Guide to registering your small business
As a new business owner, you’re probably plagued with torrents of questions. Some of those questions are most assuredly: Do I need to register my business? How do I do it? What’s the difference between registering a business and licensing a business?
We’ve created this guide to help you answer those questions and a few more.
- Do I need to register my business?
The short answer: Usually. Every state and some local jurisdictions require new companies to register. However, in some circumstances, if you plan to operate under your legal name (as opposed to a business name) as a sole proprietor, you may not have to register — but that could leave you open to greater liabilities. Check with your state and local governments to be sure.
You cannot legally operate certain forms of businesses without registering. How you do it, though — the processes, the requirements, etc. — varies significantly among states. Registration requirements depend on what form of organization you want to establish: sole proprietor, partnership, C corporation, S corporation, or limited liability.
- What are the differences of each business entity?
Before registering, you must first decide what type of company you wish to operate. That choice will also determine various tax parameters.
- Sole proprietor
Sole proprietorship is the simplest form of business run by a single person. All business liabilities, losses, and profits are directly associated with the individual’s personal assets.
There are two types of partnerships, general and limited. A general partnership is like a sole proprietor in that you may not need to register. A limited partnership must register with the state and restricts control and liability according to designations within the partners’ contract. All partnerships equally manage the business, contribute resources, and share profits and losses.
- Limited liability company
Establishing a limited liability company (LLC) bears many benefits for small businesses. LLCs have tax-filing flexibility, the liability protections of a limited partnership or corporation, and the simplicity of a sole proprietorship.
- C corporation
A C corporation is a legal entity that operates separately from its owners. This type of business carries more regulations and tax laws (and deductions) than sole proprietorships, partnerships, and limited liability companies. An individual – or several — can register as a corporation. A corporation is also eligible for stock options.
- S corporation
An S corporation limits the number of owners to avoid double taxation and to waive corporate taxes if specific IRS requirements are met. Taxes are reported on the owners’ individual federal income taxes.
- Sole proprietor
- Do I have to register my business with the federal government?
If you do plan to operate a company under any name other than your own name, such as a corporation, you’ll need to register with the federal government for a federal tax ID or employer identification number (EIN) to pay federal taxes and hire employees. You’ll most likely have to acquire a state tax identification number as well.
- What’s the difference between registering a business and licensing a business?
When you register your new company, you designate the name as a legal entity that is recognized by state and local authorities. The classification of the company you register determines how you file taxes for the company and open a bank account under its name. Registration is often done only once, but some may mandate periodic renewals. If you register your business name, you must also apply for an EIN.
A business license grants you the legal right to operate your business within a particular jurisdiction, – state and sometimes local. The industry and location of your company determine the type of license you need and how many. Some organizations require multiple licenses and regular renewals.
- How much does it cost to register a business?
Costs vary with each state, but on average, a business registration will set you back less than $300.
Starting a new business is exciting and overwhelming. But with patience, research, and help from valuable resources, you can achieve your dream.
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