Business registration in the US may seem like a challenge, but the process is actually quite simple. Whether you’re doing the work yourself or using a service to move things along, there’s little required to get your company up and running. Below are six steps that will take you through the business formation process.
How to Register a Business in the US In 6 Steps
You can register your business in no time by following these six steps. It’s best to perform each step in order to minimize downtime.
Step 1: Choose a Legal Business Structure
It’s one thing to know whether you want to start a business or what type of business to start, but another entirely to understand which legal business structure suits your needs. This important first step sets the tone for your business, dictating tax filing and what daily operations look like. Below are some of the most common business structures new ventures choose:
If you’ve started up a business but never taken the time to declare a business structure, you’re a sole proprietorship. These single-person business models do not differentiate between personal and business assets, leaving all your funds at risk in the event of a lawsuit or financial misstep.
Partnerships represent businesses where two or more individuals own a business together. In a limited partnership (LP), one partner can face personal risk while other partners have limited liability. Limited liability partnerships (LLPs) protect all partners on the personal level from any business-related issues.
Limited Liability Corporation (LLC)
Business owners can start an LLC to create a clear divide between personal and business assets. Should your enterprise face financial debt, your personal assets remain safe and untouchable. An LLC or Limited Liability Company can still be a single-person business similar in structure to a sole proprietorship.
Even though you’re differentiating your personal and business assets, you can still loan personal items to your LLC. You can list office space, cars, computers, and more as business expenses when filing taxes.
You’ll need a registered agent if you’re going down the route to form an LLC, as most states require them. This individual or company accepts legal and tax documents on your business’s behalf. While you can use yourself or a colleague as a registered agent, it’s advisable to use a registered agent service instead.
You can usually get a registered agent when you use an LLC formation service to file for your LLC. Registered agent services are always available to handle documents in a timely manner to avoid penalties you could otherwise face.
A corporation separates a business entity from its shareholders (usually the owners). Corporations can be taxed, receive profits and losses, and are responsible for their actions and financial status apart from shareholders. When an owner or shareholder leaves a corporation, it should be able to continue functioning relatively undisturbed.
This business structure isn’t limited to large companies, although small ventures can struggle to keep up with the record-keeping and reporting required. There are two primary types of corporations, known as C-corporations and S-corporations.
C-corporations are more traditional businesses that may have to pay out more in taxes, first when it receives a profit and again when shareholders receive dividends. An S-corporation is a special type of business model designed to avoid the double taxation that comes with a C-corporation.
Companies wanting to pursue S-corporation status have to file additional paperwork with the IRS. Learn about the differences between an LLC and a Corporation here.
Step 2: Decide on a Business Location
Once you’ve identified the business type you’re going to register, you need to choose a location for your company. For some, this means a brick-and-mortar building in or around your city. With so many businesses forming solely online, you may just use this location for tax purposes and where your correspondence arrives.
If you have an ecommerce business, you’re not required to register it in the state you live in. In fact, there are a few states without any state taxes, limiting filings to only the federal level. This can save money if you have an address you can use in one of these locations.
Step 3: Come Up With a Business Name
You’ll need a name when registering your business for the first time. A business name must be unique, and you’ll want it to showcase your venture in a specific but clear way. Start with what makes your business stand out, and brainstorm ideas from there.
Those starting sole proprietorships and partnerships normally use an owner’s name upon business creation. If you want to call it something else, you may need to file a DBA (doing business as) document. Keep in mind that a DBA doesn’t trademark your business name from someone else using it.
While every state has its own rules about naming conventions for business registration, there are some general guidelines to follow. Depending on what you’re registering for, you’re required to include pertinent information such as “LLC” or “Inc”.
You can’t use any terminology that would confuse your organization with a government agency, including terms like “CIA” or “Treasury”. States often restrict words like “historical” or “education”, requiring additional paperwork for approval.
Once you’ve landed on a name, you’ll need to submit the paperwork to the state agency for approval. Names already registered in their system or those filed with unusable terms will be rejected at your expense. Fortunately, you can use tools like the U.S. Patent and Trademark Office to check availability.
Here’s an easy guide on how to conduct an LLC name search.
Ecommerce business owners will also want to verify domain names matching or similar to the business name are available as well. Locking in a cool name won’t do much good if your web address has to be completely different.
Step 4: Get a Federal Tax Number
State registration is essential, but you’ll also need to register your business on the federal level. Doing so requires obtaining a federal tax number for your business. This number, also known as an employer identification number (EIN), acts just like a social security number for your company.
An EIN allows you to submit your business’s tax forms to the federal and state governments alongside other necessary paperwork. The IRS makes it easy to get an EIN quickly and easily through its online EIN form. The site will also let you know if your business does not require this number.
Step 5: Acquire Licenses and Permits
Whether you’re offering products or services to your client base, you’ll want to make sure you have all the necessary licenses and permits to do so legally. These licenses and permits can differ at the federal and state level. The Small Business Administration website has a site you can use to check for licenses and permits you need by entering your industry and location.
Counties and city governments do not typically require licenses or permits for a physical location apart from what the state and the federal government requires. Still, it’s worth looking to ensure you’re not missing anything before commencing sales. Failing to have the necessary paperwork can result in costly fines or place your business at risk.
Step 6: Create a Bank Account
Registering an LLC or corporation offers a means to keep personal and business assets and funds separate from each other. The best way to do so is by opening a business bank account specific to your company.
In most cases, you need to finish the registration process of your business before you can open a bank account. You’ll need to have this documentation to prove you’re a legitimate business owner. It’s up to you whether or not to choose a bank you already have dealings with, and there’s no requirement to work with a bank in the same state you register. Some banks may require an in-person visit, so keep that in mind.
Having a separate business bank account will also help you track how much money is going in and out of your company and how profits look each month. It also looks more professional to have clients pay into a business account instead of a personal one.
What Does It Cost to Register a Business?
Registering a business in the United States is not an expensive process, even if it is a little higher than many other countries around the world. The amount to incorporate varies from state to state and depends on the type of business you’re registering.
Sole proprietorships and some partnerships don’t require registration with the state they’re a part of and avoid fees as a result. The cost to form an LLC or corporation may be somewhere between a few hundred and a few thousand when all is said and done.
Registering a Business as a Foreigner
The United States grants foreigners the same ability to register a business that nationals have. This affords foreign citizens the opportunity to reap the benefits of starting an American firm, including competitive tax rates and access to a large and integrated market.
The Registration Process
Foreign citizens aren’t required to live or work in the United States for business registration. However, you must follow the same steps as an American citizen to legally start and run your company. When creating a business, you’re limited to an LLC or C-Corporation, as anyone outside the US is ineligible to incorporate an S-Corporation.
Non-Americans must also register a business in a US state and are subject to taxes, fees, and requirements that the state holds. Even if you live elsewhere, your business is still responsible for filing federal and state taxes yearly in the United States. The same rules apply for obtaining an EIN necessary to file those taxes, including having a US address.
You’ll also require a US address for opening a bank account on American soil. Most physical banks still require an in-person visit to set up an account, but digital banks are becoming popular ways to establish a US bank account without ever leaving your home.
Working in the US
Believe it or not, owning a business in the United States doesn’t mean you can work there. If you want to run your business from within the United States, you’ll need to get your hands on a visa.
The US offers many different types of visas, from a duration of six months to three years, with the option to extend the length with approval. Depending on the visa, you’ll be able to live and work out of the United States for an indefinite amount of time. Some visas restrict the business activities you can perform.
A green card is another way for non-Americans to register a business in the United States. Residents with a green card have no restrictions on setting up a business of any kind.
Frequently Asked Questions (FAQs) for Business Registration in the US
Business registration in the United States doesn’t have to be a daunting task. Here are answers to some of the most common questions about the topic.
Bottom Line on How to Register a Business in the US
Business registration in the United States is a relatively straightforward process once you’ve identified the type of company you want to create. The digital age has made it easier than ever to start a business, and several services offer help in making the process even easier.
All you need is some creativity, research, and enough money to cover setup fees. You don’t even need to live in the United States to own a business there, just a US address to obtain an EIN and open a bank account. Following this guide, you’re a few short steps away from registering a business of your own.