State Regulatory Requirements
To operate a business in the state of Indiana, one must comply with the following:
- Establish the business organization by forming a Sole Proprietorship, a Partnership, a Limited Liability Company, or a Corporation. Filing is done through the Indiana Secretary of State, Corporations Division (317) 232-6576 or
www.state.in.us/sos
- Obtain an Employer Identification number from the Internal Revenue Service (Form SS-4). Internal Revenue Service Indiana District Office, (317)226-5477, 1(800)829-3676 (for forms) (606)292-5467 (for numbers assignment).
http://www.irs.gov/
- File the State of Indiana Business Tax Application (Form BT-1) with the Indiana Department of Revenue to register for sales tax, withholding tax, corporate tax, and other non-property taxes; also the Retail Merchants Certificate Indiana Department of Revenue, Taxpayer Services, (317)233-4016 (Withholding), (317)233-4015 (Sales Tax), (317)232-2189 (Corporate Tax) or
www.state.in.us/dor
- File state license applications with the appropriate agencies for business and occupations, as required. Information and assistance on state license required for certain businesses and occupations may be obtained from the: State Information Center 1(800)45-STATE; (317)233-0800.
www.in.gov/sic/owners/
- Register with the Indiana Department of Workforce Development (Form DETS 1020) to establish a state unemployment insurance account. Indiana Department of Workforce Development Unemployment Insurance Division, 1(800)437-9136, (317)232-7436.
http://www.dwd.state.in.us/
- Obtain Worker's Compensation insurance coverage for employees: 1) obtain insurance from a private carrier, or 2) become qualified as a self-insured employer by the Worker's Compensation Board. Indiana Worker's Compensation Board, (317)233-3910, 1(800)824-2667.
www.state.in.us/wkcomp
- Obtain a local business license from the City Clerk (where required) or from the County Clerk (where required outside of city limits).
- File an Assumed Business Name Certificate in the recorder's office if doing business in a name other than that of the sole proprietor, the partners or the names on the Articles of Incorporation if incorporated. A corporation must also file the assumed business name with the Secretary of State's office.
- Contact local city or county planning and zoning commission to ensure that the location of the business is in compliance with existing local zoning regulations.
- Obtain environmental and construction permits, where applicable, before construction or occupancy of any facility. Assistance, information, and agency contacts for regulatory compliance may be obtained through the State Information Center, 1(800)457-8283, (317)233-0800.
General Forms of Businesses
Sole Proprietorship
The sole proprietorship is usually defined as a business that is owned and operated by one person. To establish a sole proprietorship, you need only obtain the needed licenses and begin operations. Hence, it is the most widespread form of small business organization.
Advantages of the Sole Proprietorship
- Ease of formation. There is less formality and fewer legal restrictions associated with establishing a sole proprietorship. It needs little or no governmental approval and is usually less expensive than a partnership or corporation.
- Sole ownership of profits. The proprietor is not required to share profits with anyone.
- Control and decision making vested in one owner. There are no co-owners or partners to consult.
- Flexibility. Management is able to respond quickly to business needs in the form of day-to-day management decisions as governed by both law and good sense.
- Relative freedom from government control and special taxation.
Disadvantages of the Sole Proprietorship
- Unlimited liability. The individual proprietor is responsible for the full amount of business debts that may exceed the proprietor's total investment. This liability extends to all the proprietor's assets, such as house and car. Obtaining proper insurance coverage may lessen additional problems of liability, such as physical loss or personal injury.
- Unstable business life. The enterprise may be crippled or terminated upon illness or death of the owner.
- Less available capital, ordinarily, than in other types of business organizations.
- Relative difficulty in obtaining long-term financing.
- Relatively limited viewpoint and experience. This is more often the case with one owner than with several.
NOTE: A small business owner might very well select the sole proprietorship to begin with. Later, if the owner succeeds and feels the need, he or she can form a partnership or corporation.
Partnership
The Uniform Partnership Act, adopted by many states, defines a partnership as "an association of two or more persons to carry on as co-owners of a business for profit." Though not specifically required by the Act, written Articles of Partnership are customarily executed. These articles outline the contribution by the partners into the business (whether financial, material or managerial) and generally delineate the roles of the partners in the business relationship. The following are example articles typically contained in a partnership agreement:
- Name, Purpose, Legal Address
- Duration of Agreement
- Character of Partners (general or limited, active or silent)
- Contributions by Partners (at inception, at later date)
- Business Expenses (how handled)
- Authority (individual partner authority in conduct of business)
- Separate Debts
- Books, Records, and Method of Accounting
- Division of Profits and Losses
- Draws or Salaries
- Rights of Continuing Partner
- Death of a Partner (dissolution of winding up)
- Employee Management
- Release of Debts
- Sale of Partnership Interest
- Arbitration
- Additions, Alterations, or Modifications of Partnership Agreement
- Settlements of Disputes
- Required and Prohibited Acts
- Absence and Disability
- Some of the characteristics that distinguish a partnership from other forms of business organization are the limited life of a partnership, unlimited liability of at least one partner, co-ownership of the assets, mutual agency, share of management, and share in partnership profits.
Kinds of Partners
- Ostensible Partner: Active and known as a partner.
- Active Partner: May or may not be ostensible as well.
- Secret Partner: Active but not known or held out as a partner.
- Dormant Partner: Inactive and not known or held out as a partner.
- Silent Partner: Inactive (but may be known to be a partner).
- Nominal Partner (Partner by Estoppel): Not a true partner in any sense, not being a party to the partnership agreement. However, a nominal partner holds him or herself out as a partner, or permits others to make such representation by the use of his/her name or otherwise. Therefore, a nominal partner is liable as if he or she were a partner to third persons who have given credit to the actual or supposed truth of such representation.
- Sub partner: One who, not being a member of the partnership, contracts with one of the partners in reference to participation in the interest of such partner in the firm's business and profits. Limited or Special Partner: Assuming compliance with the statutory formalities, the limited partner risks only his or her agreed investment in the business. As long as he or she does not participate in the management and control of the enterprise or in the conduct of its business, the limited partner is generally not subject to the same liabilities as a general partner.
Advantages of the Partnership:
- Ease of formation. Legal informalities and expenses are few compared with the requirements for creation of a corporation.
- Direct rewards. Partners are motivated to apply their best abilities by direct sharing of the profits.
- Growth and performance facilitated. In a partnership, it is often possible to obtain more capital and a better range of skills than in a sole proprietorship.
- Flexibility. A partnership may be relatively more flexible in the decision making process than in a corporation. But, it may be less than in a sole proprietorship.
- Relative freedom from government control and special taxation.
Disadvantages of a Partnership:
- Unlimited liability of at least one partner. Insurance considerations such as those mentioned in the proprietorship section apply here also.
- Unstable life. Elimination of any partner constitutes automatic dissolution of partnership. However, operation of the business can continue based on the right of survivorship and possible creation of a new partnership. Partnership insurance might be considered.
- Relative difficulty in obtaining large sums of capital. This is particularly true of long term financing when compared to a corporation. However, by using individual partners' assets, opportunities are probably greater than in a proprietorship.
- Firm bound by the acts of just one partner as agent.
- Difficulty of disposing of partnership interest. The buying out of a partner may be difficult unless specifically arranged for in the written agreement.
C or S Corporation
The corporation is one of the most complex of the four business structures. Here we will discuss only the general characteristics of the corporation, not its intricacies. Keep in mind, a corporation is a distinct legal entity, distinct from the individuals who own it.
Formation of the Corporation
A corporation usually is formed by the authority of a state government. Corporations which do business in more than one state must comply with the Federal laws regarding interstate commerce and with the state laws, which may vary considerably.
To form a corporation one must first subscribe for capital stock and create a tentative organization. Then, approval must be obtained from the Security of State in the state in which the corporation is to be formed. This approval is in the form of a charter for the corporation, stating the powers and limitations of the particular enterprise.
Advantages of the Corporation:
- Limitations of the stockholder's liability to a fixed amount of investment.
- Ownership is readily transferable.
- Separate legal existence.
- Stability and relative permanence of existence. For example, in the case of illness, death, or other cause for loss of a principal (officer or owner), the corporation continues to exist and do business.
- Relative ease of securing capital in large amounts and from many investors. Capital may be acquired through the issuance of stock and long term bonds. Long term financing can be secured with relative ease by taking advantage of corporate assets and often personal assets of stockholders and principals of guarantors. (Lenders very often require personal guarantees.)
- Delegated authority. Centralized control is secured when owners delegate authority to hired managers, although they are often one and the same.
- The ability of the corporation to draw on the expertise and skills of more than one individual.
Disadvantages of the Corporation:
- Activities limited by the charter and by various laws. However, some states do allow very broad charters.
- Manipulation. Minority stockholders are sometimes exploited.
- Extensive government regulations and required local, state, and federal reports.
- Less incentive if manager does not share in profits.
- Double tax - income tax on corporate net income (profit) and on individual salary and dividends.
You should be aware of the possibility of selecting subchapter S status. The purpose of an "S" corporation is to permit a "small business corporation" to have its income taxed to the shareholders as if the corporation were a partnership. One objective is to overcome the double tax feature of our system of taxing corporate income and stock. An S corporation is still a separate entity apart from its owners, giving them limits on their responsibilities to the business, but it is taxed like a partnership. This means money that is taken out is reported on your income tax return and the business itself pays no income tax.
Limited Liability Company
The Limited Liability Company (LLC) is the newest legal entity available to businesses. It combines the protection from liability like a corporation, but offers the tax benefits of a partnership. It is a hybrid that combines favorable aspects of both the corporation and partnership. An LLC has members, not shareholders. A simple way to look at it is: the LLC is a partnership that offers the limited liability protection of a corporation and is a corporation that can be taxed like a partnership. Income is passed through and taxed to the members of the LLC. Additionally, losses are passed through and are deductible by members, to the extent of their interest in the company. This form of business organization is fairly new and available in 49 states. It is an entity which is evolving and some of the legal issues surrounding its operation are still being hammered out. Be sure to contact an attorney for assistance in establishing this business model.
Advantages of the LLC:
- Limited liability.
- Pass-through taxation of the partnership.
- Unlimited number of owners.
- Capital is easy to raise through sale of interests.
Disadvantages of the LLC:
- Can be costly to form, assistance of an attorney is usually necessary.
- Many administrative duties involved.
- Laws are still evolving.
- If the LLC is taxed like a partnership, business owners will lose some company funded benefits.
Choosing an Attorney
Selecting an attorney to represent your business is an important part of starting your business and should be carefully addressed. Your attorney should understand your business and your plans; and he/she should be willing to work with you throughout the life of your business. Take your time in choosing your attorney - and don't be afraid to shop around until you find one that you feel comfortable with.
In addition, once your business is organized and off the ground, your need for an attorney has by no means ended. In everyday business activities, many problems and situations of legal nature will crop up. It is essential that you have an attorney of your own to help you deal with any problems. Legal needs most often associated with a small business include: acquiring property, borrowing money, tax planning, employer-employee relationships, litigation, credit problems, and disposing of the business or assets. With this in mind, let's further explore the legal structures available in Indiana.
Going into business requires skill (the knowledge of your craft or trade), and it also requires strategy and planning. Most important, to be successful in business, you must understand the rules (or the laws) by which you must conduct your business. All planning and strategy must consider the multitude of local, state, and federal laws and business practices that govern the operation of the business. Each business structure has certain general advantages and disadvantages, but they must all be weighed to reflect your specific circumstances, goals, and needs. For a concise overview of the major points of each structure, click below for a one-page structural overview, which can be downloaded.
Overview 
Link to Indiana Sec of State for company formation information here:
General Requirements for Starting Your Business
Specific Licensing & Permitting Issues
Local and Federal Regulation
Assistance
Generic Form for Registration of Assumed Business Name with
County Recorder
County Recorders Telephone Numbers
Indiana Department of Revenue District Offices
Department of Workforce Development Offices
Service Corps of Retired Executives Offices (SCORE)
Small Business Development Center Network (SBDC)
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