Once you decide which type of business you want to create, you'll need to register your business with local, state and federal agencies, and get the required licenses, permits and certifications. Here's an overview of the process you may need to follow:
Some of these steps may happen at the same time. For example, the form you use to register your business with a state could be the same form you use to formally request the business name you chose.
The process doesn't necessarily happen in this order, either. You could get a federal tax identification number before registering with a state. However, if the state rejects your application because the business name you want is already in use, you'll have to cancel the tax identification number, re-file with the state and then get a new tax identification number.
While the order isn't set in stone, this order makes the most sense for many small business owners.
Pick a business name
Your company's name could be your future customers' first impression of your business.
Some business owners use their own name, or a combination of the business owners' names, as their business name. Others pick a name that reflects what the business does or what it sells.
If you plan on expanding your business or think you might sell it one day, you may want to choose a business name that isn't closely tied to the owners' names. That way, the business can build its own reputation with customers.
Before choosing a business name, you should also conduct several searches to make sure the name is available.
When you create your business, you'll have to register your business name with the state, which prevents other businesses from using the same name in the same state. If you want to protect your name across the country, you could trademark the business name.
You don't need to run your business with the same name that you use for the legal paperwork. Instead, you can choose a "doing business as" (DBA) name. DBAs are also known as trade names, fictitious names or assumed names. With a DBA, you can use one name for the legal paperwork and another for your signs, website and business cards.
If you have a sole proprietorship and your name is also the business's name, you could use a DBA to appear more official. Or, perhaps you run an LLC and want to open a second location that offers different items for sale. You can run both locations under the same LLC and use two DBAs to clarify what each shop offers.
Draft governing documents
Governing documents are internal documents that say how the business will be run. They could be important if you're starting a business with someone else. If you have a disagreement over how much each partner earns, or who gets to make different decisions, the governing documents could help you avoid an argument.
Governing documents have different names depending on the type of business you create. The governing document for an LLC is an operating agreement. For partnerships, it's a partnership agreement and for corporations, it is either called bylaws or resolutions.
You may be able to find free templates of governing documents online, or you could work with a business attorney to create governing documents that are tailored to your specific needs.
Register your business entity with a state
Each state has its own rules for how to create a business. If you form a partnership, corporation or LLC, you'll have to follow your state's new business registration rules. In some cases, a sole proprietorship may also need to register. Generally, the Secretary of State's office is the part of the state government that registers new businesses.
State regulations can impact which entity you can choose, and the costs associated with running each entity type. Your choices may also be limited by the line of work you're in and how many business partners run the company.
You don't have to create your business entity in the state where you live, but your business will have to have a registered agent and physical address in the state where the business is registered so that the state government and courts can contact it.
You could hire a registered agent or be the business's registered agent yourself if you create your business in your state. Keep in mind that business addresses are available to the public, so you may start receiving junk mail if you use your home address.
The paperwork you'll need to file and the fees you need to pay can depend on the type of business you're creating and the state where you're registering. There could be a filing fee to initially register your business with the state. Plus, some states charge business entities either a flat fee or a percentage of the business's income every one to two years.
If your business has locations or sells goods in more than one state (including making online sales to customers in other states), the business may need to register as a foreign business (meaning outside the state, but not necessarily international) and pay a filing fee and taxes in each state.
File a federal tax election form
If you formed a corporation or LLC, you may want to file an additional form with the IRS to determine how your business entity will be taxed. For example, an LLC can file Form 8832 and choose to be taxed as a partnership, corporation or disregarded entity (like a sole proprietorship).
Get tax identification numbers
Your business will likely need an Employer Identification Number (EIN). The EIN is like your business's Social Security number, and it's used to open business bank accounts, pay employees and file taxes. You can apply for an EIN from the IRS for free online. You'll need to answer several questions about your business, such as the business's name, the entity type and what the business does, and list yourself as the responsible party using your Social Security number or Individual Taxpayer Identification Number.
The business might also need a state tax ID number to pay state taxes. Even if your state doesn't have an income tax, the business may still need to pay into the state employment insurance and workers' compensation insurance funds.
The Small Business Administration's (SBA) website has links to each state's department, where you can find out if you need a state tax ID and learn how to apply for one.
Obtain the required licenses and permits
Your business may also need a variety of local, state, and federal licenses or permits. The requirements can vary depending on your line of work, entity type and where you're based, and the licenses or permits may have to be periodically renewed.
A Small Business Development Center may be able to help you determine which licenses or permits you'll need to open and run your business. These centers are created through partnerships between universities, states and the SBA to offer free and low-cost training and consulting to small businesses.
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