Starting a business for the first time can seem like a huge undertaking. There is so much you don’t know, especially when it comes to the more formal or administrative tasks required to get up and running. But once you have a clearer picture of what you need to do, you’ll feel much more at ease.
We created this brief guide for that purpose—to help you feel more comfortable about turning your dream business into a reality. It covers how to register your small business, a task many hopeful entrepreneurs don’t quite understand. Check out the steps below to get started.
How to Register a Small Business: 5 Steps
1. Select a relevant business structure.
Your business structure, or business entity, impacts taxation and asset risk—your choice of structure will determine how you’re taxed, how you file taxes, and how much your personal assets are at risk after starting your business.
What kind of entities are available? Here are the most common ones:
- Sole proprietorship
- Partnership
- Limited liability company (LLC)
- Corporation
- S-Corporation
Sole proprietorships are unincorporated entities and the easiest structures to start, as they require no formal registration. However, there is no separation between you and the business, meaning you can be held personally liable for any debts and obligations of your business. Choose this structure only if you are trying to test out a business idea or plan to operate an extremely low-risk business.
Partnerships may work if you’re thinking of going into business with one or more people. You will share profits and losses with your partners. There are two types: Limited partnerships (LPs) expose the general partner to personal liability and shield other partners, while limited liability partnerships (LLPs) provide personal liability protection to all partners. This structure is more complex since multiple people are involved in ownership, so it’s important to create a clear partnership agreement at the beginning.
Limited liability companies (LLCs) are flexible business structures that offer personal liability protection and are taxed differently depending on how you set them up. You can start an LLC by yourself or with other members. If you are the sole member, you typically pay taxes in the same manner as a sole proprietor. If there are multiple members, the LLC is taxed like a partnership. You can also choose to have your LLC taxed as a corporation.
Corporations, or C corps, offer the strongest protection from personal liability and enable you to raise money by selling stock. However, the downside is a double tax—profits are taxed both when they are earned by the corporation and when distributed to shareholders. A corporation may be right for you if you plan on operating a medium- or higher-risk business.
S corporations, or S corps, are similar to C corps in many ways but are considered special types for a few reasons. For one, you report income and losses on your personal tax returns, which means you avoid the double taxation of C corps. But there are special requirements for filing as an S corp with the IRS.
2. Find the right location.
Registration and taxation differ by state, so it’s important to base your business in a state that best suits your needs. That may or may not be the state in which you currently live, especially if you plan on running an online business.
For brick-and-mortar businesses, the location will also determine the market in which you operate. If you have a particular target audience in mind, be sure they live or work where you plan to locate.
3. Register your business name.
After choosing a name for your business, you need to register it with your state. The exact steps for this will depend on your state. For example, some states have a dedicated web portal on their state website for searching and registering business names. Go to your state website and follow its directions for registering your business name.
If desired, you can also register a DBA, which stands for doing business as. Registering a DBA enables you to conduct business under a different name than your entity name. And unlike an entity name, a DBA doesn’t have to be unique in most states.
4. Obtain federal and state ID numbers.
Identification numbers are equally important for businesses as they are for people. You’ll need to register at the federal and, in some cases, the state level for their respective ID numbers.
Commonly referred to as an employer identification number (EIN), a federal tax ID number is required to pay federal taxes, hire employees, open a business bank account, and apply for business licenses and permits.
A state tax ID number is only required if your business must pay state taxes. While the process of getting this number is similar to an EIN, you’ll need to check with your state government for exact steps on obtaining this ID number.
5. Apply for applicable licenses and permits.
If your business activities are regulated by a federal agency or your state, you’ll need to apply for an appropriate business license—a government-issued document that permits you to operate your business within a specified geography.
The above steps on how to register a small business will help you navigate an administrative burden most entrepreneurs find confusing. After successful registration, it’s on to more pressing matters in starting and growing your business.
And we’ve got something to help with that—we created a guide on how to start a small business from scratch. Check out our six-part series that covers topics from choosing your business name to marketing your business. Start your journey here.
