You have an idea for a new business, or maybe you’ve already started one. One of the biggest decisions to make is whether you will register your business with the Secretary of State, a requirement for all businesses other than sole proprietorships.
What does it mean to register a business?
Registering a business can mean many things (registering your legal business name, registering your assumed name, registering for tax purposes).
Steps for registering a business
Registering a business involves multiple steps beyond filing your formation documents. Although specific requirements vary from state to state, the general steps are as follows:
- Check name availability. Each state has specific requirements on what legal business name you can choose for your LLC or corporation. Be sure to check with the state you're filing in to understand what those requirements are. You may also want to conduct a separate trademark search to make sure you're not infringing on someone's trademark rights. (The U.S. Patent and Trademark Office has tips on how to conduct this type of search.)
- Get a registered agent. LLCs, corporations, and other types of business entities need to select a registered agent to receive official papers and legal documents on behalf of the company.
- File formation documents. File Articles of Organization (if forming an LLC) or Articles of Incorporation (if forming a corporation) with the Secretary State.
- Get your EIN. Also known as a Federal Tax ID, an EIN can be described as your business’ social security number. An EIN is a requirement for most businesses and can be obtained by filing Form SS-4 (Application for Employer Identification Number) with the IRS.
- Register with the Department of Taxation. Many types of businesses are required to register with the state Department of Taxation and obtain a sales tax ID.
- Obtain licenses and permits. Depending on your location and type of business, you may need to obtain various licenses and permits and the state and local levels.
- Obtain insurance. Your business may be legally required to obtain certain types of insurance. For example, businesses with employees are required to have workers’ compensation, unemployment, and disability insurance.
- Register DBA. If you choose to do business under a name other than your legal business name, you will need to register your trade name. This filing is usually done at the local level. For more information, see What is a DBA and when to file one.
To learn more about the business formation process and post-formation requirements, see A guide to incorporating.
Registering a business in another state
If your LLC or corporation plans to do business in any state outside your state of formation, you will need to register or “foreign qualify” your business in those states. Here are four basic steps for registering your business in another state:
- Perform a name availability search in that state
- Appoint a registered agent in that state
- Obtain a certificate of good standing from your home state
- File qualification documents.
For more information on foreign qualification, see Doing business in another state.
Frequently asked questions
What are the reasons for registering your business?
One of the main advantages of forming as an LLC or corporation is the separation between the owner and the business. A sole proprietorship doesn't have its own independent existence. Legally, there is no difference between a sole proprietorship business and its owner (the sole proprietor), meaning there is no separation between the assets of the business and those of the owner.
Both LLCs and corporations are independent entities. There's a clear separation between an LLC and its owner (called a member) and the corporation and its owner (called a shareholder). This provides limited liability for the owner (either the member or shareholder) that a sole proprietor doesn't have. In a sole proprietorship, the sole proprietor owns the business, and therefore is legally responsible for all the business's debts, obligations, and other liabilities.
Consider this example. You are operating your business as a sole proprietorship, and your business has breached a commercial contract or was non-compliant with business licensing or tax laws (or any other statute that has penalties). As a sole proprietor, your personal assets (such as your bank account or house) can be targeted in order to pay the debt or penalty.
Alternatively, if you form an LLC or a corporation, that legal entity owns the business and will be responsible for the businesses' obligations and liabilities. Neither members nor shareholders are personally liable.
Registration may also indicate how an owner views the growth potential of their business. Although a good majority of businesses operate as sole proprietors, switching to another business structure might be beneficial as profits increase. For those who start their business as a “side-hustle,” it can make sense to start as a sole proprietor and switch to another structure if they find they need liability protection.
What are some disadvantages to registering your business?
Doing business as a sole proprietor is simpler in many ways — ease of creation, no state paperwork, no separate tax filing, and few ongoing formalities. When you register your business, things get more complex.
Compliance requirements for LLCs and corporations vary from state to state. But, at a minimum, you will need to file for formation with the state agency in charge of business entities and pay an initial formation fee. Other obligations usually include needing to maintain a registered agent, filing annual reports, and paying annual fees to maintain good standing.
Should you register your business?
Choosing whether to register your small business depends upon your unique situation.
Reasons for registering your business:
- Does your business run a higher risk of liability to your financial situation? The choice of business structure and registration status is often impacted by how each owner and future business owner views their business and the need for liability protection.
- Do you need outside funding? Financing can be easier to access as an LLC or corporation.
- If you plan to expand your business, registering it can afford liability protections as you grow.
- Consider your exit strategy. Registering your business can help ensure an orderly transfer of assets if you sell the business or leave it to your family.
For many small business owners, getting the advice of legal and tax professionals is probably a good idea. And using a legal services company like BizFilings to help with compliance needs, regardless of the business structure, can also help relieve some of the pressures small business owners have.