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 state, city, or town permits or licenses that are required to operate your business (see question #3.)
To obtain more information about licensing you can contact Business Answers, a program of the Maine Department of Economics and Community Development at 1-800-872-3838 (in-state) or 1-800- 541-5872 (out-of-state). The office's operating hours are Monday through Friday between 9 a.m. and 4 p.m.. Its One-Stop Business Licensing Center will give you the information needed to obtain the appropriate licenses for your business.
Business Answers has most of the various state department licensing applications which they will send to you. You will also need to check with your Town or City Clerk to determine local licensing requirements.
There are four primary legal forms of business from which to choose from: sole proprietorship, partnership, limited liability company, and incorporation (both C-corp and Subchapter S.)
A sole proprietorship is owned by an individual (or a married couple) and it may have one or more employees. Operating a sole proprietorship means that the owner is personally responsible for all liabilities of the business. Also, the owner is taxed on a personal level for all profits generated by the business.
A partnership occurs when two or more people agree to share ownership of a business. This form of business allows the partners to share complimentary skills and resources. The owners share, and pay personal taxes on, the profits of the business. Additionally, each partner is individually responsible for the liabilities of the business.
Another option is to form a Limited Liability Company (LLC). This legal form, which became effective in Maine on January 1, 1996, is a combination of the corporate form (providing limited liability) and the partnership form (allowing you to be taxed as in a partnership).
The corporate entity is created when your business registers with the Secretary of State's Bureau of Corporation. This enables the owners to take advantage of the limited liability aspect of the corporate ownership and to raise equity by selling shares of the company. For profit entities have the option to chose either a C-corporation or Subchapter S-corporation status. If you become a C-corporation, the corporate profits are taxed, and then the owners will be taxed on their share of the profits and compensation (i.e. dividends and wages) received from the corporation.
A Subchapter S-corporation does not pay a corporate tax. If you have any questions regarding these forms of business entities, please feel free to call your local Maine Small Business Development Centers and seek advice from an attorney.
When you start your own business, there are various types of business insurance that should be considered essential and others that, while not essential, may be desirable and add to the security of a business. Most businesses will require some type of general liability insurance and many businesses obtain an "umbrella policy" that covers a variety of risks including personal property, liability, fire, theft, and medical payments.
If you have employees, you will need to obtain workers compensation insurance. Additionally, if your business owns or uses vehicles for business purposes, automobile coverage is necessary. Beyond this, what other forms of insurance obtained depends on what risks are incurred in operating your business, and what kind of supplementary coverage you want to employ to provide additional security for your business.
The following is a list of certain types of insurance that you may need to consider: Key Person Insurance, Flood Insurance, Fidelity and Surety Bonds, Boiler and Machinery Insurance, Product Liability, Business Interruption Insurance, Overhead Expense, Disability Insurance, and Life Insurance. The best course of action is to contact an insurance agent, or several agents, for a consultation regarding the appropriate types of insurance for you and your business.
If you sell tangible personal property, or provide certain fabrication, rental, or other particular services, you must obtain a sales tax identification number, also known as a seller's certificate, from the State of Maine.
To obtain the appropriate forms you may visit the Maine Revenue Services Website or you can call 207-624-9693. If wholesalers and retailers are reselling your product(s) you would not charge sales tax, but would provide them your sales tax number for a resale certificate. Additionally, you would not charge sales tax to consumers who purchase your product outside of Maine, although they would be responsible for a use tax. Keep in mind that after you register, your sales, regardless if sales tax is charged or not, must be reported regularly to the State of Maine's Sales Tax Division. See also Maine Revenue Services FAQ for more information.Catalog Sales and Internet Sales
A retailer which solicits sales through a catalog or internet web site is responsible for collecting sales tax in Maine if the retailer has - (a significant presence) in Maine. Retailers registered in Maine selling goods to Maine residents must collect Maine sales tax since the retailer has a presence in Maine and the sale occurs in Maine. This is true regardless if the sale occurred in the retailer's store, if the goods are ordered over the telephone or if the goods are ordered through the retailer's homepage.
If the retailer receives orders through mail-order or the internet from non-residents and the goods are shipped out-of-state, the sale is not taxable in Maine. If the retailer is not required to register in Maine, the sales are not subject to Maine's sales tax but the purchaser is subject to Maine's use tax on such a purchase. - Maine Revenue Service
To determine financing needs, you should first prepare a business plan with a complete set of financial projections including a balance sheet, income statement, and cash flow statement. With a properly completed business plan, you will have identified your funding needs. Keep in mind that most small business start-ups are funded through personal resources including savings, equity or loans from family, friends or other investors, home equity loans, cash value of life insurance, or other personal resources.See Financing your Business
To register as an employer, you need to obtain a federal Employer Identification Number(EIN) by filing IRS Application. You will also need to register for state income tax withholding and for an unemployment contributions by filing the Application for Tax Registration from the Maine Department of Labor, Central Registration Section, (207) 287-2338.
Have employees complete and keep in employer's files: Employee's Withholding Certificate W-4 obtained from the IRS and Employment Eligibility Verification Form I-9 obtained form the U.S. Department of Immigration and Naturalization. Obtain Worker's Compensation Insurance from your business insurance carrier. Maine employers are required to report newly hired or rehired employees to the Maine Department of Human Services (DHS) within 7 days. Contact DHS Support Enforcement and Recovery at (207) 287-2886 for more information. Obtain and post required labor posters. For more information on becoming an employer or for Hiring Employees packet, or to obtain employment posters, contact Business Answers 1-800-872-3838 (in State) or 1-800-541-5872 (out of State).
Self-employed business owners are required to pay state and federal income taxes, Social Security, and Medicare based on the profits generated by the business. Profits in a proprietorship are determined before you draw compensation from the business (i.e. your draw or wages are not considered an expense of the business.) Once your liability for federal income tax and self- employment FICA exceeds $500, you will need to deposit the tax payments to the IRS (whether this happens in any one quarter or combination of quarters.)
You can estimate and report your federal taxes by using the 1040-ES form, and your state taxes by using the 1040ES-ME form. You can also derive an estimate of your tax liability from your most recently completed Schedule C (profit and loss statement for a proprietorship) or by completing a monthly profit and loss statement. Be aware that if you don't deposit the appropriate taxes for any individual quarter, or for the year, the IRS can and will impose stringent penalties and interest.. If you need these forms, contact your local IRS office or Business Answers for their Estimated Income Taxes and Self- Employment package.
For additional information on completing the forms or understanding the requirements, please feel free to call your local Maine Small Business Development Centers.
See also IRS Forms
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