INCORPORATION FAQs

A. Besides federal and state laws that prohibit discrimination in the workplace and mandate standards for worker safety, employers must fulfill several basic requirements before employing workers. Employers must determine if the worker is an employee or an independent contractor. Issues such as tax withholding from employee paychecks and liability may be implicated by this decision. Employers should use federal and state guidelines to determine whether workers are employees or independent contractors.

Employers should obtain federal and state employer identification numbers, which are used for tax purposes. Depending on the state, employers may also be required to participate in a worker’s compensation insurance pool and obtain an unemployment compensation identification number.

Employers will need to verify compliance with immigration status by obtaining certain documents from the potential employee. At this time, employers will also want to ensure that the potential employee completes forms for federal and state tax withholdings. Information on payments required to satisfy child support or alimony awards should also be gathered, where applicable. Some states may have additional requirements for employers, so employers may want to consult with an experienced employment law attorney to ensure compliance with federal and state laws.

A. Businesses, no matter how they are formed, must pay federal taxes on the income that they earn, but the amount and the forms required differ depending on the business entity. For example, sole proprietors will report income from their business activities on their individual income tax returns. Partnerships will also report income on their individual returns, but they also need to file information returns. All other business entities will file business income tax returns for their specific type of business entity.

In addition, many states and a few cities also tax income, so businesses may have to file income tax returns with those entities as well. Besides income taxes, self-employed persons (such as sole proprietors) must also pay self-employment tax to cover their contributions to Medicare and Social Security. For businesses with employees, employers must pay employment taxes for their employees to cover Medicare, Social Security and federal unemployment contributions. In addition, certain businesses will owe an excise tax if they produce certain products or use certain modes of transportation. Businesses involved in wagering and other activities must also pay an excise tax.

A. New businesses have always struggled to obtain start-up financing. Banks and lenders want adequate guarantees that the loan will be repaid. New business entrepreneurs frequently have little to no experience with business loans. With no history of loan repayment, applicants are often turned down for business loans.

This is where the Small Business Administration steps in. The Small Business Administration, also known as the SBA, offers programs for small business owner to apply for loans. The SBA is not the lender for these projects. Instead, the SBA works with lenders who have agreed to participate in SBA programs. Many banks in America participate as lenders with the SBA.

The SBA and the lender bank agree that the SBA will guarantee a certain portion of the loan if the lender offers a loan to a small-business applicant. The lender’s loan offer must meet certain SBA standards. In this way, the loan is guaranteed in part by the SBA.

The SBA offers several types of loan programs: the Basic Section 7(a) Loan Guaranty Program, the Section 504 Certified Development Company (CDC) Program and the MicroLoan, a Section 7(m) Loan Program. An experienced business law attorney can advise you on small business loans if you have questions.