Registering your company opens you up to more credit-related opportunities. However, it can also protect you from liability risks.
The steps leading to business legalization include thorough research, and the subsequent filing of documents to relevant authorities. This is a complex process that can be difficult for many because of legal complexities.
The following article will help entrepreneurs start their business by providing information on how to register a company. It also includes a section about post-registration that explains how to keep up with regulations and stay current with your licensure.
Step 1: Select an entity type
To be able to legally enter the market, your business must have a legal vehicle. Register a business in the US it as a company structure will allow you to do that. They are LLC (Limited Liability Company), Partnerships, Sole Proprietorship and Corporation.
While they all have the same purpose, adding legitimacy to your company can be a challenge. However, some legal features (or lack thereof), can make them more attractive than others. It all depends on your business goals, such as growth prospects, protection, ease of registration, and maintenance. Let’s now take a look at each option and discuss how to choose one.
Limited Liability Company (Limited Liability Company) Many of the current LLCs are small businesses that started as sole proprietorships or partnerships and now want to transition to meet future needs.
An LLC gives a business a separate legal entity status, which provides full liability protection to business owners. Your assets are protected because they are not at risk if the company is sued or becomes insolvent.
An LLC provides liability protection and allows you to rent assets to your company. You can also claim the payment later as part of your business expenses. As the lessor, you can subtract items like acquisition interest, depreciation repairs and maintenance, insurance, or administrative costs.
Corporation (S-Corp or C-Corp). In terms of liability protection, a corporation is similar to an LLC, but can be further classified into two types, S – Corp and C-Corp. There are no prerequisites for either one and the choice is up to the business owners.
S – Corporations offer shareholders the option to “pass-through” taxation. A control person in a company can pay corporate taxes through their own tax return. This allows for a maximum 20% deduction as ” qualified income” according the Tax Cut and Jobs Act.
C – Corporations are subject to corporate tax, but offer greater flexibility because there is no restriction on shareholder numbers or preferred stock issuances. A shareholder can be either a person or a legal entity, which allows for more equity funding opportunities.
Partnership and Sole Proprietorship. Identified sole proprietorships or partnerships are not legal entities.
They do require some formalities for setting up. For example, if you are a sole proprietorship, you must obtain the right business licenses and have a business name that is distinct from the owner. Registration with the relevant authorities is not required.
If your business is likely to make a large profit and is involved in industries that have high liability risks (e.g. finance, law, insurance), it is a good idea to choose an LLC or Corporation.
While corporations offer greater financing options, LLCs are easier to set-up and maintain.
Step 2: Choose a name
This step is more exciting than the steps to register a company because you can tap into your creative side for a new challenge. Although company names don’t need to be unique or innovative, it is important to keep your customers’ attention.
You should also be aware that there are laws in relation to the naming of a company within various legal Corpora. These statutes should be reviewed before you submit an application. Here are some things to keep in mind.
Availability. First, check to see if the name is already taken. You can do this by joining a consortium for company formation or calling any government agency that handles trademark and patent protection.
Legal requirements. You should actively seek out these restrictions to avoid any rejection down the line. These restrictions should be actively sought out to avoid rejection.
Continuation. If you wish to continue business in another state with a different name, a DBA form (Doing Business As), must be filed promptly to the appropriate authority to notify them about the change. Alternative to this is an amendment form, which would allow you to continue the business under a different name.
Step 3: Register and get your business licensed
You must file several forms with the Secretary or State of your home state to register your business. After successful registration, your company will be considered domestic.
The process for both LLCs and corporations is the same. It begins with the election of a board of directors/managers. Next, the bylaws are drafted that specify the duties and responsibilities of each member. Finally, the articles of incorporation are submitted with fees.
A designated registered agents are also required by law, to participate in legal proceedings on behalf of the LLC. This could be any person over 18 years old or an organization responsible for receiving legal documents for the company.
When deciding whether to have a third party act as your registered agent, it is important to take into account the size of your business, your type of business, and the associated costs. A separate registered agent may not be necessary if you have a small business with a few employees. If you have multiple locations or employees, however, it might be beneficial to have a designated agent to ensure that all legal documents get received promptly.
A company formation provider is recommended in most cases. This is because they have higher levels of professionalism, expertise, and can save you money.
Federal registration for LLCs and corporations is becoming almost inevitable, especially for those involved in trusts, estates or real estate mortgage investment conduits. Most businesses are able to obtain a federal tax ID number (EIN/TIN). You will find more information in the next step.
To do business in a state other than your home state, you must undergo the ” foreign qualification” process. This is a simple but distinct registration process with the Secretary. Every state has its own corporate tax system that caters to different business types and sizes. This will play a significant role in your decision to register on a national or federal level.
The ownership of a business does not grant you the right to work in America. To be able to operate and own a business in the United States, you will need a visa. You might be eligible for one of the following visas: E-2 investor visa; EB-5 immigrant investment visa; L-Visa. Foreign business owners should speak with an immigration lawyer to help them determine the best visa for their company and how to get it.
Although it is possible to register outside your state, you should do thorough research about the state’s tax and judicial systems. Because of Delaware ‘s favorable business policies, and its relaxed regulatory environment, there are plenty of entrepreneurs who want to incorporate.
The top three states for saving money when running a business are Alaska, South Dakota and Wyoming. They don’t tax personal income or corporate income. You can find more information on each state’s website at the local authority.
Step 4: Apply to Federal Tax Identification
The U.S Constitution states that a business entity must pay its tax in a state with a “tax nexus” legal arrangement. The triggering factor in this case is the presence of the entity, which can be made known to the tax collector authority by having a physical address, using workers or making major profits from the state.
The extent of your tax nexus will depend on the business operations, but you can generally expect to pay the following taxes:
- State income and franchise taxes
- Use tax
- Employment taxes
- Local taxes
You will need to first apply for a federal tax ID (Employer Identification Number), or EIN (Employer Identification Number), with the IRS (Internal Revenue Service). This number is 9-digits long and serves as identification for your IRS business tax accounts. To register, the applicant must have a valid taxpayer identification, social security number, or other EIN.
After you have received your EIN, you can use it to pay federal taxes via the Electronic Federal Tax Payment System. An EIN can also be used to open a bank, obtain business credit lines, and apply for permits. It’s almost always a good idea for one to be obtained.
You should also consider other peripherals for an EIN:
DUNS (Data Universal Numbering System). A DUNS (Data Universal Numbering System) is often an accompanying code for your EIN. It is the corporate equivalent of a Social Security number. A DUNS is a code that allows you to obtain lucrative government contracts and business loans from financial institutions.
NAICS (North American Industry Classification System).. A NAICS number is a 6-digit code that is given to small businesses in order to “collect, tabulate, present and analyze statistical data associated with U.S. economics”. It is an important number to have if your business is small. This allows you to be eligible for federal business contracts. More information can be found on the small business size standards.
The SIC (Standard Industrial Classification), code is an older alternative to the NAICS. Both codes are based on the same idea and have some structural similarities. It is possible to use a SIC number to track a new NAICS Code.
Step 5: Open a Bank Account for Business
If your business does not have a bank account, you can apply for a business account to help you distinguish between personal and business financing.
This is the same procedure that you would use to open a personal bank account. To be able to request an account opening with a bank, proofs of business registration must be provided. These include the following requirements:
- Identification documents to the applicant
- Articles for incorporation
- EIN (Federal Employer Identification Number)
- Proof that your business address
Non-resident applicants may need to travel signatory to the state where the bank chosen is located due U.S. strict corporate banking regulations.
For a fee, however, you can get assistance from a trusted bank agency or the same agent who filed your initial business registration. Another option is to open a offshore bank account, or look for alternative banking services such as Wise Skrill, Stripe and so on.
Important Points After Incorporation
After you have successfully registered your company, there are still many things to do. Your concerns should now be focused on maintaining your business’ legal stability. Before you can resume your operational duties, here are some things that you need to do.
Registration of trademark protection. Many entrepreneurs make the mistake to only register for trademark protection later in the business’s lifecycle, thinking it would not matter at the beginning. This is often a great way to receive a cease-and-desist letter at your front door.
A quick trademark search can help you future-proof your company’s name. If it isn’t already taken, register it at the appropriate bureau in your state.
Hiring employees. When it comes to hiring employees and keeping them employed in the US, there are many factors. You will need a Federal Employer Identification Number, (EIN), from the IRS to hire your first employee.
You may be required to withhold federal income tax and Social Security tax depending on the business structure. A payroll system will be required to withhold taxes from employees’ paychecks, and to pay the correct taxes to the government.
Once you have hired your employees, ensure that you offer them the right benefits and salaries, and comply with all applicable labor laws.
Renewal of licensure and annual tax filing. Tax filing can be difficult despite all the information available. If you want to be on the right side of the IRS, professional help is sometimes required.
Numerous tax preparers are accredited to help you navigate the complicated federal regulations and solve your tax management issues.
International rules applicable. Businesses that plan to expand overseas to another country should consider all legal implications.
This is evident in the fundamental differences between two legal systems (common law and civil). The common law in Europe is followed by the US and UK, while the civil law in the UK and the US are followed. In their rulemaking, some jurisdictions combine different elements from both the common and civil law.
It doesn’t matter where your business is located, it’s important to familiarize yourself with the legal foundation of each place. Our Guide to Countries’ Annual Compliance will give you a better understanding of corporate compliance in +18 jurisdictions.