I'm thinking about starting up a web design business. What I'm wondering is, how exactly would one handle contracts? Especially if you're dealing with the other person entirely over the internet.

Fax? E-Mail? How should the contract even be worded?

Also, if one would start such a business, is there anything special you need to do? Like do you have to go to some sort of government agency to let them know what you're starting a business or do you just tell whoever is doing your taxes that "btw, I have a business"?