You’ll want to consider your business structure carefully before choosing, since it can affect everything from your personal liability to the taxes you pay. Among the most popular structures are: Sole proprietorship, which is easy to set up and gives you complete control, but leaves you personally liable should something go wrong; Limited Partnerships and Limited Liability Partnerships, which protect some or all partners from personal liability; and a Limited Liability Company. LendingTree has a rundown of business structures here.
Becoming an official business
Choose your business structure.
Requirements for registering your business vary by location and type of business. According to the SBA small business formation guide, if you’re doing business under your legal name, you won’t need to register your business; you do, however, risk missing out on personal liability protection and tax benefits. Most businesses don’t need to register with the federal government, other than to obtain a tax ID, but if you may want to trademark your brand or product. For LLCs, corporations, partnerships, or nonprofit corporations, you’ll probably need to register within the state where you do business; requirements will vary by state and you can look up the state agency that handles your area here. For LLCs, corporations, partnerships, and nonprofit corporations doing business in multiple states, you may need to form your business in one state and file for foreign qualification in others where you operate. Registration fees will vary by state but are typically less than $300, according to the SBA.
Many businesses will need a federal Employer Identification Number. You will need an EIN if your business pays employees; operates as a corporation or partnership; files tax returns for employment, excise, alcohol, tobacco and firearms; uses a tax-deferred pension plan called a Keogh Plan; or works with banks or trusts or some other organizations. To get a federal EIN, use the IRS EIN Assistant. Depending upon the state taxes your business must pay, you may need a state tax ID number. You can use the state office finder on this page to look up your potential state obligations.
Depending upon your location and what your business does, you will need to obtain permits or licenses to operate. Federal licenses or permits are required for some agricultural activities, handling or making alcoholic beverages, aviation, firearms manufacturing or dealing, wildlife activities, commercial fishing, ocean transportation, mining and drilling, nuclear energy, and radio and television broadcasting. State and local permits and licenses cover a broader array of activities and vary by location. Auctions, construction, dry cleaning, farming, and restaurants are among the businesses commonly regulated at the state level. To see what is required in your state, check your state’s website.
Trademarks, copyrights, patents.
If your business depends upon an invention, a unique brand, or other intellectual property, you will want to obtain a trademark, patent or copyright. There are three types of patents you can apply for: Utility patents for processes and machines; design patents; and plant patents. Copyright applies to creative work such as a novel or song and exists as soon as you create that work; however, you may want to register your copyright in case of a lawsuit or to create a public record. Trademarks cover such items as branding for your business.
Once you have a business, you’ll want a business bank account, separate from your personal bank account. Getting a business bank account makes sense because it offers some liability protection by keeping your business and personal finances separate. It’s also a sign of professionalism, allowing customers to pay your business for goods or services, rather than to you personally. You’ll also want to get business insurance to protect yourself and your business. Business insurance products range from general liability to business owner’s insurance. To choose the right plan, think about the kind of risks you and your business face, find a reputable licensed agent and shop around for the right plan. Remember that your needs may change over time, so reassess your insurance every year.