Working through the maze of paperwork to register your business is a frustrating task for most new business owners. It doesn’t have to be. The problem is that there is not a comprehensive guide to registering your new business, or if there is, someone wants to make a buck off your lack of knowledge. Registering your business does not have to cost you thousands of dollars just follow these simple steps and in most cases it should only set you back a few hundred bucks.
The following sections outline the basic agencies that you may have to register with and provide links to other articles that will guide you through the process. This one article alone will not give you all the information you need to successfully register your business but it will give you a good outline to guide you in the right direction.
1. Business Organization Type (Legal Structure)
With Who? – Secretary of State
How? – Choosing your company’s legal structure is an important decision. Before you register you should consider three things: 1) Number of owners and complexity of ownership, 2) liability of the potential venture and assets at risk, and 3) Tax Issues. Read more in our "Business Legal Structure with Single Owner" and "Business Legal Structure with Multiple Owners" articles.
Once you have considered these issues you will file the appropriate paperwork with your state’s secretary of state office. Because some states have more favorable tax laws, some business register in a state other than their own. You may find want to get help from an attorney, accountant or incorporation service such as American Incorporators or Legal Zoom. When you register your business outside of the state it is located in, the company is referred to as a “foreign” business or “foreign” corporation.
Mo matter how you register you will have to choose a name for your business. There are three places you need to you check for the availability of the name you choose: 1) the secretary's of your state website, 2) the US Patent and Trademark Office and 3) an internet domain and hosting provider such as 1&1 Web Hosting, Network Solutions or Yahoo! Web Hosting .
2. Employer Identification Number (Tax ID Number)
With Who? – The Internal Revenue Service (IRS)
How? – An Employer Identification Number (EIN) is commonly referred to as a Tax ID number. While it does have something to do with taxes it refers to employee taxes not income taxes.
The IRS suggest that only companies that have employees and/or companies that hold a corporation/limited liability structure apply for an EIN, but there are many other reasons to obtain a Tax ID number. Companies that don’t require an EIN, such as Sole Proprietors with no employees, use their social security number in lieu a Tax ID number.
Often times banks, suppliers and vendors will require an EIN for your company to do business with them. Finally, a Tax ID number adds credibility and a level of legitimacy to your business. Once an EIN is obtained it is the equivalent to a company’s Social Security Number. Filing for an EIN can be done in for ways: paper application, phone, fax, and online at www.irs.gov .
3. Sales and Use Tax Number
With Who? – State & Local Tax Department
How? – Sales and Use Tax usually takes place on a state and local level. Most states have a standard sales tax rate on all product sales ranging from 4%-7% (AK, DE, MT, NH, & OR have no state sales tax). In addition, many cities have local sales taxes that must be collected and remitted to the proper taxing authority. Most states have a form to fill out that will estimate your tax liability and will require remittance of sales taxes on a quarterly basis.
Finally, federal law and some state laws allows for the collection of excise tax on certain types of products including fuel, tires, cigarettes, and outdoor sporting equipment to name a few. The IRS requires semi-monthly remittance of most excise taxes.
4. Licenses for Specific Businesses
With Who? – State & Local Entities
How? – Certain business activities are required to obtain a business license. Generally, licenses are granted by either a state’s attorney general or secretary of state. Common licenses involve the sale of alcoholic beverages, gambling or charitable gaming, fireworks, and contractors such as home repair businesses.
File paperwork and pay the appropriate fee with the department that controls the licensing of these types of businesses.
5. Employee Registration
With Who? – Various State and Federal Agencies
How? – The addition of a single employee adds significant layers of complexity to business registration. If you need to hire employees for your business it is suggested that you either hire a payroll service to mange your employee compensation or hire an accountant to guide you through the first two or three quarters of payroll management until you understand the process completely.
Generally, registration is required with the IRS (EIN as explained above, Form W-4, Form 941 and Form I-9 with the US Citizenship and Immigration Services), your state’s tax department, Unemployment Insurance, Workers Compensation and the your state’s Department of Labor.
6. Business Taxation
While not part of registration, paying the appropriate income taxes is an important part of running a small business. Read the following IRS Tax Guide for Small Business Taxation Publication 334
For most businesses only some of the above registrations will need to take place. For example if you don’t sell products you will not have to collect sales taxes. Similarly, if your company doesn’t have any employees you can avoid the myriad of forms to register employees and manage payroll.