Sole proprietorship
An individual (or married couple) may register their
business as a sole proprietorship if they plan to
conduct operations on their own. This is the simplest
form of business structure. The owner is entitled to
all revenues and profits, while maintaining personal
responsibility for all debts and liabilities. Income from
sole proprietorships is taxed as individual income.
Partnerships
Partnerships are business entities formed by two or
more individuals. The most basic form is the general
partnership. Partners in a general partnership
contribute an agreed-upon share of money, skill, and
labor to the enterprise, in exchange for a proportionate
share of the profits. Liabilities are thusly divided as
well. A limited partnership includes general partners
and limited partners (also known as silent partners)
who share in the profits but whose losses are generally
limited to the size of their initial investment. Similar to
a general partnership, a limited liability partnership
indemnifies one partner from claims arising from other
partners’ negligence. Lawyers and doctors frequently
operate under this structure.
Corporation
The federal government and states recognize
corporations as business entities that are separate
and apart from employees and shareholders in terms
of income and liabilities. This structure protects
management and workers in the case of litigation
or other claims, but is more complex and subject to
greater regulation than a partnership. Such entities
must be registered through articles of incorporation.
A corporation may be privately held, in which case
How companies work
equity is shared by a limited group of stock owners.
A publicly held corporation makes shares available to
the public through a stock exchange or through
over-the-counter markets.
Nonprofit corporation
A nonprofit corporation engages in activities meant to
further the public good, such as works in charitable,
scientific, educational, or artistic fields. Such
organizations, most frequently registered with the
Internal Revenue Service (IRS) through form 501(c)(3),
are generally tax-exempt at the federal and state level.
They may in fact make profits and pay competitive
salaries, but are prohibited from engaging in political
activities.
In Canada
Businesses in Canada can also be sole proprietorships,
partnerships, or corporations. They can also be run
as cooperatives, a business that it is owned and
controlled by its members. Co-ops are often used by
agricultural enterprises. Canadian companies must
register in the province or territory in which they are
domiciled.
Reporting requirements
Businesses in the US are subject to a range of financial
reporting requirements and regulations, depending
on structure. Owners of sole proprietorships include
income on their individual returns filed annually
with the IRS. Corporations must also report income
to the IRS, but are subject to additional requirements.
Privately held corporations must, at a minimum, file
charter documents, including name and address, with
the Secretary of State in the state in which they are
Businesses in the US are registered in the state in which they are domiciled.
Most states and the federal government recognize four business structures:
sole proprietorship; partnership; corporation; and nonprofit corporation.
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US-SPECIFIC INFORMATION
How companies work
headquartered. Publicly traded corporations are
subject to considerably greater disclosure requirements.
They must file with the Securities and Exchange
Commission quarterly (10-Q) and annual (10-K)
reports detailing revenue, income, profits, and losses.
They must also file interim reports (8-K) disclosing
significant events, such as an acquisition or divestiture,
as well as reports (Form 4) that disclose significant
buying and selling of shares by company insiders.
Company law
The US Constitution vests in individual states
the power to regulate commerce and administer
and oversee companies that operate within their
borders. States maintain a Department of State or
equivalent (such as Massachusetts’ Secretary of the
Commonwealth) that act as registrar for commercial
endeavors. Departments of State maintain publicly
searchable databases of all registered companies,
hold administrative hearings, and can take
enforcement actions.
Taxation
The IRS collects taxes from businesses on behalf of
both the federal and state governments. At the time
of printing, the federal tax rate on corporations ranged
from 15 percent to 35 percent. Tax rates vary widely
among states, and six states impose no corporate
income tax at all.
The federal government and states do not collect
Value Added Taxes (VAT) from businesses, but many
states impose sales tax on consumers that businesses
collect at the point of sale. Several states have no sales
tax. Sales taxes can also vary depending on the item
purchased. For example, in New York state, groceries
are tax-free, while takeout meals are taxed at the
prevailing rate of 4 percent. New York City also applies
an additional sales tax of 4.5 percent to most items.
Other municipalities around the country are also free
to establish their own sales tax rates.
The Small Business Administration website has information
on the corporate structures permitted under US law.
www.sba.gov
Taxation
The Internal Revenue Service provides a number of
online services for business owners, including when and
where to file tax returns and how to obtain tax credits.
www.irs.gov/businesses
Startups
BusinessUSA is a central repository where entrepreneurs
can access a range of services. Its website provides
information on funding, taxation, hiring, growth
strategies, and more. It also offers advice tailored to
specific groups, such as women, veterans, and minorities.
business.usa.gov
The US Department of the Treasury also offers advice
and services for would-be proprietors. In addition, it
operates the Small Business Lending Fund, which secures
loans made to business owners by private banks.
www.treasury.gov/Pages/default.aspx
Registering intellectual property
The main arbiter for determining whether a product or
business method is worthy of exclusivity is the United
States Patent and Trademark Office.
www.uspto.gov
Immigration
All employees must be authorized to work in the US
through citizenship or some form of visa. US Citizenship
and Immigration Services, part of the Department of
Homeland Security, determines visa eligibility and
enforces immigration rules.
In Canada
The Canada Business Network offers information about
starting and operating a business.
www.canadabusiness.ca/eng/page/2853/
www.entreprisescanada.ca/fra/page/2853/
ORGANIZATIONS AND RESOURCES
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US-SPECIFIC INFORMATION
How companies work
headquartered. Publicly traded corporations are
subject to considerably greater disclosure requirements.
They must file with the Securities and Exchange
Commission quarterly (10-Q) and annual (10-K)
reports detailing revenue, income, profits, and losses.
They must also file interim reports (8-K) disclosing
significant events, such as an acquisition or divestiture,
as well as reports (Form 4) that disclose significant
buying and selling of shares by company insiders.
Company law
The US Constitution vests in individual states
the power to regulate commerce and administer
and oversee companies that operate within their
borders. States maintain a Department of State or
equivalent (such as Massachusetts’ Secretary of the
Commonwealth) that act as registrar for commercial
endeavors. Departments of State maintain publicly
searchable databases of all registered companies,
hold administrative hearings, and can take
enforcement actions.
Taxation
The IRS collects taxes from businesses on behalf of
both the federal and state governments. At the time
of printing, the federal tax rate on corporations ranged
from 15 percent to 35 percent. Tax rates vary widely
among states, and six states impose no corporate
income tax at all.
The federal government and states do not collect
Value Added Taxes (VAT) from businesses, but many
states impose sales tax on consumers that businesses
collect at the point of sale. Several states have no sales
tax. Sales taxes can also vary depending on the item
purchased. For example, in New York state, groceries
are tax-free, while takeout meals are taxed at the
prevailing rate of 4 percent. New York City also applies
an additional sales tax of 4.5 percent to most items.
Other municipalities around the country are also free
to establish their own sales tax rates.
The Small Business Administration website has information
on the corporate structures permitted under US law.
www.sba.gov
Taxation
The Internal Revenue Service provides a number of
online services for business owners, including when and
where to file tax returns and how to obtain tax credits.
www.irs.gov/businesses
Startups
BusinessUSA is a central repository where entrepreneurs
can access a range of services. Its website provides
information on funding, taxation, hiring, growth
strategies, and more. It also offers advice tailored to
specific groups, such as women, veterans, and minorities.
business.usa.gov
The US Department of the Treasury also offers advice
and services for would-be proprietors. In addition, it
operates the Small Business Lending Fund, which secures
loans made to business owners by private banks.
www.treasury.gov/Pages/default.aspx
Registering intellectual property
The main arbiter for determining whether a product or
business method is worthy of exclusivity is the United
States Patent and Trademark Office.
www.uspto.gov
Immigration
All employees must be authorized to work in the US
through citizenship or some form of visa. US Citizenship
and Immigration Services, part of the Department of
Homeland Security, determines visa eligibility and
enforces immigration rules.
In Canada
The Canada Business Network offers information about
starting and operating a business.
www.canadabusiness.ca/eng/page/2853/
www.entreprisescanada.ca/fra/page/2853/
ORGANIZATIONS AND RESOURCES
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The SEC has established reporting requirements for
companies whose shares trade on public exchanges
such as the New York Stock Exchange, the NASDAQ
Stock Market, and the NYSE Market LLC. Privately
held companies are subject to fewer requirements.
Tax reporting
Both private and public companies must file tax
returns to the Internal Revenue Service on an annual
basis. The due date varies based on the filer’s status.
Sole proprietorships follow the same schedule as
individuals and must file by April 15 or request an
extension. Partnerships must file by the 15th day of the
fourth month after the end of their fiscal year. Public
companies must file by the 15th of the third month.
Financial disclosure
Exchange-listed companies must make their financial
records publicly available on a quarterly and annual
basis, respectively. They must report unscheduled,
material events (such as an acquisition or divestiture).
Officers and insiders must declare significant
purchases or sales of company stock, and the terms
of issuance for corporate notes must be detailed.
Regulation Fair Disclosure (Reg FD) stipulates that
companies must disseminate financial information
simultaneously to all investors. The SEC amended
Reg FD in 2013 to include disclosures through social-
media channels such as Twitter and Facebook.
Public companies must retain a licensed auditing
firm to verify the veracity of their financial records.
Under SEC rule 3235-AI74 (2003), auditors must retain
client records, including worksheets, financial data,
meeting minutes, electronic correspondence, and other
materials used to form an opinion for seven years.
How finance works
Reporting standards
Companies must log and report financial transactions
to the SEC according to Generally Accepted Accounting
Standards (GAAP) as established by the Financial
Accounting Standards Board, a private, nonprofit
organization. Due to the increasingly global nature of
business, there is a movement to adopt International
Financial Reporting Standards (IFRS).
In the aftermath of several events in recent
years, including the bursting of the so-called dot-com
bubble, the increased use of controversial financial
instruments like mortgage-backed securities (MBS)
and collateralized debt obligations (CDO), and the
2007–2008 financial crisis, the FASB has adopted
a number of new rules aimed at restoring order and
clarity in the markets.
Accounting periods
For sole proprietorships, the reporting period for tax
purposes runs simultaneous to the calendar year.
Publicly traded companies may set their own fiscal
years. Public companies must file a report for each
fiscal quarter, as well as a report at the end of each
fiscal year. Reports generally must be released within
45 days after the close of a quarter.
Corporate fraud
In addition to its regulatory functions, the SEC,
through its Division of Enforcement, is also the
US’s chief watchdog when it comes to policing and
prosecuting financial fraud. The SEC is mainly on
the lookout for several types of misconduct:
False statements. Corporations must report financial
information that, to the best of management’s
knowledge, is complete and accurate.
For publicly traded companies, the Securities Exchange Act of 1934
is the framework for financial accounting and reporting. The Securities
and Exchange Commission (SEC) enforces the Act.
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US-SPECIFIC INFORMATION
How finance works
Insider trading. Corporate insiders, such as officers
and executives, can legally buy and sell shares in
their companies, but not on the basis of non-public
information. For example, a CFO cannot unload shares
on the basis of negative financial news that has not yet
been released. Insiders are also barred from tipping off
friends, family, and business associates.
Ponzi schemes. This is the practice whereby a money
manager distributes returns to existing investors from
funds acquired from new investors. These schemes
generally collapse once a fund runs out of fresh capital.
The most infamous Ponzi scheme to date was that
orchestrated by fund manager Bernard Madoff, starting
in the 1990s and continuing until his arrest in 2008.
Pump and dumps. A “pump and dump” occurs when
a brokerage acquires a large amount of stock, spreads
false news meant to increase the stock’s value, then
quickly sells its position before the fraud is uncovered.
Front running. This occurs when a brokerage
acquires a block of shares in a particular company
before executing a large, pending buy order from a
client. The client’s order, if large enough, will increase
the value of the stock, allowing the firm to profit from
its foreknowledge of the transaction.
In Canada
The Toronto Stock Exchange is Canada’s largest and
most commonly used stock market. It is overseen by
the Ontario Securities Commission. Stock markets
also operate in Vancouver and Montreal.
Businesses operating in Canada must file tax returns
to the Canada Revenue Agency. Forms may be filed
through the mail or electronically. Unlike the US, the
federal government in Canada imposes a value-added
tax known as the Goods and Services Tax (GST).
The current rate is 5 percent. The tax is levied on
manufacturers and producers throughout the chain
of production. In some cases, companies can claim tax
credits for VAT already paid. In some provinces, the
GST is included in the Harmonized Sales Tax (HST).
Financial reporting
The Securities and Exchange Commission provides
information on financial reporting requirements for
publicly listed companies.
www.sec.gov
The Financial Accounting Standards Board website
features educational webcasts and seminars for finance
and accounting professionals.
www.fasb.org/home
The Association of Chartered Accountants in the
United States offers online training videos, while the
CFA Institute maintains a glossary of finance and
investment terms.
www.acaus.org
www.cfainstitute.org/pages/index.aspx
Corporate fraud
Those who wish to report corporate fraud may
approach the SEC directly through its Office of
the Whistleblower.
www.sec.gov/whistleblower
Similarly, the Internal Revenue Service maintains
an office through which the public can anonymously
report suspected corporate tax cheats.
www.irs.gov
In Canada
The Canada Revenue Agency website has information
on the GST and other taxation issues.
www.cra-arc.gc.ca
The Ontario Securities Commission offers a number
of online resources for companies considering a listing
on the Toronto Stock Exchange.
www.osc.gov.on.ca/
ORGANIZATIONS AND RESOURCES
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US-SPECIFIC INFORMATION
How finance works
Insider trading. Corporate insiders, such as officers
and executives, can legally buy and sell shares in
their companies, but not on the basis of non-public
information. For example, a CFO cannot unload shares
on the basis of negative financial news that has not yet
been released. Insiders are also barred from tipping off
friends, family, and business associates.
Ponzi schemes. This is the practice whereby a money
manager distributes returns to existing investors from
funds acquired from new investors. These schemes
generally collapse once a fund runs out of fresh capital.
The most infamous Ponzi scheme to date was that
orchestrated by fund manager Bernard Madoff, starting
in the 1990s and continuing until his arrest in 2008.
Pump and dumps. A “pump and dump” occurs when
a brokerage acquires a large amount of stock, spreads
false news meant to increase the stock’s value, then
quickly sells its position before the fraud is uncovered.
Front running. This occurs when a brokerage
acquires a block of shares in a particular company
before executing a large, pending buy order from a
client. The client’s order, if large enough, will increase
the value of the stock, allowing the firm to profit from
its foreknowledge of the transaction.
In Canada
The Toronto Stock Exchange is Canada’s largest and
most commonly used stock market. It is overseen by
the Ontario Securities Commission. Stock markets
also operate in Vancouver and Montreal.
Businesses operating in Canada must file tax returns
to the Canada Revenue Agency. Forms may be filed
through the mail or electronically. Unlike the US, the
federal government in Canada imposes a value-added
tax known as the Goods and Services Tax (GST).
The current rate is 5 percent. The tax is levied on
manufacturers and producers throughout the chain
of production. In some cases, companies can claim tax
credits for VAT already paid. In some provinces, the
GST is included in the Harmonized Sales Tax (HST).
Financial reporting
The Securities and Exchange Commission provides
information on financial reporting requirements for
publicly listed companies.
www.sec.gov
The Financial Accounting Standards Board website
features educational webcasts and seminars for finance
and accounting professionals.
www.fasb.org/home
The Association of Chartered Accountants in the
United States offers online training videos, while the
CFA Institute maintains a glossary of finance and
investment terms.
www.acaus.org
www.cfainstitute.org/pages/index.aspx
Corporate fraud
Those who wish to report corporate fraud may
approach the SEC directly through its Office of
the Whistleblower.
www.sec.gov/whistleblower
Similarly, the Internal Revenue Service maintains
an office through which the public can anonymously
report suspected corporate tax cheats.
www.irs.gov
In Canada
The Canada Revenue Agency website has information
on the GST and other taxation issues.
www.cra-arc.gc.ca
The Ontario Securities Commission offers a number
of online resources for companies considering a listing
on the Toronto Stock Exchange.
www.osc.gov.on.ca/
ORGANIZATIONS AND RESOURCES
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The First Amendment to the US Constitution restricts
the government’s ability to limit or inhibit public
speech or communication. However, courts over the
years have ruled that commercial speech is subject
to less protection than noncommercial speech.
The Federal Trade Commission (FTC) was
established in 1914 through the Federal Trade
Commission Act. Much of the FTC’s work involves
enforcing truth-in-advertising regulations, a legislative
rubric that requires ads to be truthful, not misleading,
and backed by scientific data if appropriate. In a case
of suspected false advertising, the FTC can sue the
perpetrator in federal court to obtain a cease-and-
desist order, freeze assets, and obtain recompense
for victims. A bill pending in Congress at the time of
writing, the Truth In Advertising Act of 2014, would
prevent marketers from using digital tools such as
Adobe Photoshop to alter the appearance of models’
bodies and faces in ads.
The FTC also enforces legislation aimed at electronic
marketing communications, such as email campaigns
and telemarketing. For example, the Commission can
file suit against agencies suspected of violating the
National Do Not Call Registry. Telemarketers are
forbidden from calling consumers who have entered
their numbers in the registry. Similarly, the FTC
enforces the CAN-SPAM Act of 2003, which requires
marketers to give consumers a means to opt out of
receiving future messages.
The Federal Communications Commission (FCC)
also has some authority to regulate commercial speech.
For instance, the FCC enforces the CALM ACT of
2012, which stipulates that broadcasters and cable
companies must air commercials at the same volume
as regular programming.
How sales and
marketing works
Individual states can set marketing and advertising
rules, particularly for highly regulated industries like
health care, financial services, and real estate.
At the state level, the Better Business Bureau accepts
and responds to complaints regarding companies doing
business within state jurisdictions.
In Canada
Freedom of speech and expression in Canada is
protected by Section Two of the Canadian Charter
of Rights and Freedoms. As is the case in the US,
commercial speech is afforded less protection than
political or other types of expression. Still, the Charter
places numerous limitations on the federal and
provincial governments’ ability to abridge marketing
and advertising communications. For example,
Canada’s Supreme Court in Ford v. Quebec (1988)
struck down a Quebec law that required all advertising
signs to be in French.
Commercial speech in Canada is also governed by
the Consumer Packaging and Labelling Act (1985). The
law prohibits the use of misleading ads and claims on
consumer goods.
Data protection
Unlike Europe, with its centralized Data Protection
Directive, the US does not have a single, overarching
law on data protection. Rather, Congress has passed
a series of laws that together form a framework
around the safeguarding of consumers’ privacy and
information. Many of these rules are directed at
particular industries. For example, the Department
of Health and Human Services enforces the Health
Insurance Portability and Accountability Act of 1996
(HIPAA). The Act dictates the administrative, physical,
Advertising and marketing in the United States are regulated at both
federal and state level. The Federal Trade Commission (FTC) sets
national policies and enforces relevant laws passed by Congress.
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How sales and marketing work
and technical safeguards that health care insurers and
providers must follow to protect patient records.
In financial services, the Gramm-Leach-Bliley Act of
1999 stipulates the steps that banks, credit unions, and
other financial institutions must follow to safeguard
customer data. The act is enforced by the FTC. Other
industries are also subject to specific privacy and data
protection rules.
Direct marketing
Direct marketing agencies are subject to laws enforced
by the above-mentioned agencies, but are also
supposed to adhere to self-imposed codes of conduct
adopted by the Direct Marketing Association. The
DMA is a lobby group for the industry that promotes
“responsible, data-driven marketing.” The DMA
promulgates member policies on a number of issues,
including privacy, the environment, e-commerce, and
consumer protection.
E-commerce
For marketers that conduct campaigns through the
internet and social media channels, the Interactive
Advertising Bureau (IAB) publishes codes of conduct
that members are expected to follow. For example, the
IAB expects all members to be transparent about the
data and personal information they collect from
consumers on the web.
ORGANIZATIONS AND RESOURCES
Advertising
The Federal Trade Commission oversees truth-in-
advertising laws and regulations and offers resources
to advertisers and marketers to help keep them
from running afoul of the rules. On its website, the
FTC publishes advisory opinions on how changes
to laws or court rulings may have an impact on future
enforcement decisions.
www.ftc.gov/policy/advisory-opinions
The Bureau of Consumer Protection, an arm of the
FTC, operates an online Business Center that advises
businesses how to comply with Do Not Call, CAN-SPAM,
and other rules. It also offers general guidelines on
advertising and marketing basics, marketing to children,
health claims, and “Made in the USA” claims.
www.ftc.gov/tips-advice/business-center/advertising-and-
marketing
Data protection
Various federal agencies can provide information
on rules, regulations, and methods concerning the
protection of consumer data and privacy, depending
on the industry.
The Department of Health & Human Services publishes
an online FAQ for complying with HIPAA. It also posts
guidelines for covered entities and their business
partners and associates.
www.hhs.gov
For marketers and advertisers who work within the
financial services industry, the SEC has a web page
devoted to the topic of protecting consumers’ financial
data and personally identifiable information (PII).
www.sec.gov/about/privacy/secprivacyoffice.htm
In Canada
Canada’s Competition Bureau maintains a website
that provides in-depth information on the Consumer
Packaging and Labelling Act, as well as on other
relevant legislation.
www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/home
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