How to Register a Business

So you’ve decided to start a business. Now it’s time to register it. The steps to register a business are different depending on the type of operation, how big it is, and the state in which you live. This article explains the basics of how to register a business. But remember, Square does not provide legal or tax advice, and this article is not a substitute for advice from an attorney or tax advisor

Make a Secretary of State account

The first step to register your business is to set up an account with the Secretary of State in the state where your business is located. You can find your Secretary of State’s office through an online search, available through the U.S. Small-Business Administration. 

Choose a business structure

The next step is to decide on a business structure. The business structure, also called a business entity, you choose affects the way you file for taxes, your day-to-day operations, and how much your personal assets are at risk if your business fails. Since the business structure you choose impacts so much, it’s important to take this step early.

Here is a brief overview of the most common business structures.

Sole proprietorship

This is the default business structure. If you operate your business but don’t select a business structure when you register, you are considered a sole proprietorship. In a sole proprietorship your business and personal assets and liabilities are not separated.

Partnership

This is the business structure for two or more people who own a business together. There are various types of partnerships. In a limited partnership (LP) there is typically one partner who is exposed to personal liability while the other partners enjoy limited liability. Limited liability partnerships (LLP) protect all partners from the debt of the business.

Limited liability corporation (LLC)

This business structure allows the business owner to protect personal assets from the business’ liabilities. The profits and losses of an LLC are typically taxed as personal income or loss to the members.

C corporation

This business structure makes your business a separate entity from the owners (the shareholders). That means the business can be taxed, make a profit, or be held legally liable for its actions separate and distinct from the shareholders. For this reason this structure offers the most protection for an owner’s personal assets. Since the IRS typically views a C corp as a separate entity for tax purposes, it is possible to be taxed twice: once when the C corp makes a profit and again when dividends are paid to shareholders.

S corporation 

This type of business structure allows companies to pass corporate income, losses, deductions, and credits through to shareholders for federal tax purposes. This avoids the potential for double taxation that occurs with a C corp. An S corp is treated as a pass-through entity, which means that profits are taxed only at the individual shareholder level. 

This can result in significant tax savings, since income is taxed at individual tax rates rather than the corporate rate. However, S corps have strict eligibility requirements, such as a limit of 100 shareholders, and restrictions on the types of shareholders. For example, shareholders cannot be nonresident aliens or other corporations. Additionally, S corp shareholders must receive reasonable compensation as wages, which are subject to payroll taxes, while remaining profits can be distributed as dividends, which are not subject to self-employment taxes.

How to register a business for sole proprietors, partnerships, LLCs, and corporations varies state by state. If you’re stuck, the IRS is a good place to start.

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Cost of business registration

The cost of business registration varies by state, by type of business, and by the licenses, permits, or legal assistance you may require. Here are general estimates for registering by business type:

• Sole proprietorship registration may cost $0 to $100. It depends on whether you use a “Doing Business As” (DBA) name. Generally, sole proprietorships don’t require registration unless you file for a DBA.
• Limited Liability Partnership registration generally costs $500 to $1,500. This takes into account state filing fees and annual renewal fees that may be required in your state. 
• Limited Liability Company registration will typically cost $50 to $500. Registration could cost more if you’re required to draft and submit an operating agreement and/or an annual report. 
• C corporation registration costs range from $100 to $500. Costs increase when you account for drafting bylaws, initial reporting fees, and the ongoing costs of annual reports and franchise taxes. 
• S corporation registration generally costs $100 to $500. It’s important to note that S corps are not separate business structures. They are a tax election. You must first form an LLC or a C corp and then file IRS Form 2553 to elect S corp status.

Remember, there are other potential business costs to consider, including business licenses or permits, legal fees, and registered agent fees.

Post-registration tips

Once you register your business, it’s time to consider the next steps to get your business up and running.

Here are some tips to help you stay on track.

Find a location

You need to choose a location. That doesn’t mean your business has to have a brick-and-mortar store. As far as registering your business goes, it means you need an address to use for tax filings, to receiving important documents from government agencies, or to create a business bank account.

Register your business name

Registering a business name is usually part of the process of registering separate entities, such as LLCs and corporations. But if you start a sole proprietorship or a partnership operating under a name that isn’t your own, you may need to file a DBA.

A DBA can be used by existing LLCs and corporations to register other businesses under them. For example, if you own a cafe and want to open another one under a different name, you would file a DBA. It keeps both the first and the second cafe as one legal entity but with two different names. A few states may not require a DBA as part of how to register a business. But before you register your name, make sure it’s eligible for use. You may also want to trademark it. A DBA does not automatically protect the name from being reused elsewhere.

Register with the IRS

You need to register your business with the IRS to receive your Employer Identification Number (EIN). Your EIN is like a Social Security number for your business, and it’s necessary to file your taxes. You can sign up for one online here. Again, there are certain circumstances where you may not need one. The IRS has a short survey you can fill out to see whether you do.

Register with state and local agencies

Once all the federal registrations are done, you’ll likely need to register your business with one or more agencies in your state or local government, such as revenue offices. If you plan to run payroll, you may also need to register with your state agency to file payroll taxes.

Apply for licenses and permits

Make sure you have all the right licenses and permits you need to begin serving customers. Each industry may have different requirements. Thankfully, the U.S. Small-Business Administration has created an easy way to search for the permits and licenses you need by entering your location and type of business.

Once you have registered your business and have done the necessary paperwork, you can focus on the fun part of your job: spreading the word and providing excellent service.

Open business bank accounts

In order to conduct business, you’ll need business bank accounts to pay employees and vendors and to accept payments from clients or customers. There are several types of business accounts you may want to open, including a business checking and savings account, a credit card account, and a merchant services account. 

Set up your employees

Unless you’re a one-person shop, you’ll need to hire employees. Make sure you have set up a pay structure for staff and a system to pay them. Research payroll software carefully to ensure it has the features you need. Also consider the software’s affordability, easy of use, and available customer support.