Registering a small business – who needs to do it, and if so what do they need to do?

Every day people think they have come up with the million-dollar idea; a small business idea that will change the world and make them a fortune. However, there are quite a few steps between the birth of an idea and actually establishing a small business. There are many official and administrative obstacles before you can call yourself a business owner. A vital step is registering the small business. Doing this requires several steps, documents, state agencies, etc. Some of these processes are there to help you, others will inform state bodies of your existence, so that they can do anything they can to help you. Here, we have outlined the steps that you need to take to successfully register a small business.

There are many things that need to be considered before you begin the small business registration process. Here are some of the questions that you should ask yourself:

It may be the case that you are not required to register your business. If you are self-employed and simply using your legal name, it won’t be necessary for you to register. However, it is worth bearing in mind that failing to register a small business could mean not being able to access personal liability protection, legal advantages, as well as benefits when it comes to taxation.

The small business registration process can indeed be very straightforward; for many it’s just a case of registering the name of the business with state and local government. On a wider scale, it will be necessary to register with the federal government in order to get a federal tax ID. Additionally, it may also be necessary to register with the federal government in order to attain trademark protection or tax exempt status. Trademarking a business, brand, or product name can be done by filing the appropriate paperwork with the United States Patent and Trademark Office.

Of course not every organization is actually required to pay taxes, e.g. NGOs and non-profits. If your small business is one of these then you need to register with the IRS as a tax-exempt organization.

A business’ federal tax ID is their Employer Identification Number (EIN). This is something which is necessary to carry out the initial steps around founding a business. Paying employees, filing taxes, etc. are all things that need a federal tax identification number. Applying for an EIN is free, easy, and can even be done online.

The IRS also has its own checklist which details the steps and forms required for starting a small business in the US. 

It is quite rare that a small business or sole trader will only be operating and doing business in just one state. The law states that any LLC, corporation, partnership, or nonprofit needs to register within any state where you are conducting business activities.

Some states permit you to do the registration process online, while others require you to do it in person. As to what state office you need to register with, it should be the Secretary of State’s office, a business bureau, or a business agency. In general, these are the sorts of criteria that determine whether you are conducting business in a state or not:

• The small business has a physical presence in the state
• The small business frequently organizes or attends meetings in the state
• A sizeable portion of the small business’ income comes from the state
• The small business has employees that work in the state

Prior to registering in a state, you will first require a registered agent within that state. This is someone who can and will receive official legal documents on your behalf within that state. More often than not, a small business owner will opt to have a registered agent instead of having to fulfill this role themselves.

Some states refer to this business as ‘foreign’ and therefore call the filing of a business foreign qualification. This qualification informs the state that a ‘foreign’ business is active within their state border. These firms are required to pay taxes and annual report fees in both their state of origin as well as all those in which they are foreign qualified.

The IRS website has a list of all 50 states where you can find to find the relevant information for the states specific to your small business. This includes details on taxation, employer’s requirements, etc.

Foreign qualification requires a Certificate of Authority from the respective state. Some states also require a Certificate of Good Standing granted from the state of the company’s origin. The cost of such a filing fee varies from state to state, and also differs depending on the type of business structure. Further information regarding the fees can be found on the website of the respective state authorities.

As mentioned above, the price of registering a small business varies from state to state. However, generally the cost of the process will be no more than $300. Depending on the state and the type of business, this price could rise to as much as $750. However, prices could also be as low as $50. 

In some states it is required for you to have an operating name for your company. This name is fictitious and has the purpose of protecting consumers who conduct business with the company. The DBA is different to the business’ legal, registered name. In some states it is simply a case of filing the fictitious name with the relevant authorities. Others require you to go as far as place a fictitious ad in a local paper for a certain amount of time. Such an undertaking will naturally add to the overall cost of registering the small business.

When it comes to the information required for filing your small business, there are no real surprises. Here is a list of the details you’ll need when registering your small business within a state:

• Name of the business
• Location of the business
• Names of the directors
• Ownership/management structure
• Information on the registered agent
• For corporations: the quantity and value of shares

The specificities of which information is required can be found on the websites of the respective state authorities.

Just like with the fees and required information, the documents needed to register a small business depend on what sort of business you are running. Below is a table detailing some of the documents needed for registering a small business.

Local governments determine requirements when it comes to things like registration, licensing, and permitting. For this reason, you should always use local government websites to find out what is necessary for registering your small business.

Click here for important legal disclaimers.