Learning how to register a business is best when you take it step-by-step. Start preparing for registration by choosing a business name and obtaining your employment identification number. Then file for a legal business entity with the state. Business registration costs $40 to more than $1,000, depending on your state and needs.
For our definition, “registering a business” means doing all the tasks needed to legally operate your business. Some believe registering a business only means registering the business as a legal entity. As you’ll learn below, registering a business also includes getting your business approval by local agencies, and securing your intellectual property.
Free Business Registration Checklist
Here’s a one-page checklist with the steps to properly register your business. Depending on your business need and where it is located, you may need to follow all of the steps or only a few.
Download our free How To Register A Business checklist.
1. Prepare To Register Your Business
This may only include obtaining an employment identification number (EIN), opening a business bank account, and registering the business as a legal entity in the state it operates in.
Or registering your business can be several tasks including those above in addition to obtaining a professional business license, getting a State Taxpayer Identification Number, and passing a city health inspection. It’s best to prepare for these tasks in advance to ensure they go smoothly.
Should Your Business Be a Legal Entity?
The first question you need to ask yourself is if your business needs to be registered in the first place, and in particular, as a legal entity. We recommend all businesses register as a legal entity, such as a limited liability company (LLC), S corporation, or C corporation. Registering your business as a legal entity protects your personal assets if a lawsuit were to ever occur against the business.
That being said, some individuals choose not to register their business as a legal entity because of the cost. In some states, such as Massachusetts, it can cost $500 to register as an LLC. Someone with a low-risk side-business that only earns a couple of thousand dollars a year may choose not to register and stay a sole proprietor.
Choose A Business Name
Before filing as a legal entity or obtaining business licenses and permits, you’ll need to choose a business name. It’s OK if the name changes, however, it will take additional work to get the name changed on official documents such as the EIN. Additionally, you may want an accurate business name printed on your business debit and credit cards.
If you choose to stay a sole proprietor and not register your business as a legal entity, your business name must be your full name. If you’re a sole proprietor and your business isn’t your personal name, you need to file a Doing Business As (DBA) with the state.
Filing a DBA allows customers to look up your business name and find out who you are. Generally speaking, the state wants a register of all business names so that the public can file a complaint against a business if necessary. It costs around $50 to register a DBA.
Choose a Location To Receive Important Documents
You need to choose a reliable address to receive important documents in the mail. Your city or state may require certain documents to be signed and will mail them to you. Additionally, your state will mail documents to your address every year to remind you to re-register your business. It’s important to re-register on time because the late fee is often higher than the initial registration cost.
Obtain Your Employment Identification Number
Your Employment Identification Number (EIN) is a federal business number provided by the Internal Revenue Service (IRS) to primarily identify your business for tax purposes. It’s free to obtain your EIN and you will use it on several documents. Many banks require an EIN before opening a business bank account.
Open a Business Bank Account
It’s important to open a business bank account before incurring any business expenses. This ensures you’re not mixing personal and business expenses. Many banks require a balance of at least $1,500 or they deduct a monthly fee. Novo is an online bank that specializes in accounts for entrepreneurs and freelancers. Novo doesn’t require a minimum balance and they also provide free invoicing software.
2. Choose Your Business Legal Entity
Once you’ve made the decision to register your business as a legal entity, and you’ve gathered the proper documents, it’s time to research and determine the type of legal entity for your business. You will choose between an LLC, S-corp, or C-corp. While each of these has different pros and cons, they all achieve the vital goal of separating the business owner from personal financial liability if the business were sued or went bankrupt.
Limited Liability Company
The LLC is the most common legal entity used by business owners. It requires the least amount of documentation to register with the state, requires the least amount of yearly maintenance, and is typically the most affordable as well. The LLC has the ability to elect S-corp status for tax purposes. This action typically saves a small business thousands of dollars in taxes every year.
There are a few reasons why someone would choose to register their business as an S corporation. One reason is that it’s taxed as a pass-through entity, which means the shareholders report it on their tax returns. The business doesn’t pay taxes at the corporate level. Additionally, unlike an LLC, business ownership can be easily passed without triggering an expensive tax event.
The C corporation (C-corp) is a common choice for businesses to transition to from an LLC. The C-corp has unlimited growth potential because it raises money through selling business shares. Another advantage of a C-corp is that even after the owner leaves, the business still exists. A main disadvantage is double taxation. The business is taxed at the company level and again at the shareholder level. You may find someone referring to a C corporation with the term incorporating a business.
3. Register Your Business With the State
Now that you’ve done the research and chosen your business’ legal entity, it’s time to submit the entity registration to the state it’s operating in. You can do this on your own by navigating to your state government’s business registration website. Or you can use an online legal service to assist you in the process. Additionally, if your business has a sales tax, you’ll want to obtain a state sales tax identification number (STIN).
Do It Yourself Through State Website
One way to register your business as a legal entity is through your state’s official business registration website. With this option you only pay state fees to register, which range from $40 to $500. It typically takes up to 30 days for the state to approve the business and get it registered.
Online Legal Service
Some business owners find registering through their state’s website difficult and cumbersome. Another way to register your business is through an online legal service. They walk business owners step-by-step through the business registration process, collect the necessary information, and submit your business to the state for registration. IncFile is an online legal service that will register your business as an LLC for free, plus state fees.
Choose a Registered Agent
A registered agent is someone you’ll designate to represent your business. This is the person the state will contact if a lawsuit or summons occurs against the business. They’re also responsible for re-registering the business with the state every year. Typically, this is the business owner or someone in the business. If you want to avoid the risk of not re-registering the business, you can pay an online legal service, such as IncFile, to be your registered agent.
Get Your State Taxpayer Identification Number
If you’re in one of the 45 states that collect a state income tax, you’ll need to register for a State Taxpayer Identification Number (STIN). If you’re a sole proprietor, you’ll need your Social Security number to register for this number. If you’re a legal business entity, then you’ll need your EIN. Visit your state’s official department of revenue for more information on obtaining a STIN.
4. Get State Licenses & Local Permits
Depending on your type of business, you may need a professional license issued by the state or a local permit. Additionally, if you work from home and receive customers or employees, you may need to obtain a work-from-home license.
State Professional Licenses
State professional licenses are typically for businesses that may pose a public health risk. Each state may require different professions to obtain a professional license. For example, common licensed businesses include martial arts, cosmetology, physical therapists, and pawn shops. Visit your state and city’s official business license website for more information.
Local Licenses & Permits
Local license and permit requirements vary by state, however, typically, before opening a physical location you’ll need a local building inspection to ensure the facility is safe for the public. If you’re opening a business that sells food, that will require a different health-code related inspection. Additionally, if you are providing live music, that will require a special license as well.
Home-based Business License
Most businesses that operate from a home, won’t need a license. However, if you’re accepting employees, customers, or creating products from your home, it’s likely you’ll need a home-based business license. This license is to ensure the business isn’t causing a public health risk. If a neighbor complains about your home-based business, and an inspector determines you’re running a business from your home, you may have to pay a hefty fine.
5. Secure Your Intellectual Property
Although it’s not necessary to start your business, you may want to register a trademark, copyright, or patent. A trademark ensures no other business uses your logo, business name, or tagline. A copyright gives you increased legal protection over your creative work. A patent ensures no one can take your product idea.
A trademark is an increased legal protection for a word, phrase, symbol and/or design. It ensures no one in your industry will use your business’ branding. You can attempt to register your trademark on your own from the United States Patent and Trademark Office (USPTO). Or you can use an affordable online service, like LegalZoom to assist. Depending on if you file the patent yourself or use a professional service, a trademark costs between $225 and $2,000.
Ensure Your Copyright
Every piece of content you create has an automatic copyright. You should register your creative work with the U.S. Copyright Office for additional legal protection. It’s important to know that if you ever need to file a copyright infringement, you first need to register it with the U.S. Copyright Office.
File For a Patent
A patent is required to keep others from making, using, and selling your invention for a limited number of years. It can cost between $1,500 to more than $15,000 to file a patent. Filing a patent can be a complicated process and typically, a patent attorney is hired for the service. For example, you may use an attorney’s expertise to decide if you should file a utility patent, design patent, or provisional patent.
Frequently Asked Questions (FAQs) For How To Register A Business
This section includes the most frequently asked questions about how to register a business.
What is business registration?
We are treating “business registration” as an umbrella term for everything you need to do to legally operate a business. This includes items like getting your EIN, bank account, legal entity registration, licenses, permits, and intellectual property. You may also find that people use the term “business registration” to be synonymous with “legal entity registration.” However, we believe they are two different processes.
Can I start a business without registering it?
Yes, you can. If you start a business without registering it, you’re a sole proprietor, which is technically anyone who has to file a schedule C for business income on their tax returns. We recommend creating a legal business entity with your state to ensure no personal financial risk if the business were to have a lawsuit against it. Additionally, check with your state, and local official government business websites to ensure you don’t have to obtain any professional licenses to operate your business.
Is a business license the same as business registration?
A business license is not the same as a business registration, however, some people use the terms interchangeably. We view business registration as all the steps required to legally operate a business; however, some may use the term to mean registering a business legal entity with the state, such as an LLC.
Certain types of businesses may be required by the state, city, or county to obtain a business license. These licenses are typically issued for public safety. For example, a boxing gym or cosmetology-based business may need to obtain a business license. It’s best to check with your state or city’s official business website to determine if your business needs a license.
Can I sell products without registering as a company?
Yes, you typically can sell products without registering as a company, however it’s not recommended. We recommend registering the business as a legal entity, such as an LLC, to ensure the business owner’s personal financial assets are not at risk if a lawsuit were to occur against the business. Additionally, you may need a business license (issued by the state) to sell a product that a consumer puts in or on their body, such as handmade soap.
Do freelancers need an LLC?
Freelancers are not required to register their business as a legal entity, such as an LLC. However, it is recommended. Especially if you’re a freelancer that is doing higher priced projects.
For example, let’s say you redesign a high-performing ecommerce website. When you launch the redesign of the website, it crashes off-and-on for five days, resulting in a $30,000 drop in sales for your client. The client may sue your business for negligence. You want your business to be registered as a legal entity so that any funds awarded to the client or settled upon aren’t required to come from your personal funds.
Registering your business is a must do before taking on your first customer. You don’t want to start your business and not be properly prepared to deal with something like a trademark infringement or a home-based business inspection from a city official. To ensure the business registration process doesn’t become overwhelming, use our checklist above to keep track of what has been accomplished and what needs to be completed.