So you’ve started a business! Way to go. Perhaps you’ve decided on your business name, established your brand identity, chosen a location, decided on your retail POS system, etc. (the list can really go on). Now you’ll need to know how to register your small business. The process isn’t universal: it can vary by business type, the scale of your company, and the state from which you operate. So today we’ll get into a few of the steps you’ll need to take to get your business established as well as several of the different routes available. Just remember, this is a basic guide. Hiring professional legal assistance is recommended for any new business.
This step can come in a number of forms, but its essential purpose is to protect anyone else from using your business’s name. Duplicate names are, at best, annoying. At worst, they can ruin your business’s reputation. Don’t let something so small jeopardize the fruits of all of your hard work and talent.
Register your entity name to protect your business on a state level. The specifics of this step vary from state to state. There may be requirements with the business suffixes or with relevancy to the service you’re providing. Check with your state about any unique rules that might be present.
Some businesses may need a DBA (“doing business as”) in addition to their registered name (this is also known as a “trade,” “fictitious,” or “assumed” name). A DBA is a way to go by a separate name from the legal, registered one. Filing for a DBA again protects your business from having a name copied. DBAs can be filed by any type of business, but most commonly are used by sole proprietors. For instance, if I wanted to start a sole proprietorship for a small company under my name, my actual name would be my entity name, but I would file for a DBA as my operating business name.
Businesses can also trademark their name. This is an additional protection measure on the federal level, but one that isn’t typically imperative. To do this, you must register with the United States Patent and Trademark Office.
Finally, register your domain name. Securing a domain that is exactly your entity or DBA name is best, but rarely legally required.
Deciding on your structure during registration is primarily a tax issue, but this will also affect the amount of paperwork you’ll be required to do, and the amount of liability you’ll have in the business. There are 6 main types of business structures:
This is the simplest form, requiring just you to register as an independently owned business. Tax-wise, this is the most forgiving option because it allows you to file your business taxes in your personal income tax return. This Schedule C form allows you to report any losses so that they are deducted from your overall earnings from the year, no matter if the earning were made through your sole proprietorship or another avenue. A sole proprietorship, however, leaves only you liable, meaning all personal assets are at risk should the business suffer large losses. Additionally, it may be hard to secure loans due to the high risk of investing in sole proprietorships.
First of all, any sole proprietor who decides to add partners can easily switch to this structure. Partnerships can come in two forms: general and limited. General partnerships assume equal risk and responsibility among each partner. Limited partnerships are used when there are investors present who are not part of the operational side of the business. Typically, general partnerships are much more straightforward and easy to manage. Profit from the business is directly passed to the individual partners, allowing each person to file their own taxes, rather than pay them as a business. Liability, however, is again an issue. Each partner is wholly reliable for their share of the business. Partnerships cost more money up front than sole proprietorships due to filing and accountant fees.
A corporation is a separate legal entity from its owners, and therefore subject to more regulations and tax requirements. Corporations have the benefit of reduced liability – none of the owners are financially responsible should the business fail. A corporation can also raise money more easily through the sale of stock. With these benefits, of course, comes a major downside: taxes. Corporate owners pay a higher tax rate, and any shareholders must pay taxes on any profits earned for the year.
An S corporation is best for smaller big businesses. There are more tax benefits than a traditional corporation option, but a business can still rely on liability protection. They can also have up to 100 shareholders, allowing them to raise capital. Still, S Corporations are subject to more taxes and fees than partnerships.
Limited Liability Company (LLC)
This is the most recent structure option, combining some of the benefits of corporations and partnerships. It has been wildly popular since its inception in 1977. Though quite similar to an S Corp, LLCs enjoy more flexibility in how they are operated. You must file articles of organization with the state where you will conduct business. Limited Liability Partnerships (LLPs) also exist. They are essentially the same, though each partner is responsible for their own legal issues. This is most common for professional practices, like law or medicine.
There exist other options as well, such as non-profits, but we’ll save that for another time. For more in-depth analysis on how each structure works and some advice on which might be best for your business, check out the guide from the U.S. Small Business Administration.
You’ll first need to register your business with the U.S. Internal Revenue Service. The IRS will give your business an Employee Identification Number (EIN). The is essentially a social security number for a business. You must have one to pay federal taxes, hire any employees, open a business bank account, or apply for any licenses. Surprisingly, it’s free to register! If you ever change your business name, address, partnership, or structure, you may need to apply for a new EIN.
You also must register for a state tax ID number if you are operating in a state that charges local taxes. This process varies widely between states so check out your state’s website for more information. A business must register in any state in which they have a physical presence, conduct in-person meetings, receive a significant portion of revenue, or have any employees working. Registering a sole proprietorship on this level can also help protect you against identity theft, even if your state doesn’t collect taxes.
Virtually any business must apply for at least one license or permit. These vary depending on the type of business you’re operating and what state and federal laws apply. Licenses help the government track business operations for tax purposes; they also protect the public from poorly run establishments.
If your business is involved in the sale of anything regulated – medicine, alcohol, hunting, gaming, broadcasting, etc. – then appropriate permits or regulatory licenses will certainly be required. Other businesses must file professional licenses. Doctors, beauticians, realtors, teachers, etc. are required to have completed a certain level of education and a proficiency test. In these cases, one must prove their eligibility to practice.
Lastly, there are often local permits surrounding health and building code ordinances. Check into any necessary building permits, food and beverage licenses, or home-occupation applications. These are typically instituted to protect the existing community and residents.
Additional Steps in How to Register a Small Business
So that’s the basic gist of the big steps when registering your business. It’s important to mitigate risk and avoid any nasty surprises, so if you have the budget, hire an attorney to ensure that you are completing everything properly. Another option for professional help is hiring a registered agent. They handle all official papers and documents for your business. Good luck with your new venture! We know how grueling, but exciting the process is.