BUSINESS RESOURCE GUIDE: PART I The basics of setting up a business with information and contacts specific to Massachusetts and Boston

Transcription

1 BUSINESS RESOURCE GUIDE: PART I The basics of setting up a business with information and contacts specific to Massachusetts and Boston Whether you are a working as an artist or have plans to launch a creative venture, this guide provides useful information to get you started. CONTENTS: Choosing, registering and protecting the name of your business What is in a name? Choosing A Legal Structure for Your Businesses What are the options and which one is right for you? Business Registration, Certificates, Permits and Licenses Which do you need and where do you apply? Stay tuned for ARTMORPHEUS soon to be released Permitting Guide for Public Art and Creative Endeavors in Boston and Permitting Guide for Being a Vendor in Boston. CHOOSING A NAME FOR YOUR BUSINESS What s in a name? Your business name is one of your most important business assets and should be chosen carefully. The name you choose will become your brand identity. Being unique If you already have a name in mind, conduct an internet search to check for any reference associated with the name you are thinking of using or a very similar name. It can be challenging to find a unique name for a business so see if anyone else has claimed that domain name or if there are any references associated with that name whether there is another entity or person using that name Beyond finding a unique identity, there are three types of business names. This guide outlines the process for choosing a name and defines filing requirements. Also described is why and how to register a trademark or service mark. Three Types of Business Names Trade names identify a company, e.g., the "Coca Cola Company" or "Computer Services." Any type of business may call itself a company. Corporate names identify corporations. The words "Incorporated", "Corporation", or "Limited," or their abbreviations, must appear in a corporate name and may not appear in the name of an unincorporated company. Trademarks are any word, name, symbol, or device, or any combination of these, used by a person, (that is, an individual, a firm or partnership, a corporation, or any type of association) to identify his goods and distinguish those goods from those of others. Some examples of well-known trademarks include Kodak, Coca-Cola, GE, Lifesavers, and the banana lady on a bunch of Chiquita Bananas. Process for choosing a name: To begin with, you must choose a name not already being used by another business. Beyond conducting research on the internet, you can find lists of business names at the Corporations Division of the Secretary of State, at your local city or town hall, in the library and in relevant trade journals.

2 Do everything you can, within reason, to assure that your name will be unique. To search for corporate names that are already in use, use online or print business directories, located at a business library or from the libraries website. If you decide to incorporate your business, you must contact the Corporations Division of the Secretary of State. If you have decided on a name for your corporation but are not yet ready to incorporate you can reserve a name for 30 days. This registration will protect the business name from infringement while you prepare to incorporate and should be done before taking any other steps to do business in the state. A corporate name may not be reserved by a telephone request. The reservation of a name for 30 days becomes effective only upon written request to the Corporations Division and payment of a $30 fee. Secretary of State's Office Corporations Division McCormack Building One Ashburton Place, 17th Floor Boston, MA Phone: Website: Why and how to register Trademarks and Service Marks? Whether you are just starting out in business or have been in business for a number of years, you should consider protecting your right to any trademarks or service marks you own. The quality and goodwill symbolized by a distinctive mark can be a very valuable commodity to a business and one worthy of protection from infringement. Non-profit organizations also have an interest in protecting their distinctive marks from unwanted infringement. To see if a trademark is already registered with the federal government, do a trademark search at the Government Documents Department of the Boston Public Library. You can do this on the following website: Under the terms of the trademark law, Chapter 110B, there is no requirement that a trademark or service mark must be registered with the Commonwealth of Massachusetts. However, registration of a mark in Massachusetts can result in material advantages to the owner of a mark. How does one register a Mark with the Commonwealth of Massachusetts? A mark must be in use in Massachusetts before it may be registered. It may then be registered by completing the appropriate trademark or service mark registration application form. The fee for filing is $50.00 and the effective term of the registration is five years. The mark may be renewed every five years. These application forms, as well as any further information regarding trademarks or service marks, may be obtained by contacting: Secretary of State Trademarks Division One Ashburton Place, Room 1717 Boston, MA Phone: Link to application form: How does one register a Mark with the federal government? Commissioner of Patents and Trademarks U.S. Patent and Trademarks Office General Information Services Division Crystal Plaza 3, Room 2C02 Washington, DC Phone: Website: For information relative to copyrights call Federal Copyright Information at: or , or you can write to them at:

3 Copyright Office Library of Congress 101 Independence Avenue S.E. Washington, D.C Website: CHOOSING A LEGAL STRUCTURE FOR YOUR BUSINESS When you start a business, you have a number of choices as to its structure. Which of these forms is right for your business depends on the type of business or organization you run, the number of owners it has, and its financial situation. Below is a list of possibilities with a brief description of each. Sole Proprietorships and Partnerships For many new businesses, the best initial ownership structure is either a sole proprietorship or -- if more than one owner is involved -- a partnership. What is a Sole Proprietorship? A sole proprietorship is a one-person business that is not registered with the state like a limited liability company (LLC) or corporation. You don't have to do anything special or file any papers to set up a sole proprietorship -- you create one just by going into business for yourself. Legally, a sole proprietorship is inseparable from its owner -- the business and the owner are one and the same. This means the owner of the business reports business income and losses on his or her personal tax return and is personally liable for any business-related obligations, such as debts or court judgments. What is a Partnership? Similarly, a partnership is simply a business owned by two or more people that hasn't filed papers to become a corporation or a limited liability company (LLC). You don't have to file any paperwork to form a partnership -- the arrangement begins as soon as you start a business with another person. As in a sole proprietorship, the partnership's owners pay taxes on their shares of the business income on their personal tax returns and they are each personally liable for the entire amount of any business debts and claims. Sole proprietorships and partnerships make sense in a business where personal liability isn't a big worry -- for example, a small service business in which you are unlikely to be sued and for which you won't be borrowing much money for inventory or other costs. It s advisable to consult an attorney for further guidance. Contact ARTMORPHEUS for a referral to legal services. Limited Partnerships Limited partnerships are costly and complicated to set up and run, and are not recommended for the average small business owner. Limited partnerships are usually created by one person or company (the "general partner"), who will solicit investments from others (the "limited partners"). The general partner controls the limited partnership's day-to-day operations and is personally liable for business debts (unless the general partner is a corporation or an LLC). Limited partners have minimal control over daily business decisions or operations and, in return, they are not personally liable for business debts or claims. Consult a limited partnership expert if you're interested in creating this type of business. Should you consider forming a Corporation or an LLC? Forming and operating an LLC or a corporation is a bit more complicated and costly, but well worth the trouble for some small businesses. The main benefit of an LLC or a corporation is that these structures limit the owners' personal liability for business debts and court judgments against the business.

4 What sets the corporation apart from all other types of businesses is that a corporation is an independent legal and tax entity, separate from the people who own, control and manage it. Because of this separate status, the owners of a corporation don't use their personal tax returns to pay tax on corporate profits -- the corporation itself pays these taxes. Owners pay personal income tax only on money they draw from the corporation in the form of salaries, bonuses, and the like. Like corporations, LLCs provide limited personal liability for business debts and claims. But when it comes to taxes, LLCs are more like partnerships: the owners of an LLC pay taxes on their shares of the business income on their personal tax returns. Corporations and LLCs make sense for business owners who either (1) run a risk of being sued by customers or of piling up a lot of business debts, or (2) have substantial personal assets they want to protect from business creditors. To learn more about forming an LLC or a corporation, contact ARTMORPHEUS for a referral to legal services. Nonprofit Corporations A nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit can raise much-needed funds by soliciting public and private grant money and donations from individuals and companies. The federal and state governments do not generally tax nonprofit corporations on money they take in that is related to their nonprofit purpose, because of the benefits they contribute to society. To learn more about nonprofit corporations, see Contact ARTMORPHEUS for further assistance including referrals to affordable legal services. Cooperatives Some people dream of forming a business of true equals -- an organization owned and operated democratically by its members. These grassroots business organizers often refer to their businesses as a "group," "collective," or "co-op" - - but these are often informal rather than legal labels. For example, a consumer co-op could be formed to run a food store, a bookstore, or any other retail business. Or a workers' co-op could be created to manufacture and sell arts and crafts. Most states do have specific laws dealing with the set-up of cooperatives, and in some states you can file paperwork with the secretary of state's office to have your cooperative formally recognized by the state. Check with your secretary of state's office for more information. No one choice suits every situation. Some of the most important factors to consider are: the potential risks and liabilities of your business the formalities and expenses involved in establishing and maintaining the various business structures your income tax situation, and your investment needs. Risks and Liabilities In large part, the best ownership structure for your business depends on the type of services or products it will provide. If your business will engage in risky activities -- you'll almost surely want to form a business entity that provides personal liability protection ("limited liability"), which shields your personal assets from business debts and claims, such as a corporation or a limited liability company (LLC). See the Pros and Cons Chart on the next page

5 Type of Entity Main Advantages Main Drawbacks Sole Proprietorship Simple and inexpensive to create and operate, owner reports profit or loss on personal tax return Owner personally liable for business debts General Partnership Owners (partners) personally liable for business debts Limited Partnership Regular Corporation S Corporation Professional Corporation Nonprofit Corporation Limited Liability Company Professional Limited Liability Company Limited Liability Partnership Simple and inexpensive to create and operate, owners (partners) report their share of profit or loss on their personal tax returns Limited partners have limited personal liability for business debts as long as they don't participate in management. General partners can raise cash without involving outside investors in management of business Owners have limited personal liability for business debts Fringe benefits can be deducted as business expense Owners can split corporate profit among owners and corporation, paying lower overall tax rate Owners have limited personal liability for business debts Owners report their share of corporate profit or loss on their personal tax returns Owners can use corporate loss to offset income from other sources Owners have no personal liability for malpractice of other owners Corporation doesn't pay income taxes Contributions to charitable corporation are taxdeductible Fringe benefits can be deducted as business expense * Fiscal sponsorship by an established NP organization can be a good alternative for small initiatives. Contact ARTMORPHEUS for more info. Owners have limited personal liability for business debts even if they participate in management. Profit and loss can be allocated differently than ownership interests. IRS rules now allow LLCs to choose between being taxed as partnership or corporation Same advantages as a regular limited liability company Gives state licensed professionals a way to enjoy those advantages Mostly of interest to partners in old line professions such as law, medicine and accounting. Owners (partners) aren't personally liable for the malpractice of other partners. Owners report their share of profit or loss on their personal tax returns General partners personally liable for business debts. More expensive to create than general partnership Suitable mainly for companies that invest in real estate More expensive to create than partnership or sole proprietorship Paperwork can seem burdensome to some owners.separate taxable entity More expensive to create than partnership or sole proprietorship More paperwork than for a limited liability company which offers similar advantages. Income must be allocated to owners according to their ownership interests Fringe benefits limited for owners who own more than 2% of shares More expensive to create than partnership or sole proprietorship Paperwork can seem burdensome to some owners. All owners must belong to the same profession Full tax advantages available only to groups organized for charitable, scientific, educational, literary or religious purposes. Property transferred to corporation stays there; if corporation ends, property must go to another nonprofit More expensive to create than partnership or sole proprietorship State laws for creating LLCs may not reflect latest federal tax changes Same as for a regular limited liability company. Members must all belong to the same profession Unlike a limited liability company or a professional limited liability company, owners (partners) remain personally liable for many types of obligations owed to business creditors, lenders and landlords. Not available in all states. Often limited to a short list of professions

6 Formalities and Expenses Sole proprietorships and partnerships are easy to set up and you don't have to follow any special operating rules. If you're starting your business on a shoestring, it might make the sense to form the simplest type of business -- a sole proprietorship (for one owner businesses) or a partnership (for businesses with more than one owner). LLCs and corporations are almost always more expensive to create and more difficult to maintain. To form an LLC or corporation, you must file a document with the state and pay a fee, which ranges from about $40 to $800, depending on the state where you form your business. In addition, owners of corporations and LLCs must elect officers (usually, a president, vice president, and secretary) to run the company. They also have to keep records of important business decisions and follow other formalities. Unless yours will be a particularly risky business, the limited personal liability provided by an LLC or a corporation may not be worth the cost and paperwork required to create and run one. However, if you determine that an LLC or a Corporation is the right structure for your enterprise in Massachusetts, you will need to file appropriate documents with the Secretary of State s Office for the Commonwealth of Massachusetts. To form an LLC or Corporation in Massachusetts, you will need to file with the Secretary of State. Income Tax Implications Owners of sole proprietorships, partnerships, and LLCs all pay taxes on business profits in the same way. These three business types are "pass-through" tax entities, which means that all of the profits and losses pass through the business to the owners, who report their share of the profits (or deduct their share of the losses) on their personal income tax returns. Therefore, sole proprietors, partners, and LLC owners can count on about the same amount of tax complexity, paperwork, and costs. Owners of these unincorporated businesses must pay income taxes on all net profits of the business, regardless of how much they actually take out of the business each year. Even if all of the profits are kept in the business checking account to meet upcoming business expenses, the owners must report their share of these profits as income on their tax returns. In contrast, the owners of a corporation do not report their shares of corporate profits on their personal tax returns. The owners pay taxes only on profits they actually receive in the form of salaries, bonuses, and dividends. The corporation itself pays taxes, at special corporate tax rates, on any profits that are left in the company from year to year (called "retained earnings"). Corporations also have to pay taxes on dividends paid out to shareholders, but this rarely affects small corporations, which seldom pay dividends. This separate level of taxation adds a layer of complexity to filing and paying taxes, but it can be a benefit to some businesses. Owners of a corporation don't have to pay personal income taxes on profits they don't receive. And, because corporations enjoy a lower tax rate than most individuals for the first $50,000 to $75,000 of corporate income, a corporation and its owners may actual have a lower combined tax bill than the owners of an unincorporated business that earns the same amount of profit. Need Investors? Unlike other business forms, the corporate structure allows a business to sell ownership shares in the company through its stock offerings. This makes it easier to attract investment capital and to hire and retain key employees by issuing employee stock options. But for businesses that don't need to issue stock options and will never "go public," forming a corporation probably isn't worth the added expense. If it's limited liability that you want, an LLC provides the same protection as a

7 corporation, but the simplicity and flexibility of LLCs offer a clear advantage over corporations. You can read about choosing between a corporation and an LLC on html Changing Your Mind Your initial choice of a business structure isn't set in stone. You can start out as sole proprietorship or partnership and later, if your business grows or the risk of personal liability increases, you can convert your business to an LLC or a corporation. After learning the basics of each business structure and considering the factors discussed above, you may still find that you need help deciding which structure is best for your business. A good small business or tax lawyer can help you choose the right one, given your tax picture and the possible risks of your particular situation. BUSINESS REGISTRATION, CERTIFICATES, PERMITS AND LICENSES Do you know what the zoning code allows you to do with/in your space? If you are located in Boston, to find out and comply with the City of Boston s Zoning and Permitting Regulations, visit the City of Boston Inspectional Services Department (ISD). Depending on the type of business you want to start, you may need to work with both the Building Division and the Division of Health Inspections. ISD s Building Division is responsible for overseeing the city's zoning ordinances, which determine the types of activities allowed in any given building. Before you commit to a space or spend any money on rent or remodeling, you should visit the Building Division to ensure that the building you wish to locate in is zoned for your type of business. If it is not, you must complete a Legal Occupancy/Use Application, have the building owner approve it, and return the signed application to ISD. Next, you will submit a floor plan and other documentation as requested by ISD. If you intend to remodel, you may also need a Building Permit. You may also need a variety of other permits, depending on the type of business you plan to open. Permits may include Electrical and Fire Systems, Gas Fitting, Plumbing and Sprinklers, and Occupancy. HOT TIP The Inspectional Services Department provides a free zoning clinic for homeowners and small businesses who have questions regarding the zoning approval process, every Tuesday from 9:00 a.m.-12 noon at Plans and Zoning, (Counter 2), 1010 Massachusetts Avenue, 5 th floor. What happens if your application is refused or denied? If your business does not conform with the city s building or zoning codes, your application will be refused by the Building Division. If your application is denied, you can apply for an appeal at ISD. ISD will send your appeal to the Zoning Board of Appeals (ZBA) at City Hall and then the ZBA will notify you/the business owner and all of the abutters of a hearing date. Hearings take place at the Zoning Board of Appeals, City Hall, Room 801. ISD has developed the Guide to the City of Boston Zoning Board of Appeal Process to both assist you throughout the permitting process and to explain how Boston's zoning code and the appeals process work to protect Boston s neighborhoods. The guide is available at the ISD website both as a web page and as a downloadable PDF. (From ISD home click Plans and Zoning. ) On the Zoning Board of Appeals page you will also find information about zoning clinics, permits, and additional information. ISD Division of Health is responsible for overseeing the city's health and sanitation issues involving food and cleanliness. You must visit the Division of Health Inspections if your business is one of the following: food service, retail food, hospital, nursing home, caterer, day care, after school program, funeral home, massage practitioner, massage establishment, mobile food, children's recreational camp, baths/health club, or swimming pool.

8 Currently, ISD Health Inspection information is contained in a section of the website called Mayor s Food Court. Here you will find a selection of application forms for businesses as well as additional information. ( click Mayor's Food Court, then ISD Forms.) Note some forms can be submitted online; others must be printed and delivered to ISD. For additional information, contact the ISD health inspections division directly at Boston Inspectional Services Department (ISD) 1010 Massachusetts Avenue Boston, MA Phone: Website: Know which licenses and permits you need to obtain for your type of business? For Boston, see For Massachusetts, see Is your business registered with the town in which it is located? if you are conducting business under a name other than your own (file a d/b/a or doing business as certificate.). In Boston, register with the City Clerk If your business is in Boston, does it own tangible assets? Boston requires businesses to register tangible assets by filing a Form of List with the Assessing Dept. Do you have a Federal Tax Identification Number? (also called an Employer Identification Number). This is recommended even if you are a sole-proprietor. You will need a Federal Tax ID to open a business bank account. You can do this online by going to and completing Form SS-4. Have you registered for State income and business taxes? Most businesses are required to pay some amount of Income Tax to Massachusetts. The Department of Revenue (DOR) oversees taxation for the State of Massachusetts. The specifics of income tax, including forms and deadlines, depend on how your business is structured. See The Commonwealth of Massachusetts Department of Revenue requires that Corporations, Partnerships, Limited partnerships and other Organizations with one or more employees, as well as, any business that will need to collect state sales tax. Obtain a State Tax ID number. You can use your Federal Tax ID numbers if you have been assigned one or your Social Security Number if your business is a sole proprietorship. You can apply online at Businesses that will sell taxable items in Massachusetts are required to apply for a Sales and Use Tax Registration Certificate; certain businesses may also be required to pay Trustee and/or Excise Taxes. After you have completed the registration process, the Department of Revenue will determine the requirements you will need to meet regarding tax filling frequency and will send you the appropriate monthly, quarterly, and/or annual returns. It is your responsibility to inform yourself and to comply with the state tax filing requirements. DOR has compiled a useful online reference, Guide to Massachusetts Tax and Employer Obligations, which provides specific information on a variety of state tax issues. This guide is available on the DOR website along with many other helpful tax related publications. DOR also offers a free Small Business Workshop designed to walk you through the tax issues. This workshop is cosponsored by the IRS and also covers important federal tax issues. Registration is accepted online or by phone. Register for a workshop at

9 Massachusetts Department of Revenue Customer Service Bureau Charles F. Hurley Building 19 Staniford Street Boston, MA Phone: or toll free in state at Website: Find Out Which Federal Income Tax Forms You Will Be Required to File for Your Business The federal income tax forms you will be required to file with the Internal Revenue Service depend on your type of business and its legal structure. The IRS business website, provides valuable information organized by business structure. The following Internal Revenue Service tax publications may be useful: * If you are a sole proprietor: #334 "Tax Guide for Small Businesses" * If your business is a corporation: #542 "Corporations" * If your business is a partnership: #541 "Partnerships" Information and publications are available at the IRS office and on its website: Internal Revenue Service J.F.K. Federal Building Government Center Boston, MA Phone: or Website: WILL YOU HAVE EMPLOYEES? If you operate in Massachusetts and will have employees, read the Massachusetts Guide to Tax and Employer Obligations, which outlines your responsibilities as an employer. This guide is available at under Business Information. You can find information about all your obligations as an employer at Employers need to: Register with Division of Unemployment Assistance In Massachusetts, see Acquire Workers' Compensation Insurance In Massachusetts, the Department of Industrial Accidents (DIA) enforces the workers' compensation law. Workers Compensation Insurance can be obtained through any insurance agent or broker that handles business insurance, through a direct writer of insurance, or through the Insurance Rating Bureau, Department of Industrial Accidents Website: Create a System for Collecting Federal Unemployment Insurance Tax If you will have employees, under the Federal Unemployment Tax Act (FUTA), you as the employer are responsible to pay Federal Unemployment Insurance Tax. You must complete IRS Form 940 and submit it to the IRS. For more information visit see Employment Taxes for Small Businesses. If you have any questions, contact the IRS at

10 Establish a Process for Collecting & Depositing Payroll Taxes If you will have employees, you are required to withhold federal payroll taxes from your employees paychecks. Payroll taxes include State and Federal Income Tax, and Social Security and Medicare (FICA) taxes. The IRS website provides information on this topic: visit and click Employment Taxes for Small Businesses. There are many useful topics in this section; IRS recommends you read Publication 15, Circular E, Employer's Tax Guide, which can be found under Employment Tax Publications. * Federal Corporate Income Tax: * Federal Tax Forms Only: * Federal Tax Information: STAY TUNED FOR PART II: i. Recordkeeping and Taxes What and when? ii. The Business Plan What is it, what are the advantages of creating one, and where can you get help with it? Funding What s out there? iii. Insurance - Which kind should you have? iv. Accountants & Legal Counsel - Why hire them? FOR MORE INFORMATION, CONTACT ARTMORPHEUS. Phone: info@artmorpheus.org