How To Register Your Business in 5 Easy Steps

Registering your business means officially making it a legal entity at the state, federal and/or local government levels. This helps you run your business legally and is often the first step in securing things like an employer identification number (EIN), permits, commercial spaces, etc.

Your business entity (or business structure) can impact how you pay yourself, how you pay your taxes and even how you protect your personal assets.

The main business entities are: Sole proprietorship, limited liability company (LLC), C-Corporation (C-Corp) and S-Corporation (S-Corp).

Sole proprietorships are exactly what they sound like: a business run by only one person. You actually don’t need to do anything to “register” a sole proprietorship, however, this business structure means there is no legal separation between your business assets and your personal assets.

An LLC, however, does separate your business and personal assets. In other words, if your business were to get sued or default on debt, your personal assets can’t be targeted to settle that lawsuit or debt. The owners of the LLC are called members so if you own and run the LLC by yourself, you’re a single-member LLC; if your business has more than one owner, it’s a multi-member LLC. LLCs don’t pay taxes on their profits. Profits and losses pass through to the owners and they report those on their personal tax returns.

C-Corps are a type of structure where owners are known as shareholders and they have stock in the company. C-Corps must have a board of directors and this type of business also pays federal income tax on its profits. Shareholders are taxed on distributions and dividends from the corporation. So C-Corps don’t get that same “pass through” benefit that LLCs get to have.

S-Corps allow income to pass through to the owner’s and shareholder’s personal tax returns. Owners of S-Corps can also capitalize on the “limited liability” protection that LLCs get.

Naming your business is probably one of the more exciting parts of making things official. As a general rule of thumb, it’s usually best to pick a name that’s easy to remember and accurately describes what your business offers.

When filling out your formation paperwork, you’ll also want to include the location from which you’ll be operating your business. That’s because each state has a filing fee that varies in cost. Plus, your state of operation can determine what else you’ll need to file and adhere to in order to operate legally. For most people, their state of residence is the same state they’ll be operating their business out of.

Not all businesses will require permits or licenses in order to operate but some do. Food and beverage businesses (whether online or brick-and-mortar), businesses that serve alcohol, construction and medical businesses are just a few examples of the kinds of ventures where you’ll want to dot your i’s and cross your t’s when it comes to getting this type of paperwork done.

Just be sure to do your homework thoroughly in terms of the correct licensing and permit requirements so you can avoid penalties.

Of course, mistakes can happen when trying to register your business, especially if you’re new to the process. Working with a professional formation service can decrease the risk of error, but here are a few mistakes to really watch out for.

Choosing the wrong business structure

Choosing the wrong business structure can put you in positions where you’ll have higher standards to meet or you end up needing to run your business in a way that you don’t really want to operate in. Understand the differences between each entity and if it helps, work with an advisor who can recommend the right structure for you.

Clerical errors

Inputting the wrong business address and having typos in your name and contact information — everyone’s prone to a slip-up every now and then but when registering your business, this can result in you not receiving important paperwork and other communications. Double check your work before submitting.

Missing a form

We know the necessary forms for your business can sometimes vary depending on the type of business you’re running and where you’re operating so it’s tough to get a proper handle on everything you’ll need. But this is why registered agent services can really pay off. They’ll notify you of federal and state forms you’ll need to take action on to keep operating. This way, you won’t have to feel overwhelmed by how much you have to do.

Not staying organized

Once the marathon is over and you’ve finally gotten all your documents in a row, print out all your forms, certificates, licenses, etc. and keep the in a folder or binder. This way, you always know exactly where to find them in case anything comes up.

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