Legal Issues
- Do I need a lawyer to start a business?
- Should I use a lawyer to draw up a contract or a lease?
- What are the differences in organizational structure, and what legal structure should I choose?
- What kind of registration and licenses are generally required to start my business?
- How do I register my small business?
- How different does my business name have to be?
- How do I determine if the name I choose is okay to use?
- Do I need to obtain a Federal Identification Number?
- What are patents?
- What are trademarks and service marks?
- What is a copyright?
1. Do I need a lawyer to start a business?
No, but it's wise to get the best advice possible when you're starting out. An attorney is one source of the expertise you'll need to draw on.
2. Should I use a lawyer to draw up a contract or a lease?
Yes, if you do not feel confident about what you are agreeing to, or if you want a legal review of the terms and conditions. The time for the lawyer is BEFORE you sign something,
not after.
3. What are the differences in organizational structure, and what legal structure should I choose?
There are three principal kinds of business structures: sole proprietorship, partnership, and corporation. A brief description of each type is provided below:
Sole Proprietorship
A sole proprietorship is the simplest business structure to organize. A sole proprietorship is owned by one individual (not a married couple) who has complete control of the
business. Revenues are considered personal income and are taxed at the owner's personal tax rate.
Partnership
A partnership involves two or more people conducting a business together. This business structure is also fairly simple to organize, but may be more costly than a sole
proprietorship because it requires a separate tax return for each partner, as well as a partnership agreement.
Limited Partnership
A limited partnership is two or more individuals who jointly own a business. This form of business allows for general partners and limited partners. Limited partners are generally
financially liable for debts only to the extent of their investment. They have limited or no control over management of the company. The general partners manage the company and have the
greatest potential risk and reward from the operations of the business.
Limited Liability Partnership (LLP)
In this type of partnership, the liability of each partner can be limited to exclude obligations resulting from professional mistakes made by other partners, or malpractice
actions against other partners. The partners do, however, continue to share liabilities resulting from all other activities of the partnership.
Corporation
A corporation can be complex and expensive to organize. Legal assistance in setting up a corporation is strongly advised. The corporation is recognized as a completely separate
legal entity from the owners. A corporation can limit the liability exposure of the owners. However, there can be some tax disadvantages with a corporation.
Limited Liability Company (LLC)
A limited liability company can provide the liability protection of a corporation and the federal tax benefits of a partnership. It is formed in a similar manner to that of a
corporation, although directors are called managers while shareholders are called members. The name of the company must include the words "Limited," "LLC," or "Ltd." In an LLC the
individual members or managers are not personally liable for debts, obligation, or liabilities of the company. Articles of organization must be filed with the Pennsylvania secretary of
state's office.
4. What kind of registration and licenses are generally required to start my business?
There are specific requirements in each state, county, and locality. Basic licenses and registrations that a business may need include the following:
- Local-A business license from the city, town, or county, depending on your location, will usually be necessary. In addition, you'll have to meet zoning laws, building codes, and similar regulations.
- State-If your business isn't a corporation and your full name isn't in the name of the business, you'll have to register under what's called the Fictitious Name Act. You should also file for a Sales and Use Tax Number. In some lines of business (like restaurants, barbershops, and real estate offices), specific licenses are needed.
- Federal-You may need an Employer Identification Number (EIN).
5. How do I register my small business?
If you decide to incorporate or become a limited partnership or a limited liability company, you will need to register that entity with the
Bureau of Corporations at the office of the Pennsylvania Department of State. If you
organize your business as a sole proprietorship (a business owned and operated by an individual) or a general partnership, you do not need to register your business entity with the
state. However, there may be certain city or town permits/licenses that are required to operate your business.
6. How different does my business name have to be?
It should be different enough to avoid confusion with other businesses. The reason you use a business name is to help customers identify you. If your name is similar to others,
this identification is made difficult. Avoid confusion by picking a name that is unique.
7. How do I determine if the name I choose is okay to use?
State law requires that every business enterprise operating under an assumed name register the name as a "fictitious name." To determine whether a name you're considering is in
use by another corporation, or is protected by a trademark or service mark, contact the Pennsylvania Corporation Bureau at 717-787-1057.
8. Do I need to obtain a Federal Identification Number?
A sole proprietorship without employees can use the proprietor's Social Security number as its tax ID number. Forming any other business structure (partnership, LLC, corporation,
or sole proprietorship with any employees requires obtaining a Federal Identification Number from the Internal Revenue Service (
Form SS-4, Application for Employer Identification Number).
9. What are patents?
Patents are protections for inventions and discoveries. A patent is a property right that grants the owner an exclusive right to exclude others for a period of time (usually 20
years) from making, using, offering, selling, or importing anything that utilizes the intellectual property contained in the patent without the permission of the patent owner. Patents
are expensive to obtain and generally require the use of an attorney who specializes in this field. In the United States, patents are handled by the
U.S. Patent and Trademark Office.
10. What are trademarks and service marks?
Trademark and service mark registrations are protections for certain things that distinguish one source from another. This registration allows the holder to exclude others from
using its mark, generally for as long as that mark remains in use by the owner. A trademark is a word, phrase, symbol, or design, or a combination of words, phrases, symbols, or
designs, that identifies and distinguishes the source of the goods of one party from the sources of others. Slogans are registered as service marks. This provides trademark protection
to a slogan that uniquely identifies your company or service. In essence, a service mark is the same as a trademark except that it identifies and distinguishes the source of a service
rather than a product. Trademark and service mark registrations are sometimes expensive to obtain and often require the use of an attorney who specializes in this field. In the United
States, trademarks and service marks are handled by the
U.S. Patent and Trademark Office.
11. What is a copyright?
Copyright is a form of protection provided to the authors of "original works of authorship," including literary, dramatic, musical, artistic, and certain other intellectual works.
A copyright generally gives the owner, for a period of time (usually the life of the author plus 70 years, or up to 120 years for works for hire), the exclusive right to do, and to
authorize others to do, the following: to reproduce the work, to prepare derivative works based upon the work; to distribute copies of the work to the public, to perform the work
publicly, and to display the work publicly. A copyright exists immediately upon creation of a work; however, registering that copyright provides additional protections. Copyright
registration is fairly inexpensive and easy to obtain. In the United States, copyright registration is handled by the
U.S. Copyright Office.
service of
Penn State
This site is a product of Penn State Outreach Marketing and Communications.
Web site questions? E-mail WebInfo@outreach.psu.edu.
Privacy and Legal Statements | Copyright © 2007 The Pennsylvania State University