"Regulatory paperwork is fun," said no one ever. But registering your business is an exciting step in your entrepreneurial journey. And if you know where to look, there are plenty of resources out there to make the process painless, if not exactly entertaining.
So let's dig in and walk through the steps required to make your business official.
They can build a website, hire employees, and go right on doing business, absorbing the profits from their enterprises as personal income. Under this arrangement, there is no legal business entity. The business is inseparable from its owners.
This is the simplest and most common business arrangement. As businesses grow, however, it makes sense to establish a business entity by registering with the state.
The main advantage of registration is that it can shield owners from the potential legal and financial liabilities of the business. It can also help your business access loans and operating capital to expand sales and enter new markets.
Registering your business takes a bit of research and paperwork, but it is something you can manage on your own.
Depending on the complexity of your business, your operating footprint, your sales tactics, and the types of products or services you offer, you may need guidance from tax and legal advisors at various points in your journey from solopreneur to fully registered business entity.
You can also hire attorneys or compliance companies to manage business registration for you if you'd rather focus your time and energy on more fulfilling aspects of running your business.
Here are the 7 steps in the process of registering a small business:
- Choose a name
- Choose a structure
- Decide on a state of domicile
- Register with the secretary of state
- Appoint a registered agent
- Register for taxes
- Acquire licenses
How to get your business registered
Registering your business requires filing registration paperwork with the secretary of state or corporations bureau. You can find a direct link to your state's corporate registration authority from the .
While each state has a unique registration process, they all follow the same basic steps.
Step 1: Choose a name
Your name is important to your business's destiny. It's your customer's first impression of your business and helps bring them to your door. Names higher up in the alphabet benefit from top billing in directories.
If you can figure out how to fit "aardvark" into your business name, that may work to your advantage. More importantly, though, your name should reflect your vision for your brand and be unique in your industry.
To register business names, consider the following:
- Name availability: Every state has its own naming standards to ensure that business names are distinguishable from one another. Before you file any state paperwork, you need to conduct a name availability search to ensure that your chosen name isn't already taken. Many states provide a tool for conducting your search online.
- Name rules: States also have industry-specific quality controls for naming. For example, New York publishes a list of for business names. Some name requirements are based on industry or profession. It's up to you to check for these restrictions and choose an available name to avoid having your paperwork rejected.
- Need for a fictitious name: When registering your business in new states, if your existing business name is unavailable, you may need to register a fictitious or "doing business as" (DBA) name.
Step 2: Choose a business structure
You can register a business as a partnership, an LLC, or a corporation. You can further choose to be taxed as an S corporation, but that is a tax election separate from business registration.
Corporations and LLCs both provide limited liability protection. A major differentiator between LLCs and corporations is that LLCs allow you to take advantage of pass-through taxation, in which the company's profits pass through to the owners as personal income.
This simplifies your tax filings and may lower your tax bills. Corporations may elect S corporation status, however, which allows them to be taxed as a pass-through entity.
Which structure provides the best tax advantage for your business depends on your specific circumstances. It is generally wise to consult a tax advisor to evaluate your options.
Following are factors beyond liability and taxes that help determine the best entity type for your business.
When choosing a legal business structure, consider the following:
- Availability: Each state has its own set of permitted business structures. You'll need to consult the secretary of state website to determine permitted structures and their limitations.
- Complexity: Corporations are more complex to form and maintain than LLCs. This complexity allows them to support unlimited growth.
- Costs: Because of their increased complexity, corporations are more expensive to form and maintain than LLCs.
- Financial capacity: Corporations can take advantage of investment capital to grow. LLCs may have a harder time accessing funding.
- Control: LLCs allow owners to continue to play an active role in the business. Corporations distribute ownership and management of the company among shareholders and directors.
Step 3: Choose your state of domicile
The state where you initially register your business is your home state or state of domicile. In your home state, your business is a domestic firm.
You don't have to form your business in the state where you're located. Many businesses choose to incorporate in Delaware because of its very business-friendly legal and regulatory environment.
It has a separate court system devoted to hearing corporate cases. Nevada is a popular choice because of its low business taxes.
Yet forming your business in a different state introduces a lot of extra complexity to your business. Instead of one state of regulatory filings, fees, taxes, and potential penalties to stay on top of, you now have two. Generally, it makes sense for small businesses to select home as your state of domicile.
The following factors can help you decide where to register your business:
- Taxes: Every state imposes a different mix of personal income taxes, corporate income taxes, franchise taxes, and sales taxes. According to the Tax Foundation's 2020 , states with the worst business taxes are New Jersey, New York, California, and Connecticut. At the top of the list for most favorable business tax climates were Wyoming, South Dakota, Alaska, and Florida.
- Regulatory burden: Some states are friendlier to businesses in their legal systems, their regulatory requirements, or both. Delaware is a good example of the former, as noted above. Texas, Florida, Tennessee, and North Carolina rank high with executives for their .
Step 4: Register with the secretary of state
In your home state, registration will require filing formation paperwork. For corporations, this typically includes appointing a board of directors, writing bylaws that outline how the business will be run, and submitting articles of incorporation to the state along with a fee.
You can find templates for bylaws and other governing documents online if you want to handle formation yourself. States typically provide application forms on their websites with instructions for attaching required documents.
Paperwork for LLC registration is similar. To create an LLC, you must typically file articles of organization along with any required documents with the secretary of state.
The governing document of an LLC is its operating agreement, which outlines the rights, responsibilities, and ownership shares of all members. Some LLC owners choose to appoint a board of directors, though this is uncommon.
Many states have a portal that lets you file these documents electronically. Others require a paper application submitted with a check.
Filing fees for domestic LLCs and corporations range from a low of $40 in Kentucky to $500 in Massachusetts. Approval times range from a few days in states with online filing to several months in New York.
As your business grows, you may also need to register to do business in states beyond your domestic state — a process known as foreign qualification. This involves a simpler registration process through the secretary of state. In states beyond your home state, your business is considered a foreign entity.
Consider the following when registering your business:
- Check all required steps: In some states, businesses must complete certain steps before registration, such as getting a license or securing name approval. If you work in an industry that requires any kind of license, check these requirements before registration to ensure that you complete filings in the prescribed order.
- Follow the directions carefully: Read all instructions carefully, as a single error in your application may result in a rejected application. In addition to delaying your approval, this can drive up the costs of your filings.
- Check for initial reports: Some states require businesses to file initial reports with the secretary of state, while most require periodic reports beginning in subsequent years. Be sure to check for these requirements on your secretary of state website.
Step 5: Appoint a registered agent
As part of registration, you will need to provide a registered agent address where legal documents and official notices may be delivered to your business. This must be a physical address where someone is available during business hours to accept delivery of documents.
Following are best practices for appointing a registered agent:
- Hire a pro: You can use your business address as your registered agent address, but you're better off appointing a professional registered agent service. Fees are affordable and it spares you the possibility of having someone show up at your place of business to serve notice of a lawsuit.
- Choose a nationwide service: If you choose a company that provides nationwide registered agent service, you can use the same service in other states as your business grows.
Step 6: Register for taxes
Generally, you need to register for taxes in states where you have tax nexus, which is a sufficient presence to trigger tax obligations. Typically, this includes owning business property, transacting business, running facilities, hiring employees, or having significant sales in the state.
Depending on your operations, you may need to register for a mix of employment, sales and use, corporate income, and franchise taxes.
This generally involves applying for a federal employer identification number or other tax identification through the state revenue department and then completing periodic filings to pay taxes due.
Consider the following when registering your business for taxes:
- State income and franchise taxes: Forty-four states levy state income taxes. Some states impose a flat franchise tax for the privilege of doing business. California, for example, collects a minimum annual franchise tax of $800 on every LLC or corporation doing business in the state.
- Sales and use tax: In any state where you have taxable sales, you'll need to research sales and use tax requirements and potentially register. If you have significant sales in remote states, you may need to register and remit sales taxes there as well. Wholesale distributors may need to apply for a reseller’s certificate. Check state revenue department websites for thresholds and requirements.
- Employment taxes: In states where you have employees, you will need to register for state payroll taxes.You may also be required to register with the state labor department for workers' compensation and unemployment insurance.
- Local taxes: In addition to state taxes, your business may need to be registered at the county and municipal levels, too.
Step 7: Acquire licenses
Some states, such as Alaska and Nevada have general business licenses. Others merely require licenses for certain professions or activities. In some states, business licenses must be obtained before registration, while in others, the order is reversed.
That's why it's important to check licensing requirements before you file registration paperwork.
To ensure that your business is properly licensed, consider these practices:
- Start with state business hubs: Most state websites feature business licensing and registration information side by side, making it easy to research requirements and gather the required forms.
- Check for prerequisites: Licensing and registration are often intermingled, so make sure you're following the steps in the right order.
- Read the fine print: With each form you have to file, read all the instructions before starting your work. Some requirements are not all that clear from the forms themselves, but they're usually spelled out somewhere on the site. Frequently asked questions are always worth skimming, too.
Make it official
While better times can be had (possibly even at the dentist), filing that completed registration packet is a major milestone in the growth of your business.
Fortunately, states want you selling, hiring, and growing within their borders, so they include most of the information and resources you need on their websites. When you're ready to take that big step and make your business official, take advantage of those free resources to make it as easy as possible.