Registering Your Business: A Guide for Small Businesses and Entrepreneurs
October 25, 2020
When starting a business, there are a lot of questions to answer. Especially if you are a first-time entrepreneur, you may have never thought about many of the things you'll need in order to get your business off the ground.
One of the most important steps you may need to take to legitimize your business in the legal sense is to register it.
What Does it Mean to Register My Business?
Registering your business is the process of making it a legal entity in the eyes of the federal or state government. Many companies opt only to register with state agencies. It's important to note that owners can register a business in multiple states and are sometimes required to do so. Depending on your business' structure and location, you must follow different requirements to register it.
Business registration vs. Business name registration
Some businesses choose only to register their name with state and local governments. Still, it's important to remember that registering your business and registering its name are not the same. If you register your business with the state, you don't typically need to register its name because registering the company as a whole accomplishes that.
When you submit your business name for registration, you ensure that the state's registry of legal names includes your company. The Balance recommends taking this step if you plan to run a sole proprietorship or have decided on a business name but are still figuring out more details about its structure.
Do I Need to Register My Business?
Before you worry too much about registering your business, it's essential to know whether or not you are required to do so. In terms of federal registration, the Small Business Administration (SBA) advises that most companies don't need to register outside of filing for a national tax ID.
However, there are different implications for state registration. Generally speaking, LLCs, corporations, partnerships, and nonprofits will most likely need to register in any states they conduct business. The SBA defines conducting business as:
Having a physical location or presence in a state
Traveling regularly to a state for client work
Substantial revenue coming from a state
Having employees who work in a particular state
If your business is an LLC, corporation, partnership, or nonprofit and meets the above criteria in a particular state, you will likely need to register there.
What Are the Benefits of Registering My Business?
Even if you aren't required to register your business at the federal or state level, there are many benefits in doing so. When applicable, registering your business at the national level can offer benefits like trademark protection or tax-exempt status.
At the state level, registering your business can protect you from personal liability while also offering legal and tax benefits. There are also many services that you may need or seek as your business scales that will be easier to obtain if your business is registered. For example, finance-related tasks like getting a bank account or loan for your business are more accessible if your business is registered. To hire full-time employees to help you grow your business, you will need to register your business.
What Do I Need to Register My Business?
In preparation for registering your business, you will need to have a few things ready.
You will need a registered agent. Registered agents can receive official paperwork on behalf of your company, but they must be located within the state of your choosing. In some cases, a registered agent is an employee. However, many companies choose to work with external service providers, as well.
Be ready to pay registration fees. There are fees associated with registering your business, and these can vary based on location and type of business. Fortunately, the SBA reports that registering your business typically costs under $300.
Prepare the proper documentation needed for your business structure. Depending on the form of your business, you will need various types of documentation. For example, LLCs require articles of incorporation and an LLC operating agreement. Visit the SBA to determine what kinds of documents you must prepare for your business structure.
Determine any (state or federal) permits needed to operate your business legally. It's possible that your business may need permits to operate. For example, some counties require companies to register their names. To determine any applicable local requirements, you will need to investigate local government sites. At the federal level, you may need special permits if your industry is regulated by a federal agency.
Be mindful of ongoing requirements. When registering your business, make sure you determine whether or not you will need to keep any documentation or reports up to date. These requirements can vary by state or business type.
Where Should I Register My Business?
As covered earlier, where you are required to register a business depends mainly on where you conduct business. That covers everything from where workers live, to where your revenue comes from. However, companies who either have no physical location, nor regularly conduct out-of-state business, may be able to start an LLC in a state they don't live in. Typically, businesses take this route to take advantage of the incentives that the state provides.
For example, many companies choose to form LLCs in Delaware because associated fees are lower, and the state does not tax out-of-state income. Moreover, should you enter into any disputes for your business, you can take advantage of Delaware's Court of Chancery. This court is dedicated to hearing only business-related cases and is the only one of its kind in the U.S.
Other popular states for forming an LLC include Nevada and Wyoming. Neither of these states charges business income or franchise taxes. Nevada has relatively lax measures for remaining compliant with the law and offers some unique privacy benefits. For example, the state does not require operating agreements and "allows LLC owners to remain anonymous in public filings." On the other hand, Wyoming offers the option of a "lifetime proxy." An owner's identity can remain private by leveraging a lifetime proxy to share their perspective.
Many companies also opt for registering in their home state even if it's not required. Of course, proximity likely makes this option the most convenient one for most. Registering your business in your home state can save you from paying the fees associated with a foreign LLC or a registered agent.
Overall, where you register your business can have many implications for the fees that you pay or the legal benefits you receive. For many small companies, this matter is quickly resolved by where they primarily conduct business. However, for LLCs who have more leeway in terms of registering or setting up their business, it's worth considering how you can optimize for factors like tax benefits or privacy.
How Do I Register My Business?
Once you have followed the above steps to prepare and understand the appropriate requirements, you are ready to register your business.
First, you will request an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is also referred to as a Federal Tax Number. If you are unsure whether or not you need an EIN, this IRS questionnaire can help you determine the answer. Any businesses that employ people or that operate as corporations or partnerships are required to obtain an EIN. Applying for an EIN is free and can be done online, by mail, or by fax.
Next, you will need to register your business with state or federal agencies. Depending on the state you are registering in, you may be able to complete registration online. However, some states only allow registration in-person or by mail. To confirm the requirements for the state or states of your choosing, you will need to visit each state's government website. Typically, you will need to register with the Secretary of State's office, a Business Bureau, or a Business Agency.
While there is a lot to consider when registering your business, closing the loop on this process is not difficult if you've done the upfront work required to understand all of the steps you’ll need to take.
Registering your business is one of the most important steps you can take to legitimize your operations. It's also important to note that you must tailor business registration based on your location, business structure, and how you operate.
For instance, some businesses need to only register at the state level and not the federal level. Other companies may also need to register at the local level, depending on city or country-specific requirements.
While many businesses may not be required to register, there are several benefits to doing so. Most notably, registered companies enjoy tax-benefits and liability protection. However, registering a business can also make other critical operational tasks more straightforward. For example, getting a loan or a business bank account is much easier as a registered business.
To prepare to register your business, be sure to conduct the necessary research on the best path forward for your business and prepare the proper documentation. Conducting research upfront will make registering your business a breeze!
In need of a virtual address to register your business? Learn more about our business address plan.
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