Building a new business is an exciting time, and one of the most crucial steps is ensuring that you register your business correctly. If you live in the USA, you’ll want to keep this guide handy and use it along your journey. It contains all you need to know you register a business in the USA in 7 easy-to-follow steps.
Let’s dive in.
Do I Need to Register my Business in the USA?
Whether or not you have a legal requirement to register a business in the USA is dependent on the type of business you have. We will go into more detail about the different types below, but in general if you are going to operate as a sole proprietor and do business under your own name, you don’t have a legal obligation to register your business. Whereas, a limited liability company or corporation must be registered.
This means, though, that you are personally responsible for any debts or losses that the company incurs in addition to being able to keep the profits. Registering the business not only makes it an official company in the eyes of the law, but also separates the companies’ interests from your own personal assets and removes you from liability for company losses. Your personal assets are also safe in the event of litigation against the company.
Do I need to Register my Online Business in the USA?
Online businesses follow the same rules as brick and mortar businesses and therefore an online business would need to be registered. Of course an online business can have customers all over the world, so if you are headquartered and registered in the USA that does not limit you from selling in other locations. Just make sure you have a top-notch payment infrastructure like Pay.com’s that can handle payments in different currencies.
Once you’ve determined that it’s time to register your business, here are the 7 steps to follow:
Steps to Follow when Registering a Business in the USA
Step One: Decide upon Business Structure and Entity
Depending on the type of business you are starting and how big you plan for it to be, you have some options in terms of the exact entity you wish to register as. Review the descriptions below to help determine which would be the right fit for you:
- Sole Proprietorship: A sole proprietorship is a business in which there is no separation between you - the owner - and the business. This means that your personal assets would be taken into account when the company faces liabilities such as expenses, debts and losses. It’s common for an entrepreneur to first launch a sole proprietorship and then grow into an LLC or other business type.
- General Partnership: In a general partnership, one or more people own the business together. Similar to a sole proprietorship, the partners have full liability for the business, and the business’ assets and liabilities are not separate from that of the individuals.
- Limited Liability Companies (LLC): An LLC is a good solution for a small business and for people who want to be self-employed but do want a legal separation between the business and personal assets. Creating an LLC is a simpler process than becoming a full-fledged corporation.
- Limited Partnership: A Limited Partnership is made up of at least one General Partner who runs the company day-to-day and is fully liable for any debts or losses. The rest of the partners are what’s known as Limited Partners and their role is primarily to provide financial investment. They are not involved in operational decisions and their liability is limited in proportion to the amount of investment.
- Limited Liability Partnership: A partnership is which there is no designated General Partner is a Limited Liability Partnership. In this case, all of the partners are joint owners of the company with liability for their portion of ownership. Limited Liability Partnerships may be restricted to particular industries and professions in some places, so it’s important to check local regulations.
- C Corporation: Creating a corporation is the “biggest” type of business you can register. A corporation is fully separate from the founder as an individual and also offers an array of tax benefits and mechanisms for raising money from investors.
Step Two: Decide Upon and Register a US Business Name
Every business needs a name and it comes down to four different ways that you can register it. You can choose to do any or all depending on your specific circumstances, but you should also confirm the laws in your specific state as some states have different requirements.
In most cases, you’ll want to use the same name for each type of registration, but there is no legal requirement to do so if you have specific reasons to make them different. The four ways to register your business name are:
- Entity name - Most states require business to register a legal entity name which is what the state uses to identify the company. Entity names must be unique and protect you from another business having the same name as yours. State laws differ slightly and some may have guidelines pertaining to company suffixes and/or expect the name to reflect the type of business.
- Trademark - While an entity name is a state level registration, a trademark protects your business name at a national level. Once your name is trademarked, no one else can use that name when they register a business in the USA. Before choosing your name, you should make sure that it isn’t already trademarked by another business by searching the USA’s official trademark database. This is a critical step because infringing on someone else’s trademark is a criminal offense and could end up costing you quite a lot in a lawsuit.
- Doing Business As (DBA) name - If you officially register your business under a certain name (i.e. your own name) but want to operate using a different name, you should register a DBA. DBAs are subject to federal trademark laws but at a state level there’s no requirement for a DBA to be unique.
- Domain name - Whether you plan on using it right away or not, it’s a good idea to purchase and register a domain name for your business as soon as possible. You want to make sure you get the site name that you want so that it’s ready when you are to bring your brand online. Of course, it’s always possible that your desired name will be taken already, in which case you can try to buy the domain from the owner or else you will have to choose a different name. Remember that your domain name does not have to be identical to your business name.
Step Three: Decide in Which State to Register your Business
You are not necessarily required to register a business in the state in which you live. Each state has its own rules regarding business registration as well as taxes, so there are tax benefits to registering in particular states should you be eligible. You also may be required to register in multiple states if you will have a physical branch or a significant amount of revenue coming from that state.
Following are some examples of different business registration and tax laws in different states, but we recommend speaking to a tax professional in your home state to ensure that you follow all relevant laws when setting up your business.
- Texas - Businesses other than sole proprietorships or general partnerships are required to pay a state franchise tax. The rate is usually around 1% but it depends on total revenue.
- Florida - In Florida, corporations must pay a 5.5% income tax, but LLC’s, sole proprietorships and S corporations are all exempt.
- California - Known for their high taxes, California imposes an 8.84% tax on all businesses, including LLCs.
- New Jersey - Corporations in New Jersey pay the corporate income tax which is based on revenues. LLCs, sole proprietorships and partnerships are not charged a corporate tax, but rather the owners are taxed on the income that’s passed-through to them at their regular individual income tax rate.
- New York - New York State corporations pay a corporate franchise task based on their revenues. Other types of businesses are subject to filing fees in addition to the individual owners paying income tax on the proceeds they receive.
- Maryland - Corporations pay 8.25% income tax in Maryland. LLCs, partnerships and sole proprietorships do not pay taxes over and above individual income tax. LLCs and partnerships, however, do have to pay income tax on income that is allocated to nonresidents of the state.
- Idaho - Unlike most other states, Idaho imposes a state tax directly on LLCs, in addition to a corporate tax of 7.84%.
- Ohio - Rather than a flat corporate tax, Ohio charges companies a corporate activity tax on a sliding scale according to gross receipts. If a company brings in under $150,000 no taxes are owed. This applies to all businesses, including sole proprietorships.
- Delaware - Large businesses often incorporate in Delaware because the state serves as a tax shelter, meaning that businesses that are registered in the state but do not operate there do not have to pay corporate tax. There is a flat fee franchise charge of around $200 for LLCs.
- Montana - Corporations in Montana are taxed at 6.75%. LLC and partnership income is considered pass-through and is taxed at individual income tax rates.
- Oregon - Oregon corporations pay a corporate excise tax ranging from 6.6-7.6%. LLCs must pay a minimum excise tax of $150.
- Alaska - Alaska does not have a state income tax, which means that only corporations are subject to state taxes, and any other type of business is not. The corporate tax rate ranges from 2% to around 10% depending on revenues.
- New Hampshire - New Hampshire charges companies a flat rate business profits tax and business enterprise tax. This applies to corporations, LLCs, partnerships and sole proprietorships, unlike in many other states.
Step Four: Register with Local Authorities
Once you’ve determined exactly where to register your business, the next step is to actually fill out the forms and deal with the logistical steps of completing your registration. This process will be specific to the local authority in which you are registering your business. In most cases, the process involves getting an Employer Identification Number (EIN), which is a tax-ID number, and making sure that you are all set up to pay taxes, benefit from any deductibles, hire employees when ready, etc.
Step Five: Acquire Licenses and Permits
Acquiring any relevant licenses and permits that you may need to have is very specific to the type of business you run as well as the local laws. It’s very important to research what the laws are in your industry and make sure that you complete the process to obtain all of the licenses and permits that you need for your business to be legal.
Step Six: Get your Own US Bank Account for your Business
As soon as you have your EIN, you are ready to open a business bank account. Even if you are operating as a sole proprietor, it’s a good idea to have a separate bank account to keep your personal finances as separate as possible from your business. Should you decide to grow and become an LLC or eventually a corporation, it will save you the trouble of creating this separation later on down the line. You will also appear more professional if you have a way for customers to pay you directly to a business account.
Opening an account is as simple as going to a local branch and filling out the required paperwork. You can shop around and compare rates and perks of different banks.
Step Seven: Think of your Intellectual Property
Depending on the type of company you are running, you may have some valuable intellectual property that you will want to ensure you protect.
- Trademark - Trademarking your business name is something you will have done as part of the registration process, but if you develop product names or other design elements that you want to ensure remain proprietary to your company, make sure you trademark those as well. It generally takes around 4 months for the trademark process to be complete.
- Copyright - Copyrights are applicable to any original written work, software, web content, film and other sound recordings. You don’t have to apply for a copyright as it’s automatically granted as soon as you create something new. It’s your responsibility to make sure that no one is violating your copyrights and stealing your material.
- Patent - If you invent a new product or piece of machinery, you will definitely want to patent it so that no one else can take the credit and you will reap the financial benefits. The patent process is extensive and can take up to 5 years so make sure you start the process early.
Mandatory Documents Needed for Each Type of Business
No matter what type of business you are registering as or where you are registering there is certain documentation you will always need, including:
- Articles of formation or incorporation
- An official business name
- An official business address
- Identifying information about the company owner(s)
Documents Needed According to Business Structure
Depending on the type of business you register, you may be required to file additional paperwork. Some examples include:
It may seem overwhelming to think about the idea of registering a brand new business. But, truth be told, it’s just a little bit of bureaucracy in exchange for a lifetime of entrepreneurial creativity and freedom! Just follow the simple steps laid out for you in this guide and you’ll be on your way.