Many online business owners, both new and established, wonder if they need to officially register their company as a business entity.
If you’ve been thinking about it, it may be a good idea to do so as soon as possible. Registering your online business as a legal entity provides you with many protective, legal, and tax benefits.
Once you register your company, you are formally recognized by the U.S. government. You also ensure no one else can operate a business with the same structure. The idea of registering a business can be overwhelming, but the following information should help to demystify the process while familiarizing you with the steps and considerations you’ll need to know when registering your company in the United States.
Reasons You Need to Register Your Business
Sole proprietors don’t generally need to register their companies unless they’re doing business under a name other than their legal one, but they certainly can register. If you decide to operate as an LLC or a corporation, you’ll definitely want to register with your state. How you register should largely be determined by the type of business structure you’ve chosen. Aside from meeting any legal requirements, business owners find numerous benefits to officially registering their company.
Protects the Business
Registration protects a business owner from others attempting to operate as a “copycat” business. No one else can operate under that name or try to otherwise profit from its brand.
Provides Liability Protection
Once you offer proof your company is a properly registered business in your state, you meet eligibility to open a business bank account. This is helpful because it completely separates your business assets from your personal ones.
If someone were to bring a lawsuit or a debt claim against your company, if you’ve registered as a separate entity, the plaintiff cannot come after your personal assets. In the event you ever need to file bankruptcy, you have already protected yourself in this scenario as well.
Offers Tax Advantages
All registered companies must have an Employer Identifying Number (EIN) (you can easily do this online – it takes just a few minutes). Once you’re set up and registered your business, tax advantages you can enjoy include the following.
- Save money on taxes since you only have to pay for the money you personally receive in income (including for Social Security deductions).
- Claim tax deductions on land, utilities, travel, equipment, supplies, transportation, and other business-relevant deductions.
- May be able to access certain business-only tax credits.
- Spread out tax losses over time instead of absorbing them all in one year.
Overall, the tax advantages may save you thousands of dollars each year, but these can also vary by state. For instance, if you register your company in Georgia, the state provides exemptions for some sales and taxes as well which can be quite appealing. Always check with your state to see how your registration affects your company. In some cases, you may have your choice of states to register in if you’re an online company.
Sounds More Professional
Companies that utilize an officially registered name tend to carry more clout in terms of credibility. Regardless of the level of success of a business, people will almost always gravitate towards a more “professional” sounding name rather than a personal one.
This has nothing to do with quality of service or product but everything to do with perception. Registering a company with their state government empowers a business owner to not just establish visible branding, but capitalize on it.
Easier to Obtain Loans
Once you’ve registered your company, you may need to acquire more capital or get a company credit card. To successfully do so, the bank or other lender may need to prove you are indeed an official business. This is easily accomplished by providing the lender with a business registration.
Ensures Employees are Properly Hired
A business registration empowers you to hire and pay employees in accordance with state laws. This means you will be compliant and not run into common issues associated with payroll and benefits.
These are the primary reasons why business owners in a variety of industries often officially register their companies as LLCs or corporations.
What are the Primary Differences Between an LLC and a Corporation?
Aside from sole proprietor and partnership, two of the most popular business structures chosen are the LLC or the corporation. The former two structures do not offer many of the protections and tax advantages the latter two do.
What is an LLC?
LLC is an acronym for “limited liability company” and is increasingly a popular business structure small business owners decide to use. People who own the LLC are referred to as members. One of the attributes business owners like about the LLC structure is it incorporates the best benefits from a sole proprietorship/partnership and a corporation and reduces the deficiencies. Some refer to LLCs as “hybrid structures” since they contain elements of both.
What is a Corporation?
A corporation is like an LLC in that it is more of a single entity and recognized as completely separate from its owners. You can become a “C” corporation or an “S” corporation – be sure to carefully understand the differences between the two before you register. This is important.
Corporations do enjoy many of the rights sole proprietorships and partnerships own because they can enter contracts, borrow or loan out money, and own assets. They are also held to the same types of responsibilities as individuals. With that being said, there are other key differences between corporations and LLCs.
What are the Primary Differences Between the Two?
The primary difference between an LLC and a corporation is that LLCs can be owned by a solo owner or multiple ones. Corporations do not technically have an owner as they are owned by shareholders, which can vary by number. Usually, formal meetings are involved and records/minutes are kept; LLCs don't have to do this.
LLCs are not restricted as to how they can operate, whereas corporations are governed by a Board of Directors and these individuals have a fiduciary responsibility to both the company and its shareholders. The corporation also must follow the terms set in the certificate of incorporation, bylaws, and potentially a shareholders’ agreement.
Owners can sell their stock to new shareholders in a corporation, whereas LLC owners cannot do so unless all members agree.
Steps to Take to Officially Register Your Online Business
For small businesses, the registration process is fairly straightforward and all you need to do is fill out a form with your state or local government. Generally, for all businesses, the steps are as follows:
- Choose a unique, memorable, recognizable, and descriptive name for your online company.
- Register your company’s name with the United States Patent and Trademark Office (USPTO) to protect others from choosing it or “piggybacking” on your brand.
- Select the business entity you want to operate under, usually an LLC or corporation.
- Obtain a federal tax number/EIN for your business
- Choose the state you want to register your online business in (this doesn’t necessarily need to be the state you live in) and file the paperwork.
Registration is Generally an Easy Process and is Usually a Smart Decision
As an online business owner, you may be wondering about the potential steps to take once you decide to set forth on the journey of entrepreneurship. Even if you’re a veteran owner, if you haven’t registered your company, you should seriously consider taking steps to do so. This way, you can enjoy the benefits registration provides.