Business licenses, trade names, and similar legal hassles

[Andrew Morris]

I'm just now looking at buying a domain name, building a web site, and eventually selling my games online. While doing this, I started thinking about the legal issues of doing so. Does anyone have any personal experience with this? Do I need a business license to start selling online? Must I register a company name?

I'd imagine the practical answer was no, because no one's going to make a big issue over it, especially for a hobby business with no physical site. But if anyone has gone through any legal hassles themselves, I'd love to hear about it. Heck, at this point, any information is useful.

[xenopulse]

We're in Oregon, so YMMV.

Legally, you need a license because you're selling something from your home. The likelihood that anyone is gonna check on that is minimal, but this is the law on it as it was explained to me. I believe it costs a couple hundred dollars. We're not actually selling yet, so we don't have a license so far.

Furthermore, if your business does not have your real name in it, you need to register it as a dba (doing business as). Registering is also required if you want to avoid legal hassles when someone else picks the same name.

If you sell PDFs over RPGNOW or books over lulu.com, for example, that's different--they are the ones needing the license, not you. But if you send out books from your home, you are officially running a mail order business, just like someone who sells other crap via mail order. Again, chances are no one will care, but that's the law on it.

Hardcopy books are supposed to have ISBNs, but you really only need those if your book is supposed to be listed with vendors, distributors, or places like Amazon.com. If you just send it out from home, there's no need for those. They are kind of spendy.

That's all I got :)

[timfire]

Legally, you need a license because you're selling something from your home.

It is my understanding that this differs from state to state, so what you really need to do is talk to someone from your home state.

[Valamir]

You'll want to go down to whatever the equivelent of a County Clerk is in your state.  Tim's right each state's laws are subtly different...even Doing Business As is sometimes called something different depending on where you are, but there's a version everywhere.

In Illinois the requirements for a sole proprietorship is to register the name which takes care of both the DBA requirement and putting you on the tax records with the IL dept of revenue.  I also had to purchase ad space in a local paper to run for 3 consecutive weeks announcing the company and its contact information.  I suspect that's a hold over from the days pre-computer and was meant to give people the chance to challenge your use of a name.

There are 3 keys here.

1) you cannot cash a check made payable to the name of your company if you haven't filed a DBA.  All banks will request a copy of the registration before opening an account in your company's name (some disreputable check cashing places might be less diligent about this).

2) selling personal items in a garage sale kind of environment is one thing.  Selling actual product to customers is another, and you must register to do this.  Its not a license per se (at least not in IL) but it is required.

3) Taxes.  DEFINITELY plan on paying state sales tax.  I don't collect tax on my product but I do declare my instate vs. out of state revenue and pay that tax to IL.  Some states may have rules where you don't have to pay if the $ amount is below some trivial level, but definitely check.  

Also plan on declaring your company revenue (less expense) on schedule C of your federal return.  Its something of a minor pain in the ass, but its not that bad.  Just make sure to bone up on what is deductable and what isn't if you're going to try to file it yourself.  For instance, the cost to print your books is not deductable as an expense.  It has to be capitalized as inventory and written off as books are sold.  Also meals and entertainment (like you'd experience if at a con) can be charged as expenses but typically only to 50% of the amount.  If you don't want to mess with figuring that out, plan to hire an accountant with some small business experience.

Since a sole proprietership gives you no personal protection (you and the company are the same) if you evade taxes in your business, your evading taxes personally.  Even if the chances are slim, you do not want to mess with the IRS charging you with tax evasion.

I don't want to discourage you, because the requirements really aren't THAT onerous.  But there are some hoops and its absolutely not worth blowing them off and hoping no one will ever find out.

[xenopulse]

Legally, you need a license because you're selling something from your home.

It is my understanding that this differs from state to state, so what you really need to do is talk to someone from your home state.

Well yeah, which is why I had that caveat at the beginning of my post. :)

And Oregon does not have a sales tax, so we don't need to worry about that, either.

Ralph is right, one should contact the local business bureau. Often you can find all sorts of info online. Try SCORE as well (www.score.org). They were very helpful over here.

[Andrew Morris]

Okay, thanks for the info, guys. I was half-hoping everyone would say, "Nah, I just sell 'em and don't have no problems." Oh well, I wasn't looking forward to bureaucracy, but I guess I'll have to dive into it.

[jdagna]

The best people to check with are at your local chamber of commerce or, if you know how to find them, at city hall (many cities have specific people to deal with business questions).  You could also try to look up a local Small Business Administration office.

This is because licensing not only varies from state to state, but from city to city.  Here in WA, in fact, the state license is $15 and requires minimal reporting, but if you do business in Seattle, the city license costs at least $45 and requires a pain-in-the-rear annual filing.  When I moved just five miles outside of Seattle, the city of Kenmore didn't require any kind of license at all, so I just had the state to worry about.