revocation of operation privileges. Licensing requirements can be further divided up into Federal, State, and Local requirements.

Federal Small Business requirements:

  • Employer Identification Number (EIN): Regardless of the size of the business and the number of employees hired, most businesses must apply for an EIN in order to operate legally in the U.S.
  • Health Insurance provisions: If the small business provides health insurance for its employees, it may be required to obtain a National Standard Employer Identifier (NSEI) to monitor electronic health care transactions
  • Intellectual property registration: Federal registration of intellectual property is not required but is highly recommended. Patents, trademarks, trade names, and copyrights can provide small business owners with exclusive use of intellectual properties
  • Activity-specific licenses: You may need to contact a federal agency if your small business engages in the following types of federally-regulated activities:
    • Manufacturing prescription drugs and pharmaceuticals
    • Distributing alcohol, tobacco, or firearms
    • Preparing meat products
    • Engaging in broadcast activities
    • Providing advice on investments

State Requirements:

  • Business Licenses: State business licenses are the main document for tax purposes and other basic business functions. Many states provide small business assistance agencies to help organizations meet state requirements
  • Occupational/Profession-specific Licenses: Some occupational fields require specific licenses, for example, physicians, accountants and auto mechanics. Some professions also require “continuing education”
  • Licenses for Product Sales: A state license may be required in order to sell liquor, gasoline, lottery stubs, or firearms
  • Tax Registration: You may need to register for an EIN or a sales tax license if your state has a state income tax and/or a retail sales tax
  • Trade Name Registration: You may need to register the name of your small business company
  • Employer Registration: Unemployment insurance contributions are usually required if the business has hired any number of employees

Local/Municipal Requirements:

  • Local licenses: Nearly all business operations will require a county or city license. These types of licenses allow the entity to operate within a given county or city jurisdiction. They may involve a small fee, and are relatively easy to obtain
  • Permit Requirements: In addition to state permit requirements, a local municipality may have specific activity-related permit requirements as well
  • Zoning Ordinances: Small businesses are typically allowed to operate only in specially designated commercial zones.

What Else Should I Consider When Starting a Small Business?

In addition to the above requirements, there are many restrictions on the type of start-up and formation procedures that a small business can take. For example, some learned professions may not be practiced using the form of a traditional corporation, but must incorporate using a modified “professional corporation” form.

Finally, there are a variety of professional and ethical standards that may relate to your small business. Be sure that your operations are conducted according to these standards.

Do I Need a Small Business Lawyer?

If you plan to own, operate, or work in a small business, you may wish to contact a small business lawyer for advice. A small business lawyer will ensure that all the Federal, State, and local requirements are met. Lawyers are also available for representation in a court of law should any business disputes arise.