A brief guide to filing licenses, permits and insurance policies for the new business owner.
As a new business owner, you will need to comply with a number of administrative regulations and federal, state and local laws; for example, you will have to obtain various licenses, permits and insurance policies. Dealing with these requirements can seem overwhelming, but this guide can help you navigate the key tasks you will need to achieve before opening your doors for business.
Be advised that the laws and practices governing these requirements vary from state to state and are subject to change. Make sure you consult with your own tax and legal adviser, as well as the small business association (SBA) located in your state. The SBA often publishes a guide to starting a business in each state, providing you with state-specific guidance. Most states also operate a small business hotline that you can use at no charge. Or you can locate your local SBA office online and schedule an in-person meeting with a counselor.
These are the main types of licenses and permits required for small businesses:
- fictitious business name statement
- “local business” or “occupational” license
- federal employer identification number
- health club license
Other types of permits may also be required. For instance, if you plan to stock and resell promotional products (e.g., water bottles or T-shirts) and your state charges sales tax on items and/or on services rendered, you will need to obtain a reseller permit and collect sales tax on behalf of your state; you will remit this tax on a periodic basis (usually quarterly). If you have incorporated your business as discussed in previous columns, you will most likely need to file an annual report with your local state department or division of corporations.
Filing a fictitious business name statement gives you exclusivity of the name in counties in which the statement is filed. (Note: This is not the same as filing for a trademark with the U.S. Patent and Trademark Office.) You will need your fictitious name before opening your bank account.
There are four easy steps to filing a fictitious business name statement. Your county clerk/recorder will let you know if the process in your county deviates from these basic steps:
1. Obtain a blank statement from the county clerk/recorder or from a newspaper of general circulation, and prepare the statement according to the instructions on the back of the form.
2. File the statement with the county clerk/recorder in the county in which the principal place of business exists. Your recorder will let you know if you need to file with another state agency.
3. Publish your intent to use the name. For this purpose choose a newspaper of general circulation in the same county in which you filed the statement.
4. Generally, 30 days after publishing, file an affidavit of publication with the county clerk/recorder.
Once filed, the fictitious name is typically protected in the county for 5 years. You should renew before the end of the 5-year period by performing the same or a similar procedure outlined for the initial filing.
You will generally be required to obtain a “local business” or “occupational” license from a county or city agency that handles these licenses for businesses operating within their territories. Typically, you must obtain your license within a couple of weeks of starting or purchasing your business. Check with your city or county to find out if you need this license. In rare cases, a license may not be required.
Unless you are able to use your social security number for business tax purposes (as with a sole proprietorship), you must obtain a FEIN from the Internal Revenue Service (IRS).This number is used to identify your business for income tax, payroll and other federal purposes. If you are a corporation, you will need your FEIN before you can open a bank account, elect Subchapter S status for your corporation, make a tax deposit or file a tax return.
The IRS requires that you obtain a FEIN if any of the following apply:
- You don’t currently have a FEIN and will be paying wages; withholding taxes or income; or using a FEIN number on any tax return, bank statement or other document, even if you are not an employer.
- You become the new owner of an existing business, even if the business does not have employees (one exception being if you become the owner by acquiring stock, in which case you continue to use the FEIN of the existing corporation).
- You’re forming a partnership or corporation even if it does not have employees.
- You’re incorporating your existing sole proprietorship or partnership.
Obtaining a FEIN is simple and free. File IRS form SS-4 at the IRS location listed in the form instructions. The IRS will process the form and send you your 9-digit FEIN number.
Some states may also require that you obtain a state tax identification number. Check with your local SBA for requirements and procedures.
The process of obtaining a health club license is complex and state-specific. Some states, such as Washington, do not appear to have state-specific regulations that govern health clubs, whereas other states, such as Florida, Pennsylvania and Texas, do have specific regulations for health clubs. Even if a state has regulations governing health clubs, your particular business may be an exempt entity under these regulations or you might still not need to file because your business practices are exempt.
That said, why not surf the Internet to see if you can find the law that applies to your state? Then find and read the actual act to see if you need to file or not under the act. Keep in mind that most of the acts are primarily focused on consumer protection. For details on this license, see the sidebar “Typical Health Club License Provisions.”
Limiting your legal risks as a business owner is essential. You will want to discuss the following insurance options with your insurance agent:
- professional liability insurance
- general liability insurance
- health and life insurance
- mandatory insurance (if you have employees)
IDEA has a relationship with the Fitness and Wellness Insurance Agency (www.fitnessandwellness.com) whereby IDEA members receive liability insurance at reduced cost.
It is generally considered an industry standard that all fitness workers should carry their own professional liability insurance. As a business owner, I require that all of my full- and part-time employees plus all of my independent contractors carry a minimum of $1 million of personal liability insurance at all times. You can generally expect to pay an annual fee of about $160–$300 for such a policy.
Every business owner should consider obtaining general liability insurance, which covers accidents or injuries for employees and clients.
If you are not covered under a different policy, you should consider obtaining health insurance to cover medical expenses and/or disability income insurance to cover expenses if you become disabled. A partner in a partnership or a shareholder in a corporation may also want to obtain insurance on the other partners, officers, shareholders or key people.
If your business has employees, you will need to maintain workers’ compensation and state disability insurance. Workers’ compensation covers expenses for medical costs, temporary or permanent disabilities and death benefits. Even if your business employs only a single part-time employee, it generally must have workers’ compensation, and there are stiff penalties for not providing this coverage. State disability insurance covers expenses for any employee who becomes disabled by illness or injury related to employment.
Most companies typically open a bank account specifically for their business within the first month after filing. Now that you have obtained your necessary permits, licenses and insurance, opening a bank account for your business will likely seem like a piece of cake! Just make sure that you take your fictitious name statement and FEIN (if you are a corporation) with you when you go to open your account.
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Health club licenses vary from state to state. However, most of these licenses generally require the following provisions in any contracts between the health club and the consumer: 1. There is a cooling-off period after signing the contract (typically 3 days). 2. The consumer has the right to cancel with no penalty in the event that (a) the consumer moves and no health club location is within a reasonable distance of his or her new location; or (b) the health club shuts down the original location and no other location is within a reasonable distance of the client’s home. 3. If the health club collects more than 31 days’ fees in advance, it must post a performance bond (typically ranging from $25,000 to $200,000) with the state and/or enable members to obtain a refund of prorated prepaid fees after a 30-day period.
Frasier, Lynne Ann, Esq. 1998. The most common business entities. In The Small Business Legal Guide (2nd ed.). Sourcebooks Inc. www.allbusiness.com: provides small-business owners with information and resources, including forms, kits and guides, which are available for purchase. www.bplans.com: provides sample business plans, software, calculators and information on starting your own business; some of the services are free, while others are fee-based.
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