If you are in the process of starting up a new small business, you no doubt have encountered a zillion details to handle before you can make your first sale. Part of being an entrepreneur is becoming a quick study on many subjects, including how to register a business. We’ve touched on the early steps to take when launching a small business in an earlier blog, but here we’ll focus on how to register a business with the proper governmental authorities.
The principal reason to learn how to register a business name is that you may have to under federal, state and/or local law. Depending on your business structure, registering your business may be required before you can open your doors, greet your first customers and use your new credit card reader or virtual terminal to accept credit card payments for the first time.
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Unless you are conducting business as yourself using your name as the legal company name, the tax authorities will require you to register in order to properly collect income tax and sales tax from your business and enforce any other requirements particular to your type of business. For example, you may need special licenses and permits before you can start operations, and you may have to create a sales tax account with the state. In addition, registering your company ensures that your business has a unique and legal name within the state, and protects your business name from copycats. Lastly, you will have to register your business if you want to compete for small business grants.
Your business name establishes you as a unique entity within the state, creates a brand identity, and can indicate the types of goods and services you provide. The state will protect you if another business tries to copy your registered business name. If you want, you can receive federal protection from copycat names if you register a trademark for your business name. You might also want to establish a domain name to protect your website address.
Before you can register your company, you’ll have to decide how to structure your business. Your choice of structure affects your registration requirements, tax payments, ability to raise capital from investors and lenders, personal liability, and the paperwork you must complete. Your choices include:
Sole proprietorship: You are considered a sole proprietor if you don’t register your business with the state. This means that your business is not a separate entity, you can’t raise money by selling stock, borrowing from banks can be difficult, and you will be personally liable for all debts and legal judgements affecting the business.
Partnership: A partnership is a separate legal business entity and requires at least two owners. You can choose between a limited partnership (LP) and a limited liability partnership (LLP), which differ in the liability protection offered to partners.
Limited liability company: When you register an LLC, you receive liability protection and avoid corporate taxes. LLC members must pay self-employment taxes for Social Security and Medicare. In some states, you must reorganize an LLC when a member joins or leaves the company.
Corporation: A corporation provides liability protection for its shareholders. A C corporation is separately taxed and has legal liability. That is, profits from a C corporation are taxed once at the corporate level and once at the shareholder level (for dividend distributions). You can avoid double taxation by establishing an S corporation, which passes profits and some losses through to shareholders as personal income. States differ on whether they recognize S corporations and how they are taxed. You can also register as a tax-exempt non-profit corporation.
All business structures other than a sole proprietorship will require you to obtain an employer identification number (EIN), which serves as a federal tax id. You use IRS Form SS-4 to apply for an EIN. Once you receive your EIN, you register your business with your state’s secretary of state or revenue office. This requires filling out and signing some paperwork and receiving approval from the state. If you are required to collect sales tax, you’ll have to apply for and receive a tax permit from the state. Each state has its own registration procedures, which you can look up through links provided by the SBA. Your state may provide you with a business registration certificate and/or a business registration number.
You file a DBA to use as an alternate trade name for your business. You can use one or more DBAs for various business purposes, such as branding your offerings or introducing a name that benefits your marketing efforts. Note that A DBA is not legally protected the way a registered business name is. DBA registration may occur at the state or local level. Check with local authorities on the procedures for filing a DBA.
When you trademark your business name, you have exclusive right to use the name throughout the country for the goods and services you enumerate in your business registration. Furthermore, you can enforce the exclusivity right in federal court. It’s your responsibility to ensure against unauthorized use of your trademark name. A trademark offers solid protection when you do business in multiple states.
Depending on the type of business you create, you might need to obtain one or more federal, state and/or local permits and licenses. Typically, you’ll need to secure a local business license. Some counties and cities require local licensing even when you register a business name with the state. You might also need a health permit, building permit, ATF permit, fire permit, and others. Different federal and state agencies also require permits and licenses.
Now that you are all legal, it’s time to start selling. SumUp can help by offering you a best-in-class card reader for your credit card processing. We also offer informative articles to help you understand the payments process, including NFC payments, business checking accounts, and the EMV liability shift. Let SumUp provide you the most powerful, secure and cost-efficient method for your credit card processing at your brick-and-mortar store. We also provide invoicing software and wireless internet connection to support POS operation. The time has arrived — get started with SumUp.