The Comprehensive Guide on How to Register a Business
If you’re in the process of starting a new small business, you’ve probably encountered countless details to handle before you can make your first sale. Part of being an entrepreneur is becoming an expert on many subjects, including how to register a business.
Why You Need to Register Your Small Business
Depending on where you live, you may be required to register your business under federal, state, and/or local law. Based on your business structure, registering your business may be required before you can open your doors, greet your first customers and use your new card reader to accept credit card payments for the first time.
Unless you’re conducting business as yourself, you’re required to register as a business in order to properly collect income tax and sales tax from your business and enforce any other requirements particular to your type of business. For example, you may need special licenses and permits before you can start operations, and you might need to create a sales tax account with the state. In addition, registering your company ensures that your business has a unique and legal name within the state, and protects your business name from copycats. Lastly, you’ll have to register your business if you want to compete for small business grants.
Registering Your Business Name
Your business name establishes you as a unique entity within the state, creates a brand identity, and can indicate the types of goods and services you provide. Plus, you’ll be protected if another business tries to copy your registered business name. You also have the option to receive federal protection from “copycat” names if you register a trademark for your business name. You might also want to establish a domain name to protect your website address.
Decide on a Business Structure
Before you can register your company, you’ll need to have structure for your business. Your choice of structure affects your registration requirements, tax payments, ability to raise capital from investors and lenders, personal liability, and the paperwork you must complete. Your choices include:
Sole proprietorship: You’re considered a sole proprietor if you don’t register your business with the state. This means that because your business is not a separate entity, you can’t raise money by selling stock, borrowing from banks can be difficult, and you’ll be personally liable for all debts and legal judgments affecting the business.
Partnership: A partnership is a separate legal business entity and requires at least two owners. You can choose between a limited partnership (LP) and a limited liability partnership (LLP), which differ in the liability protection offered to partners.
Limited liability company: When you register an LLC, you receive liability protection and avoid corporate taxes. LLC members must pay self-employment taxes for Social Security and Medicare. In some states, you must reorganize an LLC when a member joins or leaves the company.
Corporation: A corporation provides liability protection for its shareholders. A C corporation, or C-corp, is separately taxed and has legal liability, meaning that profits from a C-corp are taxed once at the corporate level and once at the shareholder level for dividend distributions.
You can avoid double taxation by establishing an S corporation, which passes profits and some losses through to shareholders as personal income. States differ on whether they recognize S corporations and how they are taxed. You can also register as a tax-exempt non-profit corporation.
Other than a sole proprietorship, all business structures require you to obtain an employer identification number (EIN), which serves as a federal tax ID. You can find and fill out the IRS Form SS-4 to apply for an EIN. Once you receive your EIN, you can register your business with your state’s secretary of state or revenue office. This requires filling out the paperwork, signing the documents and receiving approval from the state.
If you’re required to collect sales tax, you’ll have to apply for and receive a tax permit from the state. Each state has its own registration procedures, which you can find here. Your state may provide you with a business registration certificate and/or a business registration number.
When to Use a Doing-Business-As (DBA) Name
DBAs are used as an alternate trade name for your business. You can use one or more DBAs for various business purposes, such as branding your offerings or introducing a name that benefits your marketing efforts. It’s important to note that a DBA is not legally protected in a way that a registered business name is. DBA registration may occur at the state or local level, so double check with local authorities on the procedures for filing a DBA.
Should You Trademark Your Business?
When you trademark your business name, you have the exclusive right to use the name throughout the country for the goods and services you provide in your business registration. Additionally, you can enforce the exclusivity right in federal court, as it’s your responsibility to ensure against unauthorized use of your trademark name. A trademark offers solid protection when you do business in multiple states.
Licensing and Permits
Depending on the type of business you build, you may need to obtain one or more federal, state and/or local permits and licenses. Typically, you’ll need to secure a local business license. Some counties and cities require local licensing even when you register a business name with the state.
You may also need a health permit, building permit, ATF permit, fire permit, and others. Different federal and state agencies require different permits and licenses.
Once you’ve handled the legal requirements for your business, it’s time to start selling. Whether you’re taking transactions in-person or on the go, you’ll need an affordable way to accept payments. SumUp has a variety of solutions from card readers to invoicing to fit your small business needs.Get Started