Incorporating and registering a business are two different things. Incorporating a business enables you to create a separate legal entity for your business. Registering a business is required in the state(s) you conduct business and have a physical presence (office, storefront, etc.). We’ll get into that down the line.
The business registration procedure varies depending on the state and on several other factors including the particular type of business you are starting, its scale, and the place you live. In this piece, we will discuss everything you should know to register your business the right way, making sure it is up and running and free from various hassles down the line.
Step #1: Select a Name
As you would expect, the name you choose is vital for any company’s destiny. It is essentially the first impression you make on your customers, helping to explain in a single word who you are and what you do. More importantly, however, you must make sure that your business’ name reflects its overall identity and your vision. Here are a few things you should consider when registering your business’ name:
Each state has different naming standards for making sure that each business has a distinguishable identity. Prior to filing any type of paperwork, it would be best to carry out a thorough search for name availability to make sure the name you choose is not taken by somebody else. Several states offer tools for searching the availability of names.
If you are an online business selling nationally or globally, you’ll want to consider doing a trademark search to find which names are registered and unavailable and choose a name that works for you.
Each state has quality control measures when it comes to naming, and they are different depending on the type of industry. For instance, the state of New York has a list of restricted and prohibited words for names. Some of the requirements are contingent on profession or the industry. Checking on these restrictions is completely up to you, but it is important to ensure that you choose the name wisely to avoid rejected paperwork.
Some aspiring business owners don’t have much success when it comes to finding a business name in a certain state. If you encounter the same situation, consider registering your business with a DBA (doing business as) or fictitious name.
Step #2: Select the Business Structure
Choosing the right business structure is arguably the most critical part of any business. Also referred to as the business entity, a business structure plays a major role in how you conduct your day-to-day operations, file taxes, and the amount of personal assets at risk in case your business does not succeed. Since the business entity you select plays such a massive role, make sure you know what it is and how it works.
There are four standard choices:
Sole proprietorship is often the default business structure chosen by most entrepreneurs. If you do not choose a business structure, yet continue to work and operate your organization, then you will be considered as a sole proprietorship. With this type of business structure, your liabilities and personal assets aren’t separated.
Limited Liability Corporation
The LLC or limited liability corporation business structure lets business owners protect their personal assets from the company’s liabilities. LLCs are separate legal entities to the business owner.
A partnership is generally ideal for two or even more individuals who own the same business. There are several partnership types out there. When it comes to limited partnerships, there is generally one partner who faces personal liability – meanwhile, the limited partners can take advantage of limited liability. What’s more, LLPS safeguard each partner from any debt a business faces.
The C-Corp structure is excellent for making businesses an entirely separate operation from the shareholders or owners. This means that the organization can make profits, be taxed, or be legally liable for every action distinct and separate from the owners. This also means that shareholders and owners will be taxed separately from the business, causing double taxation at a business and personal level. Because of this, the C-Corp structure provides a great deal of protection to each owner’s personal assets.
Almost all technology startups in the United States choose to become a C-Corp.
Step #3: Register with the State’s Secretary
Registration in your home state will require filing paperwork. When it comes to corporations, this generally includes things like writing bylaws outlining how you plan to run the business, appointing the board of directors, sending incorporation articles to the state with a fee.
Fortunately, there is no shortage of bylaw templates and various other documents, in case you plan to take care of the formation by yourself. Generally, states offer application forms along with detailed instructions on their website to make things easier.
The filing instructions and registration materials are easily available on the bureau website of the corporation or state secretary. An LLC’s governing document is essentially the operating agreement that outlines the responsibilities, ownerships, and rights of each member. Some of the limited liability company owners often appoint board of directors, although it is quite uncommon.
Several states possess portals that allow you to digitally file every document. However, others may require paper applications sent through a check. The filing fees required for domestic corporations and limited liability companies range from $40 (Kentucky) to $500 in the state of Massachusetts. It is also worth noting that the approval times can range from just a few days in some states to many months in others.
As your business expands, you may have to register your business beyond the state you are in. The process for this is referred to as foreign qualification. This simply involves a straightforward registration procedure through that state’s secretary. If your business is operating in any state outside yours, it will be a foreign entity.
Consider these business registration rules:
Check for Reports
Some states ask organizations to file their first reports with the state’s secretary, while the others require periodic reports. Make sure you look for requirements like these on your state secretary’s website.
Follow Each Direction with Care
Review directions with care and ask for clarifications if required. Doing the paperwork incorrectly will only delay your approval, increasing your filing costs down the line.
Check for Additional Required Steps
Businesses operating in some states have to follow a particular set of steps prior to registering. These steps could be things like getting a name approved, license approval, etc. If you belong to an industry requiring any type of license, it would be best to take a close look at these requirements before registering to make sure you can complete the filings without any issue.
Find the Right Location
Once you find a business structure suitable for your operation, the next step would be to find a location. However, this does not mean that getting brick-and-mortar locations is a must. As far as business registration is concerned, you have to choose an address for tax filings, getting important documentation from the government, or even a bank account for your business.
Step #4: Hire a Registered Agent
You will need to offer a registered agent the address for the registration procedure where official notices and legal documents can be received by your business. Make sure that you offer a physical address, making sure there is always someone available to accept the delivered documents. Follow these tips to appoint a registered agent.
Choose a Professional
You can utilize the business address you have as the registered agent address. However, you would be better off choosing a professional agent service. The fees are generally affordable, plus it spares the chances of people showing up at your business to serve a lawsuit notice.
Select a Nationwide Service
If you select a company that offers registered agent services across the nation, you can utilize the same service if you decide to do business in other states. However, many states do not require a registered agent when you are registering as a foreign entity.
Step #5: Register for Taxes
Generally, you must register taxes in any state where you possess a tax nexus. It is a sufficient enough presence for triggering tax obligations. A tax nexus can include running facilities, transacting businesses, owning property, hiring employees, and having massive sales in your state.
As far as sales tax goes, you do not have to worry about getting an active sales force or a POS system to owe taxes. Depending on how you operate your business, you may have to register for a blend of sales, employment, franchise taxes, and corporate income.
Generally, this involves applying for things like the federal employer identification number (FEIN) and various other forms of tax identification from the state revenue department. Then, you will also need to complete regular filings for paying off your taxes. Keep the following things in mind when trying to register your company for taxes:
Franchise and State Income Taxes
Around forty-four states have state income taxes in place. However, some states tend to impose franchise taxes on anyone who wants to do business. For example, California collects an annual franchise tax that is as low as $800 on each limited liability company in the state.
If you have employees in any other state than where you are residing, you will have to register state payroll taxes. In addition, you may also need to register for unemployment insurance and worker’s compensation with the state labor department. Once registered, most states will provide a specific number for your registration. This number is shared with your payroll provider, which enables them to automatically report payroll to the state.
Sales and Use Taxes
Consider looking up the requirements for sales and use taxes if you have taxable sales in any state. In case your sales are massive in the distant states, it’s possible that you will need to remit and register sales taxes over there too.
However, things could be different for wholesale distributors as they may need to submit an application for a reseller’s certificate.
Besides state taxes, businesses should also register at municipal and county levels to stay in the clear
Step #6: Register with the Internal Revenue Service
You must register your company with the Internal Revenue Service for receiving your EIN (Employer Identification Number). In case you didn’t know, the EIN is similar to a social security number, however, it is for businesses and it is critical for filing taxes. That said, there are some scenarios where you may not require one. Consider checking the IRS’s guidelines to learn whether or not you qualify for an EIN.
Step #7: Register with Local and State Agencies
After you are done with the federal registrations, you will most likely have to register your organization with a single or even multiple agencies situated in your local or state government, for example, revenue offices. If you intend to run a payroll, consider registering with your local state agency for filing payroll taxes.
Step #8: Apply for Permits and Licenses
You must ensure you have the right permits and licenses you require in order to start serving your customers. Sure, every industry has varying requirements, but fortunately, the Small Business Administration in the United States has come up with an excellent way to look for licenses and permits you require by entering your type of business and location.
After you register your business and take care of the paperwork, you can start focusing on the fun elements like offering your customers excellent service and spreading the word.
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