When do home-based businesses need to register with the Secretary of State?
There’s more to starting a home-based business than cleaning out a spot for your desk. Before meeting with a client or making a sale, you’ll have to fulfill all federal, state, and local licensing and registration requirements. Registering with the secretary of state may be among the first steps you take, though it isn’t necessary for some types of businesses in some states.
So, how do you know whether you're required to register with the secretary of state? And if it is a requirement, how do you register your business with the secretary of state?
Do I need to register my business with the secretary of state?
Registering your business with the secretary of state’s office generally ensures no one else in your state will operate a business under the same name. In most states, it’s impossible to open a business under a name that’s already been registered.
If you’re a sole proprietor operating under your legal name, business license registration may not be necessary. It is, after all, your name. Yet while all individuals are unique, there are usually more than one John Smith or Jane Doe in a state, so you may find it useful to register your business.
Instead of operating under your legal name, you may opt to operate as a dba, which stands for “doing business as.” For example, a baker named John Smith could operate under the name “John Smith” or do business as “The Pie Guy,” and register his business under that name instead. In this case, John Smith’s name won’t be legally attached to his business, The Pie Guy. This can add a layer of protection. Furthermore, if you operate under a dba and get a federal tax ID number (EIN), you can open a business savings or checking account.
Limited liability companies (LLC) and limited liability partnerships generally need to register with the secretary of state whether operating under a founder’s legal name or otherwise. They, too, can operate as a dba and may choose to do so under certain circumstances (e.g., when opening a new branch or product line).
Requirements vary by state and type of business. For example, there’s no general, statewide business license for South Dakota, but Massachusetts requires many types of business to obtain a business license. When in doubt, give the office of your secretary of state a call.
You can also find state-specific business license and permit requirements at avalara.com.
How to register your business with the secretary of state
If you determine you do need to register your home-based business with the secretary of state, you’ll likely have to provide the following information:
Your name (or the business owner’s name or point of contact’s name, if different than you)
The name of your business
Contact details (address, email, and phone number of the business)
Business start date
Type of business (limited liability corporation, sole proprietorship, etc.)
Many secretaries of state have an online registration system that allows you to quickly register your business online. Some states may require you to submit a paper form, though most will likely give you the option to register online or by paper. Fees may vary depending on how you go about registering, as will processing time. For example, for most business entities, online registrations cost $200 in Washington state and are normally processed in two business days; registering by paper is less expensive ($180) but may take longer (“processed in order received”).
Registration fees also often vary by business type. For example, it costs $100 to register a domestic limited partnership or LLC) in Oregon, but $275 to register a foreign limited partnership or LLC.
What is a registered agent, and do I need one?
Once you register your business with the secretary of state, you may need to appoint a registered agent: a person or business that consents to receive legal documents (e.g., business registration renewals, liens, tax forms, etc.) on behalf of your business. A registered agent must reside and have an address in the state where your business is registered. If you’re only registering in your home state, as many home-based businesses initially do, you may forgo the services of a registered agent. If you’re operating in several states without local offices, a registered agent may be required.
Sole proprietorships not registered with the secretary of state may not need a registered agent but may choose to appoint one as a safeguard measure. A sole proprietorship can usually appoint an individual such as an officer, an owner, or even an employee to be the registered agent. However, corporations, LLCs, and limited liability partnerships generally need to secure the services of a third party. Many attorneys or accountants will operate as the registered agent for their clients.
The more complex your business, the more you may benefit from using an external registered agent rather than fulfilling those duties yourself or relying on an employee.
Know your local licensing and zoning requirements
Businesses that are registered with the secretary of state may also need to register with the city or county and get a local business license. This is not the same as the license that allows you to operate in the state.
Local requirements vary. You likely won’t need any additional licenses if you’re a freelance writer and will be conducting all business over the phone or internet. If you’re planning to open a day care, you may need multiple licenses. If you’re a floral designer, you may need to register in local jurisdictions where you make deliveries in your own vehicle, or have even a cursory physical presence.
Even if your business doesn’t require a license to operate, you may still need a Home Occupation license to advise the local authorities that you’re conducting a business out of your home. “Be aware that not every jurisdiction will allow every kind of business to be conducted within its borders or inside residences,” notes Senior Director of Professional Services at Avalara Andrea Jaffe. Food businesses in particular tend to be subject to strict guidelines, and they’re not alone. “You should investigate these limitations before embarking on setting up your business.”
Some types of business licenses may necessitate a visit from the local fire department or city inspector. If you’ll have clients coming to your home, they may check to ensure all steps have handrails and all walkways are level. They may check your fire alarms and require you to install sprinklers. It’s best to discover what will be required sooner rather than later, so you’ll have time to make any necessary changes or repairs.
You’ll also need to check zoning laws to ensure the type of business you’re planning to start is allowed where you’re located. For example, kennels often cannot operate in residential areas and sometimes aren’t permitted within city limits.
If you can operate your business from your home, you’ll need to obtain all necessary zoning permits. There may be ordinances governing signage and parking, both of which can have a significant impact on a neighborhood.
Depending on the location of your home and business, you may need to limit the number of people who visit you each day or guarantee that visitors will have access to off-street parking. If you’ll be operating out of an apartment, condominium, or neighborhood with a homeowner’s association, be sure to check that your business is permitted under the rules of the building or homeowner’s association.
Keep taxes top of mind
Finally, you’ll need to understand your federal, state, and local tax requirements. Your state department of revenue can help you determine which taxes you’ll be responsible for. For example, if you’ll be making retail sales in the state, you’ll likely need to register for a sales tax permit (these go by different names in different states).
As a general rule, businesses are required to register for sales tax and comply with all applicable sales tax laws in states where they have a physical presence.
You may also be required to register for sales tax in states where you don’t have a physical presence, if you sell to customers in those states. Every state with a general sales tax now has an economic nexus law requiring remote sellers to register for sales tax once their sales in the state exceed the state’s economic nexus threshold — and thresholds vary. For example:
Florida’s economic nexus threshold is $100,000 in taxable sales in the current or previous calendar year
New York’s economic nexus threshold is 100 transactions and $500,000 in cumulative total gross receipts from sales of tangible personal property in the state in the immediately preceding four sales tax quarters
Many states require businesses to register for sales tax as soon as they meet the state’s economic nexus threshold — as in, by the very next transaction. This is one of the reasons it’s critical to understand nexus requirements in the states where you do business. Overlooking or underestimating the importance of nexus is one of the five most common business registration mistakes.
How home rule can impact registration requirements
If you operate in a home-rule state like Alabama, Colorado, or Louisiana, you may have local sales tax registration and reporting obligations too. Staying on top of local registrations can be extremely burdensome because each locality has different licensing requirements, and each local license has different expiration dates. For example, some licenses expire at the end of each calendar year, while others expire a year from the date the license was first obtained.
Colorado is in the process of simplifying local tax registration requirements for certain businesses with no physical presence, or merely incidental physical presence, in a local jurisdiction. As of July 1, 2022, local jurisdictions are prohibited from charging a fee for local general business licenses for such retailers. And starting July 1, 2023, eligible businesses won’t need to apply for a local business license in jurisdictions where they have either incidental physical presence or no presence at all.
Yet businesses with nothing more than an incidental physical presence in local jurisdictions must register for applicable business licenses in many states. And once registered, a business must comply with all applicable tax and fee requirements — and file all corresponding returns on a timely basis.
It’s important to start your business off right, especially when it comes to tax compliance. Avalara’s small business FAQ can be a helpful resource.
This post has been updated; it was first published in February 2022.
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