As an ecommerce entrepreneur, it is vital you know how to register a business, most especially at the start of the entrepreneurial journey.
As soon as your online store has been registered as a legal entity, it will protect you incase any of your customers, or competitors decide to file legal action against you for any reason.
Even if you are still a newbie in the concept of registering a business, do not worry cause we have created this article to walk you through all the necessary steps which you will need to consider when you are registering a small business in the US.
As you read through this guide, you will soon know how to register your business and get the stability and legal security which individuals who are just starting an online business need.
DISCLAIMER: Have in mind that this article is created for informational purposes only, and doesn't coonstitute professional legal advice. So we are not in any way liable to you for your use or reliance on this article.
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Do I Need to Register a Business?
Even though you can still run a business without registering it, it is always a good idea to incorporate your business as it grows. Registering businesses makes them official in the eyes of the stake holders, while also ensuring both your personal and business assets are legally secure.
How to Register a Business Step-By-Step
Unlike what some people might think, registering your business is not complicated as it only involves you taking the right steps. Below are the steps you need to follow in order to register your business as a legal entity:
1. Name Your Business
Just like every human being own a name, every ecommerce entrepreneur will also need to take the first step of deciding a name for their business or online store.
It is important that you think out of the box and come up with a mind catching name for your online store. Make sure that the name is related to your niche, and something which you will be able to build a marketing strategy around it.
As easy as it might seem to be, coming out with a business name that will stand the test of time if not easy though. As a hint, you can check out some of your competitors and analyze the types of names which you like and then think about how your idea compares with it.
Does your idea stand out from the crowd? if not, what can you do to make it unique? you can also make use of a business name generator which can also help you get ideas for your company name.
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2. Registering a Business Name
As soon as you overcome the issue of deciding a name for your online store, then you have conquered one of the most difficult parts of registering a business. It is very important you ensure that your business name is already registered with the United States Patent and Trademark Office (USPTO).
The USPTO will automatically reject any registration for a business name that's already registered in their database. However, you will not get any refund if your business name is rejected.
So in order to stay away from such issues, you can make use of the USPTO's free tool to check if your business name is available.
3. Picking Your Business Entity
Once you have decided on a name for your online store, you will need to choose the type of business entity which best fits your online store. There are two main options involved here; registering your business as an LLC, or Incorporation.
The two are quite different and the key point for each is broken down in the next paragraphs.
LLC
This business entity requires less paperwork to set it up as compared to that required for incorporation, meaning that you will get more time to focus on getting your store off the ground.
When you register your business as an LLC, you will not be personally liable for any debts which your company accumulates. In simple words, it means that your assets such as your savings, car, and house will be completely safe if anything happens to your company.
Another major advantage of registering your business as LLC is that you will be able to rent your personal assets to your business. Like for example, if you decide to run your online store from a home office, you can claim that space as a business expense, thereby saving some extra cash by doing this.
Corporation
It is of no doubt that many people think of corporations as multi-million dollar companies with hundreds of employees, but incorporation simply means that you will develop from a sole proprietorship into a company which is formally recognized as a legal business entity.
There exist two main options which businesses can choose when they are incorporating; registering as an 'S' corporation, or a 'C' corporation. There are no pre-requirements to register as either option, this means that it all depends on what you think is best for your business.
When you register your ecommerce business as an 'S' corporation, you have the option of 'pass-through taxation', which means that your online store will not be taxed on a business level. You will rather pay income tax on the revenue that your ecommerce business generates, but not the actual business itself.
While 'C' corporations are considered as a separate entity when it comes to taxation. Meaning that your ecommerce business will be subject to 'double-taxation', which means that you will be taxed on your business profits and you will still be taxed on your personal finance income.
Regardless of the business structure you choose now, it is good you know that you can always move from one structure to another as your business grows depending on what will best suit your business at the given time.
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4. Choosing The State You Will Register In
The fourth step involves you taking your time to decide in which state you will register your ecommerce business since the tax rates often vary from state to state. You are not obliged to register in the state where you operate your small business.
It is likely that you will want to register your new business in a state which has low, or non-existent sales tax rates as this will save you a lot of money along the way. Amazon, one of the biggest online retailers in the world, takes advantages of this option.
Make out time and research on each state's tax rates and then decide which state is best to register in for your business objectives and immediate needs.
5. Obtaining Your Business Federal Tax Number
Registering your business on a federal level is also very important. To proceed with this, you need to obtain a federal tax number for your ecommerce business. Your federal tax number is also referred to as an employer Identification number, and it's the equivalent of a social security number for your business.
As you will be filing tax returns and submitting reports related to your business activity, it is essential that you get a EIN number for your business. If you do not have this number, you will not be able to submit your tax forms to either the federal or the state government.
You are able to apply online for your ecommerce business EIN number. It is a simple application form and you will be able to obtain your EIN number on the same day that you submit the online form.
6. Opening a Business Bank Account
Before granting you access to open a business bank account, US banks require documentation of small business registration. If e-commerce owners want to open a business bank account, they must understand how to register an online business.
Establishing a company account is a terrific method for you as an entrepreneur to keep your personal finances apart from the money you'll need to fuel your e-commerce venture. It's also a smart idea to have a business account for tax purposes, as you can bill some payments and deduct them from your income.
By opening a business account, you can precisely track the revenue your e-commerce company generates and have a clear understanding of how much your firm costs each month.
Additionally, it will increase the professional credibility of your e-commerce company. Order payments from customers will be made to your business account rather than your name. Your customer will feel more confident in the legitimacy of your business because of this differentiation.
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How Much Does It Cost To Register a Business?
There is no exact cost to officially register a small business, but you may have to pay sales tax with respect to the state you choose to incorporate in.
Final Thoughts: How to Register a Business
Registering your business is a pivotal step in establishing its legal presence and setting the stage for growth.
By carefully following these steps and conducting thorough research on the specific requirements in your jurisdiction and industry, you'll ensure a smooth and compliant registration process.
Seek professional advice if needed, and remember that compliance with legal and regulatory requirements is essential for the long-term success of your business.
In conclusion, here are the 6 steps involved in registering your business:
- Choose your business name
- Register with the USPTO
- Choose your business entity
- Decide on the state you will register
- Obtain your employer Identification Number (EIN)
- Open a Business Bank Account