Starting a business can evoke emotions like excitement and hope, but can also lead to feelings of overwhelm regarding the process. We’ve created a guide that will discuss how to register a business, the reasons to register, the benefits of registration, and the steps you need to take to help eliminate any sense of dread while going through this process.
How to register a business
Register your business by following this simple, six-step process: choose your business entity and a business location, register your business name, get registered with the IRS and local government agencies, and finally, apply for necessary licenses and permits.
Learn more about the specifics of registering a business by reading the in-depth explanations of each step below.
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1. Choose a business structure
Your business structure is the foundation of your business, including how your taxes are filed, how personal assets are handled, and how day-to-day operations are controlled. It also impacts business registration, including how and who you register with. There are many types of business structures, so it’s important to choose the one that best suits your organization’s needs.
The most common business structures include:
- Sole proprietorship: This is the most common type of business designation. It doesn’t require formal registration, however, you may still need to obtain the necessary licenses and permits which can vary by industry and state. As a sole proprietor, you use your own name to conduct business and use your Social Security number as your tax ID number.
Key takeaway: This is what your business structure will be considered by default if you don’t pick one of the other options.
- DBA: “Doing business as” simply allows sole proprietors to operate under a name other than their own. For example, if John Smith started a plumbing business, he could file to do business as Smith Plumbing. The DBA designation, like any sole proprietorship, doesn’t offer the liability protection of other business designations, but it’s still valuable for marketing and credibility purposes.
Key takeaway: It’s similar to a sole proprietorship, however, operates under a name other than your own.
- Partnership: A partnership is a business with two or more owners. The most basic type of partnership is a general partnership, in which owners divide all profits and liabilities equally. In addition to a general partnership, other types of partnerships include:
- Limited partnership: In this type of partnership, one partner has liability exposure, while the other has limited liability.
- Limited liability partnership (LLP): In such a partnership, all business owners are safe from the debts of the business.
Key takeaway: If you co-own a business, you’ll likely have a partnership business entity.
- Limited liability company (LLC): An LLC combines the simplistic tax laws of a partnership with the limited liability protection of a corporation. An LLC can have one or more owners, referred to as “members”. As a member of an LLC, you file taxes as if you were a sole proprietor or partner: All of your business income and deductions pass through to your personal tax return. However, the LLC is a separate entity, so members can’t be held personally responsible for the company’s debts or liabilities.
Key takeaway: LLC status separates personal assets from business liability.
- C corporation: These are reserved for medium to large businesses. A C-corp’s income is reported on a separate tax return—and owners, or “shareholders,” are taxed separately. Shareholders hold stock in the company, and formal company proceedings (such as electing a board of directors and assigning board duties) are required. C-corps have tax advantages that other entities do not, but they are more expensive to set up and more complicated to run.
Key takeaway: C-corps are more complicated to run and have different tax advantages than other types of business structures, making this a better option for larger businesses.
- S corporation: Like C-corps, S-corps offer limited liability protections, however, an S-corp is taxed more like a partnership or sole proprietorship. In other words, income passes through to the shareholders’ personal tax returns. However, the IRS is more likely to closely monitor S-corps’ taxes, and tax mistakes can even result in the termination of your S-corp.
Key takeaway: S-corps are taxed in a similar fashion to sole proprietorships and partnerships, with the limited liability protection of a C-corp.
2. Find a location
After choosing the structure, it’s time to settle on a location for your business. Even if your company operates mostly online, you still need to register a location for operations like receiving government documents, filing taxes, and more.
You can use a PO Box to communicate with customers and suppliers, but some government agencies require a street address to do business. Many lenders and suppliers also prefer to work with businesses that have a street address.
When researching potential locations, keep in mind the costs and taxes you’ll have to pay for filing at that address. If you work from home, ensure your business is allowed to register at your home address—some states won’t allow you to use your personal address as your business address.
3. Register your business name
Next, you’ll want to register your business name to prevent other businesses from using it now or in the future. Here’s how to register a business name successfully:
- A separate entity, like an LLC or corporation: Registering your business name is part of the registration process. These entities can be registered through a lawyer or an online legal service.
- Operating under a name other than your legal name: You’ll need to file a DBA. In some states, business owners have to file DBA registrations with the state agency in charge of business filings (usually the Secretary of State’s office).
4. Register with the IRS
Registering your business with the Internal Revenue Service will give you a federal EIN, or Employer Identification Number. This is essentially a Social Security number for businesses (sometimes referred to as a federal tax ID). EINs are necessary for things like filing taxes, opening business bank accounts, and hiring employees.
Remember that if you file your business as a sole proprietorship, you’ll use your own Social Security number as the federal ID number. With IRS registration, you’ll be able to report income tax, sales tax, franchise tax, and other business taxes.
5. Register with state and local agencies
You’ll need to register separately with some of your local and state agencies, such as:
- Department of Revenue
- Secretary of State
- Better Business Bureau
- Franchise Tax Board
Each entity has its own requirements that must be followed, so it’s worth working with an attorney to get things done correctly and in a timely manner.
6. Apply for a business license and permits
Specific licenses and permits are required to run different businesses, and they vary by industry and state. It’s a good idea to have any necessary licenses or permits before you start your business to avoid future problems. If you want to know what licenses and permits are needed for your business, you can contact your local branch of the Small Business Administration.
Do you need to register your business?
Ultimately, this depends on the type of business structure you’ve chosen. Existing businesses that are perhaps expanding should be aware of registration requirements, and new businesses should consider the following:
- Sole proprietorships: These generally are not required to be registered, though registering would likely be beneficial to you and your business.
- DBA: You may need to register your business with your state. This does vary state to state, so it is best to check with your state regulations.
- Partnership: It’s always best to register a partnership with both the IRS and the state.
Why should you register your business?
Registering a business isn’t difficult, and the benefits far outweigh the time and effort it may take to do so. Registering your business separates your personal assets from your business assets, so they’re protected if you’re sued or encounter financial difficulties. You’ll also be protected from personal liability, which means you won’t risk losing your personal assets if something goes wrong with your company. Furthermore, if you intend to open a business bank account, you’ll need to provide proof that your business is properly registered with the state.
There are plenty of legal and tax reasons to officially register your business, but there are some real benefits for business owners as well:
Registering helps you build your brand’s reputation because potential customers will see you as a legitimate organization.
You can hire employees and pay them per your state’s laws. When you register your business with the state, you’ll receive a state EIN that allows you to collect state taxes for your employees.
Registering comes with its share of financial benefits, including tax benefits and the ability to officially apply for loans and other funding. Investors prefer to work with registered businesses. Finally, registered businesses earn insurance premium deductions, deferred tax payments, and more.
What to do next
Now that you’ve followed the tips for how to register a business and you’ve successfully registered your new business, it’s time to get your operations off the ground. Get out there and bring your business to life!
At this point, you’ll want to ensure you have digital and physical copies of your registration information. Work with a lawyer to collect all the information you need so that you can draw up contracts, begin marketing, and prepare for tax filings. For tax filing, work with a CPA and track your expenses and general bookkeeping with software.
- How to start a business: A practical 22-step guide to success
- Is it time to open a physical location? 6 things to keep in mind
This article originally appeared on the Quickbooks Resource Center and was syndicated by MediaFeed.org.
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