There are a lot of administrative tasks that come with starting a business. Registering a business is an important one that comes with many benefits, including liability protection. We asked Holly Wade, executive director of the National Federation of Independent Businesses Research Center, how to register a business in the U.S. Keep reading for her tips on how to responsibly take this important step.
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What does it mean to register a business?
Registering a business means that you’re creating a legal entity for your business that is separate from your personal identity. This allows you to protect your personal assets from business liabilities and debts. It also allows you to establish credibility with customers, vendors and lenders—and to access certain benefits, such as tax breaks and legal protections. The process involves selecting a business structure, choosing a name and filing paperwork with your state government.
Why should I register my business?
You need to register a business if you plan to hire employees, seek financing, purchase real estate or pursue permitting. Even if none of those aspects apply to your situation, registering a business is valuable. Let’s discuss some of the benefits in greater detail:
Makes you eligible for tax benefits
When you register a business, you may become eligible for several tax benefits, depending on your business type and the tax laws in your state and at the federal level. Here are some potential tax benefits you may be eligible for:
Business expenses: As a business owner, you may be able to deduct many of your business expenses from your taxable income. This includes expenses such as rent, utilities, salaries, and office supplies.
Depreciation: If you own assets such as equipment or property, you may be able to deduct a portion of the cost of these assets over time through depreciation.
Deductions for startup costs: If you’re starting a new business, you may be able to deduct certain expenses associated with getting the business up and running, such as legal and accounting fees.
Retirement plans: Business owners can establish retirement plans such as 401(k)s or IRAs for themselves and their employees. Contributions to these plans may be tax deductible.
Pass-through taxation: If you’re a sole proprietor or operate a partnership or S corporation, your business income isn’t subject to corporate income tax. Instead, the IRS taxes you at your individual rate.
It's important to note that tax laws can be complex and change frequently, so it's a good idea to consult a tax professional to determine which tax benefits you may be eligible for as a business owner.
Protects your personal assets
By registering your business, you can protect your personal assets from debt or bankruptcy. However, the level of liability depends on which legal structure you register under. For example, the government doesn’t see sole proprietors and partnerships as separate entities from their owners, meaning owners are personally liable for any debt or bankruptcy. On the other hand, if you form a corporation or LLC, your personal assets are protected from business liabilities.
Allows you to hire employees
In order to hire employees, you are legally required to register a business and get an Employer Identification Number (EIN) from the IRS.
Protects your business and brand
Registering a business involves claiming your business name. “Registering will get you into the database where other people can make sure they’re not taking your name,” explains Wade. If you don’t register a business name, someone else may claim it, which can lead to confusion among customers and even legal trouble down the road. Wade recommends trademarking the name to further protect your brand from infringement.
For corporations and LLCs, registration also ensures perpetual existence by creating a legal entity that is distinct from its owners. This means the business will continue to exist even after owners, shareholders or founders leave the company or pass away. This perpetual existence can provide stability and continuity for the business, allowing it to continue operating and serving customers even as the ownership and leadership of the company changes.
Provides access to funding
Registering your business shows lenders and investors that you’re credible and committed to your business. Many won’t even consider investing or giving you a loan if you haven’t taken this step. For instance, both lenders and investors will want to know the legal structure of your business. This information tells them how your business is governed and how decisions will be made. Ultimately, this knowledge assures lenders and investors that their money will be managed responsibly.
How much does it cost to register a business?
The cost to register a business ranges from $20 to $520, depending on the state and legal structure. You might incur additional fees in the process. If you’ve decided on a business name but not on a legal structure, you can reserve the name prior to registering for around $10 to $150.
How to register a business in the USA
Here’s how to register a business:
01. Write a business plan
To execute the following steps effectively, you first need to have a business plan. This document should define your target market, determine your funding sources, make financial projections and outline your marketing and business strategies.
“I often call it the magical roadmap of small firms because it’s the document that’s most important for any business owner to have,” says Wade.
Putting together a business plan can help you figure out the best legal structure of organizing your business. “When you structure your business and register, make sure that it’s as close to a thought-out business as possible so you’re registering it appropriately,” says Wade. “Figuring it out the best you can from the onset is helpful because once things get established, it’s timely and costly to go back and change things.”
Owners should update their business plan at least once a year and read it regularly to know if you’re on track. “There are really significant events that can happen where you’ll need it, and it’s a process putting it together. Having a base to work from is helpful when situations come up.”
02. Choose a business structure
There are several types of businesses to consider. While the following is certainly not an exhaustive list, it can provide you with an idea of the basic business structures:
Sole proprietorship: As a sole proprietor, your personal and business assets are intertwined, meaning you’re liable for the finances of your business. “If you’re a proprietorship without employees, you don’t need to register but being more established and official is helpful,” says Wade.
Partnership: A partnership is when two or more individuals run a business together. With a limited partnership, one partner takes on the personal liability and the others have limited liability. On the other hand, a general partnership means that both partners take on the same liability of the business.
C corporation: A corporation functions as separate from its owners, making it its own legal entity. This means you’re protected from personal liability. However, this structure involves more federal reporting and has more tax requirements. It’s ideal if you want to open your business up to shareholders. You'll need to file Articles of Incorporation to register this type of business.
S corporation: An S corporation doesn’t pay income taxes. Instead, shareholders do so at their individual rates. This prevents business owners from being taxed twice on corporate income. That said, S corporations can be costly to set up and they must follow complex regulations.
Limited Liability Corporation (LLC): LLCs allow owners to separate personal assets from business assets, protecting them against liabilities. An LLC is more flexible since you can pass your taxes through to the personal income level yet are not held liable for any of your business’s debts.
03. Choose a business name
Before you decide on a business name, it’s important to verify that another business hasn’t already claimed it. Besides checking the state database, check with the U.S. Patent and Trademark Office for trademarks to make sure you’re in the clear. It’s also worth doing a simple Google search and checking social media to see if your preferred name is already in use.
Sole proprietorships and partnerships do not need to choose a name. In fact, sole proprietorships must register under the owner's legal name. Owners who wish to use a business name must file a DBA (or "Doing Business As"). Other businesses can use DBAs as well if they want to operate under names that are different from the one they registered. Check with your state for the specific process for filing a DBA, since it can differ by location.
Besides registration, consider trademarking the name. A trademark protects your name from unauthorized use by others and gives you exclusive rights to use the name in connection with your business. That said, it's important to note that trademark registration can be a complex and time-consuming process. If you decide it’s important to the health of your business, work with a qualified trademark attorney to ensure that you file your application correctly.
Use Wix's business name generator to find a name that fits your brand.
04. Register with your state and local governments
Registering a business with your local government is simple. For example, Virginia’s registration form only asks you to select a business structure, a business name and an agent to accept official paperwork. The specific requirements and steps vary depending on the state and type of business. Consider consulting with an attorney or accountant to ensure compliance with all the relevant regulations.
Keep in mind that you may have to register with the municipal government in addition to the state government. If you conduct businesses across state lines, you’ll need to register in other states as well.
05. Register with the federal government
You’ll need to get an EIN from the IRS in order to file taxes for your business if:
You have employees.
Your business is a corporation or partnership.
You file tax returns on employment, excise, alcohol, tobacco or firearms.
You withhold taxes on income, other than wages, paid to a non-resident alien.
You have a Keough plan.
You’re involved with trusts, estates, real estate mortgage investment conduits, nonprofit organizations, farmers’ cooperatives or plan administrators.
06. Open a business bank account
Once you’ve registered a business, the next thing you should do is open a business bank account. “Before you spend any money, get your business credit card and get your business checking account at the very least,” says Wade. “For accounting measures, it’s hugely important to separate your business finances from your personal account.”
07. Apply for the necessary licenses and permits
The final step involves registering with different entities and getting a business license. This step varies depending on your industry and your location, so a good way to check if you need any specific permits is to visit the U.S. Small Business Administration website and search based on your business activity.
Licensing and permitting fees add up, so be sure to factor them into your budget. For example, getting a business license can cost anywhere from $15 to over $10,000, depending on the state. Plus, legal and accounting fees can range from hundreds to thousands of dollars, depending on the complexity of your business.