Are you unaware of how to register your business in the United States? You are not alone. Going from one agency to the other can make busy entrepreneurs shy away, especially Sole Proprietors who don’t need to register in the first place.
However, many business owners would love to register their business if they knew the process and understood the benefits.
This article aims to provide a straightforward stepwise approach for registering a business in the US so that you can determine your current status and proceed from there. However, before we move to the steps, we need to answer some essential questions.
Do you have to register your business?
Many Sole Proprietors question whether they need to register their businesses, given that it’s not legally required in many jurisdictions. While it’s true that registration isn’t mandatory, it’s important to understand that unregistered businesses are not afforded the same legal protection as those that are registered.
Unregistered companies can face challenges when it comes to establishing legitimacy and trustworthiness with clients, customers, and vendors. Without registration, a business may find it more difficult to prove its authenticity, leading to potential hurdles in contracts, agreements, and partnerships.
Moreover, operating without formal registration can limit the scope of a business’s growth and expansion opportunities. Registered businesses often have an edge in terms of accessing resources, support, and partnerships that can fuel their success. While a Sole Proprietor might initially think registration is unnecessary, the lack of legal recognition can pose obstacles that might not be immediately apparent.
Why you should register your business
When you consider the merits of registering your business, you realize that it is worth the minor hassles. A registered company helps you separate your assets from the business entity, protecting you from any personal liabilities if things go south.
There are several reasons why you should consider registering your business.
First, an unregistered business lacks formal legal protection, which could expose you to risks in the long run. Registered businesses often have clearer legal rights and benefits, such as trademark protection and easier access to business bank accounts. This can help establish credibility and professionalism when dealing with clients, suppliers, and financial institutions.
Second, registering your business can be advantageous for taxes and financial record-keeping. Registered businesses usually have a formal structure that makes it easier to track expenses and income, simplifying tax filing and compliance with government regulations. Registering your business gives you the right to deduct taxes from your employees according to the law of your state. This structure can also provide better opportunities for securing business loans and credit, as lenders tend to prefer dealing with registered entities.
Finally, when you register your business, it can offer greater separation between your personal and business assets, reducing your liability in case of lawsuits or business debts. This separation can protect your personal finances from business-related risks, offering you peace of mind as you grow your enterprise.
In summary, while Sole Proprietors aren’t legally required to register their businesses, registration offers tangible benefits in terms of legal protection, financial management, and liability reduction.
Now that you know the benefit of registering a business, below are the concise steps that you will have to follow to get your company fully registered in the United States
STEP 1: Determine the Business Structure
Before registering a business, your first assignment is to decide the specific structure you want to run your business under. The business structure you opt for will determine many things, such as your daily operation, the degree of separation of your assets from the company, partnership in case it is a joint venture, filing your taxes, etc. Here is a brief rundown of the joint structures.
- Sole Proprietorship: Sole proprietorship is the most popular business structure, and in this case, the business owner is not mandated to register the business. However, depending on the industry of operation, the company may be required to obtain relevant permits and licenses. In addition, the tax ID of the business owner is usually the same as the personal SSN of the sole proprietor.
Suppose a sole proprietor wishes to register the business for marketing purposes or to establish credibility. The business can be registered as a ‘DBA.’ However, a DBA comes with all the limitations associated with sole proprietorships, such as less liability protection compared to others.
- Partnership: When there is more than one business owner, a business partnership has to be formed. In this case, the owners and shareholders will have to decide on their degree of commitment to the company, determining how each member will share profit and liability. There are different forms of partnership that exist, and the most common ones include;
- General Partnership: This is the most basic form of partnership, in which each business owner has equal ownership and is entitled to equal profits and liabilities.
- Limited Partnership: In a Limited Partnership, only one owner is affected by liability exposure, while the other partners have limited liability.
- Limited Liability Partnership: This is often referred to as LLP, and in this form of partnership, every partner is free from personal liability to the business.
- Limited liability Company: This partnership is also known as an LLC. In an LLC, there are one or more owners of the business referred to as members. Each member has the liberty to file for taxes either as a partner or sole proprietor, such that the income and taxes are recorded in their personal tax return. What’s more, members’ assets are legally protected from liabilities to the company as the LLC is regarded as a separate entity from the members.
- C Corporation: This business structure, often called C-corps, is exclusive to medium and large businesses. In C-corps, the business owners’ or shareholders’ personal income is taxed separately from the business’s tax return. This business structure is complicated and more expensive, although it has several tax advantages that do not exist in other structures.
- S Corporation: This is commonly called S-corps. It has the same limited liability protection as C-corps. The difference between them lies in how their taxes are done. In S-corps, the owners’ and shareholders’ income passes through their personal income tax, just like in partnerships and sole proprietorships. The IRS thoroughly monitors S-corps’ taxes and swiftly takes action when irregularities are observed.
STEP 2: Choose a Business Location
After determining your business structure, the next step is to get a temporary or permanent location for the business. The business location is significant for filing taxes, receiving mail and documents from the government, etc.
Even if your business activity is primarily online, you still need a PO Box to receive mail from your suppliers and clients. Most lenders will only give you a loan after verifying your business address. Therefore, you will have to provide one.
When scouting for an appropriate location for your business, keep a few things in mind. First, the money you’d be charged for renting an address will vary from one place to the other. Therefore, it is better to choose a more cost-effective option so you don’t pay more than necessary.
Also, if you work from home, find out if your state law allows for using a residential address as a business address. This is because the law varies based on the state where you live and do business.
It will be unnecessary to pay for another address when your state allows you the privilege of using your personal address.
STEP 3: Register a Business Name
The next step is to look for an appropriate name with which to register your business. To achieve this, you will need the help of an expert. This is to ensure that whatever name you choose doesn’t infringe on another business’s trademark. Your registered business is also protected from anyone using the name.
Sole proprietors who want to register under a name other than their official one must file for a DBA at the designated state agency that handles business filings.
For Businesses that are separate entities, like corporations and LLCs, you will need a lawyer to register them for you.
STEP 4: Obtain an EIN for Your Business
The next course of action is to register the business with the Internal Revenue Service (IRS) and obtain an Employee Identification Number (EIN) required for tax filing, hiring, creating a bank account for the business, etc.
How to Register for an EIN
- Owners of businesses in the USA must apply for an EIN online.
- Visit the IRS website and click the option to obtain an EIN
- Click the Apply Online Now option and begin the application process.
STEP 5: Register With Local and State Agencies
Depending on the type of business that you are into, you may need to register with one or more of the following agencies which include;
- Secretary of state
- Franchise tax board
- Department of Revenue
- Better business bureau
Note that each of these agencies has unique requirements, so you may need to hire a lawyer to complete the registrations appropriately.
STEP 6: Obtain Relevant Business Permits and Licenses
The US law requires businesses to obtain relevant licenses and permits to operate in the country. Getting a license before you begin operation will save you from legal issues that can occur if you have none.
If you want to know the licenses required for operating your business in your specific location, visit www.sba.gov for more information.
Conclusion
The process of registering a business in the United States is not as convoluted as it may appear. Although you are not mandated to register your business in some cases, it will greatly benefit you if you do.
For example, it is highly recommended that the parties register as soon as possible to legitimize any agreement they have in a partnership.
The practical steps provided in this article will help guide you through your registration process. You can handle most of the steps yourself except in a few instances where you might need the help of a lawyer or attorney.
Now that you understand the process of registering your business in the United States, it’s time for you to go out there and make your dreams come true. Being an entrepreneur and owning your business is one of the most empowering endeavors you can undertake.