Federal Small Business Requirements

All start-ups must meet federal small business requirements when starting a business. Both state and federal governments place certain requirements on small businesses. This FindLaw article will explain these requirements and answer common small business concerns.

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Forming a Small Business

Forming a federally regulated small business is generally the same as forming any other business, with a few nuances.

Business Structure and Taxes

One of the very first decisions of a business is picking a business structure. The type of business structure determines the amount of regulatory paperwork filed. This structure also determines the taxes paid in a fiscal year.

The different structures for small businesses include:

• Sole proprietor: Taxes paid through the personal income tax return of owner
• Partnership: Taxes paid through personal income tax return of owners
• Corporation: Taxes paid by a corporation
• S corporation: Taxes paid through personal income tax returns; owner paid "reasonable compensation"
• Limited liability company (LLC): Taxes paid like a partnership
• Non-profit: May be tax exempt

The tax forms the IRS requires are on the IRS website or the U.S. Small Business Administration (SBA) site.

The tax and regulatory implications of the various business structures vary. A corporation has the most regulatory implications. Talk to a tax attorney or accountant before determining your structure.

You should also consider the percentage of interest of the initial members. Companies that are majority-owned by historically underrepresented demographics may have access to certain federal grant or contract opportunities.

Employer Identification Numbers

Businesses must apply for Employer Identification Numbers (EINs). Most sole proprietors with no intent to hire employees are exempt. But there are circumstances when they should get one. The IRS uses an EIN to identify and track a business.

When applying for an EIN, you must select a North American Industry Classification System (NAICS code). The code classifies your business activities. Government agencies track NAICS codes in government procurement contracts.

Businesses can now apply for EINs online. You get an EIN immediately during the application session.

Licenses and Permits

Businesses in certain industries must apply for licenses and permits to do business. Most businesses don't have to register with the federal government. These federal agencies require licenses in these industries:

• Agriculture: The U.S. Department of Agriculture issues permits for businesses involved in importing or transporting animals and agricultural products.
• Alcoholic beverages: Manufacturers, wholesalers, importers, and retailers of alcoholic beverages must register, pay special taxes, and maintain certain records with the Alcohol and Tobacco Tax and Trade Bureau (ATTB).
• Aviation: The Federal Aviation Administration (FAA) issues licenses for pilots, aircraft, airports, and medical aviation services.
• Environmental: The Environmental Protection Agency (EPA) imposes environmental regulations at the federal level.
• Firearms, ammunition, and explosives: The Bureau of Alcohol, Tobacco, and Firearms (ATF) controls manufacturers, dealers, and importers of firearms and ammunition.
• Fish and wildlife: Businesses engaged in any wildlife activity, including importing any wildlife or their derivative products, must receive a U.S. Fish and Wildlife Service permit.
• Investment advising: Professional investment counselors must have a Securities and Exchange Commission (SEC) license.
• Interstate ground transportation: If your business will cross state lines with goods, you must register with the Federal Motor Carrier Safety Administration (FMCSA), a federal agency of the Department of Transportation (DOT).
• Maritime transportation: The Federal Maritime Commission issues licenses for businesses transporting freight or passengers on the ocean.
• Mining and drilling: The Bureau of Ocean Energy Management (BOEM, formerly the Minerals Management Service) manages the nation's natural gas, oil, and other mineral resources.
• Radio and television broadcasting: If your business broadcasts information by radio, television, wire, satellite, or cable, you must get a license from the Federal Communications Commission (FCC). The FCC doesn't regulate the internet.

Connect with a business lawyer in that federally regulated industry. They can do the licensing for you. You could also ask them to review your application.

What Size Is a Small Business?

The definition of a small business varies. It's commonly determined by small business size standards.

Here are a few ways the U.S. government has defined a small business:

• Number of employees under 500
• SBA's size standards
• SBA's average annual receipts standard
• Department of Defense's definition of fewer than 500 employees when issuing federal contracts

The definition of small business matters for government contracting and financing with the Small Business Administration (SBA).

Securing Federal Financing

There are a few ways for a small business to secure financing at a federal level.

SBA

Outside of traditional bank loans, the SBA offers a federal loan program. Small businesses must meet eligibility requirements. These requirements range from traditional bank loan denials to employee size.

Federal Procurement Contracts

Federal contracts and government contracts are another way for a small business to make money. Small business set-asides are government contracts with small businesses. The government agencies must use a system for award management. In this system, a certain number of contracts are set-aside for small business. The government contracts are for goods or services.

These contracts must be open for solicitation of bids from small businesses. Any contract valued between $10,000 to $250,000 is eligible for this set-aside. Each project has an assigned contracting officer.

Some funds, subcontracting work, or grant opportunities are set-aside. This allows historically marginalized demographics to get federal contracts, including:

• Women-owned small businesses (WOSB)
• Service-disabled veteran-owned small businesses
• Historically Underutilized Business Zones (HUBZones)

Small, disadvantaged businesses based on the race or ethnicity of the owner

The HUBZone program through the U.S. Small Business Administration at sba.gov requires 3% of federal contract funding to go to HUBZone businesses.

Before submitting a government bid, make sure you have an EIN. This is true even if you're doing business as another name.

Finding Federal Assistance Programs

The SBA has many small business programs and resources available for small businesses on a federal level. The SBA has a 9-year 8(a) Small Business Development Program. These programs encourage business growth. It makes you eligible to apply for 12% of federal contract financing available yearly. Your local Small Business Development Center (SBDC) can connect you with a business coach and contracting programs.

Consult With a Small Business Lawyer

Contact a small business lawyer to help you understand federal licenses and small business contracting. You don't need a lawyer in Washington, DC. A local lawyer with experience in federal contract awards or contracting opportunities can help you.