Registering a business is an important milestone for any small business owner. It’s also a daunting and somewhat confusing decision. You may, of course, choose to put it off at the start of your business. But when sales take off and it’s time to expand, it could become a decision that’s increasingly difficult to ignore.
So, what exactly does it mean to register your small business, and most importantly, is it right for you? Let’s gain some clarity on this important process to understand what it could mean and entail for a small business owner.
Registering your business vs. registering your business name
Now, this is a topic that often baffles many entrepreneurs. Registering your business and registering your business name are not the same. They are two distinct processes with different legal consequences.
Registering your business helps you establish a legal entity that is separate from you. It usually requires submitting details about your business to your state’s business registration office.
But the latter is about listing your business name as a legal name. If you don’t plan on registering your business for a while, it’s a smart idea to register its name. This could help you avoid any potential lawsuits later on in case it’s registered by someone else.
It’s also different from a DBA or a “Doing Business As” registration. This typically involves filing an application when your trade name differs from the registered business name.
Why should you register your business?
While registering your business is often not mandatory for you to hire employees, sell your products, and pay taxes, there are several reasons why you may want to consider it.
1. It’s time to make a serious personal commitment
Registering a business is a serious step for any entrepreneur. It’s a sign that it’s time to fully commit to your business. It’s no longer a hobby or a fun part-time venture.
2. Boost your company reputation and credibility
For your customers and suppliers, a registered business is a formal entity with legal standing. This will give them greater assurance and peace of mind, knowing they’re dealing with a credible business. It will also help you command their respect and commitment.
3. Protect yourself against personal liability
In many instances, registering your business could protect you from personal liabilities. So, unlike with a sole proprietorship, your personal assets like properties and savings are safeguarded if the business faces legal or financial liability.
4. Access better financial assistance
Accessing financial support is essential to grow and expand your business. But many lenders and investors are reluctant to bear the high risks involved with a sole proprietorship. Registering your business will help you overcome this problem. And depending on your company structure, you may enjoy tax benefits as well.
Now, this is not to say that registering your business is not without a few drawbacks. For instance, you should expect extensive documentation to comply with state requirements. There will also be extra costs such as registration fees and ongoing expenses. So, ensure you assess the pros and cons before proceeding to register your business.
How to register your small business
While specific requirements for registration may depend on your state guidelines and the nature of your business, here are the five essential steps to keep in mind.
1. Select a business name
Consider your product or service, industry, brand personality, potential customers, and legal requirements when naming your business. Ensure that it’s not already registered and trademarked. And before you settle on a name, check on domain name availability as well.
If you’re planning on using a fictitious name that’s different from what you’ve given the business, ensure you submit a DBA application.
2. Determine your business structure
A Limited Liability Company (LLC), C corp, and S corp are the most common structures available for a small business, with LLC being the most popular. The structure you choose will determine a variety of factors such as the application procedure, how the business is taxed, and operational and reporting requirements.
So, it’s important to weigh the benefits and drawbacks and assess your future plans when selecting a business structure.
3. Register your business
Registration usually takes place at the secretary of state. Some states allow businesses to apply online, while others may require a personal visit.
Depending on your local state, you will need to submit the necessary documents together with the application fee. You will also need to assign a registered agent to receive any official documentation. You can take it up on your own or appoint a professional registered agent service.
It’s important to note that some business owners choose to register with a state outside their own. While this may help take advantage of tax and regulatory benefits, it will often mean navigating significantly complex procedures.
4. Register for a tax ID number
You first need to apply for an Employee Identification Number with the IRS. It’s issued free and is essential for business activities like paying taxes, opening a business account with your bank, and hiring employees. And depending on your state, you will likely need a state tax ID as well.
Tax regulations vary between states. So, remember to check what is applicable in the state your business is located. These could range from income and sales to employment taxes.
5. Obtain business licenses and permits
Requirements for licenses and permits could depend on the nature of your business and your local state regulations. These are often issued by different state and federal departments. They may have separate application processes and fees as well. So, remember to research them and understand their requirements before you begin the business registration process.
Taking the leap to legitimize your business
Whatever the stage your business is at, you will eventually need to consider registering and making it a legal entity. It could help protect your personal assets from business liabilities, add credibility to your business, and get you access to financial support needed to expand your business. And once you register, you’ll also be ready to open a business account with your bank and get business insurance coverage.
But remember, each business is unique. So, carefully assess how registering your business could affect its present state and future plans before making a decision.
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