One of the first things you must do upon becoming an entrepreneur is understand how to register a business. This process may be slightly different depending on where in the world you live and/or plan to operate your business, but the essentials are the same. Read on for the basic elements of how to register a business and then check out our more detailed guides for the United States, UK and Europe.
Do I Need to Register My Business?
In most cases, if you plan to run your business as a sole proprietorship and operate it under your own legal name, you are not under any legal obligation to register the business with any authorities. However, as your business grows, you will be required to register with both local and federal bodies. Registering your business is beneficial because it separates you as an individual from the business, meaning your personal assets are protected in the event of a lawsuit against the company. Registered businesses may also be eligible for certain tax benefits.
Steps to Follow When Registering a Business
Step One: Determine your Business Structure and Entity
Once you’ve taken the plunge and decided to start your own business, you have a few major decisions to make. The very first one is the type of legal structure it will have. There are a few different options of structures and it’s important to choose the one that suits your business goals and current reality. Each structure may have different rules and regulations when it comes to registering a business of that type.
Here’s a quick rundown of the most common types:
- Sole Proprietorship: There is no need to register a business as a sole proprietorship. If you don’t register as any other type, then by default you are a sole proprietor and you assume full liability for any and all business expenses, debts and losses. Many businesses start out as sole proprietorships and then register as another type of business as they grow and their needs change.
- General Partnership: A general partnership is similar to a sole proprietorship in that there is no legal separation between the business and the individual. However, in a general partnership, there is more than one person who owns the business. All of the partners assume full liability and are not offered tax benefits.
- Limited Liability Companies (LLC): If you want to separate your business from your personal assets, an LLC is the simplest way. Registering a business as an LLC requires less paperwork and bureaucracy than a full-fledged corporation and is perfect for smaller businesses and for those who want to remain self-employed.
- Limited Partnership: If you are joining forces with a partner to start your business, you may be interested in forming a Limited Partnership. In this type of relationship, there must be at least one General Partner who has full responsibility for the day-to-day management of the company as well as full liability for any company debts. A limited partner, on the other hand, does not exert any power in operational decisions and has limited liability (usually proportional to investment amount) for any debts or losses.
- Limited Liability Partnership: As opposed to a limited partnership, a limited liability partnership is a situation in which there is no designated General Partner, and each member of the partnership retains an ownership share and their liability for company debts or losses is limited based on their level of ownership. In some places, only certain professions are allowed to form Limited Liability Partnerships so it’s worth checking the regulations in your specific location.
- C Corporation: Incorporating your business means making it completely separate from you as an individual. As compared to an LLC, there is more paperwork and bureaucracy involved, but the end result is more tax benefits, more personal protection and the ability to raise more funding from investors.
Step Two: Choose and Register a Business Name
This step is also the most fun! Once you know what type of business you will register as, you need a name. The possibilities are endless, but there are a few key things to keep in mind:
- Choose a name that is memorable and will stick out in people’s minds and attract them to your business.
- You’ll want a business name that makes sense for your particular niche and one that you can envision building a viable marketing strategy around.
- Make sure you do your research and do not choose the same name as any of your competitors!
You’ll need to search the local databases in your area to ensure that the name you choose hasn’t been taken already as you will not be able to register a business with the same name as an already existing one.
Step Three: Decide Where to Register your Business
This one may be a very simple decision depending on where you live, and if your local laws state that you must register your business in that location. In the United States, for example, you are not required to register your business in the state you live in and many people choose to register in a different state that has better (i.e. cheaper) tax laws.
If your business will operate in multiple locations, you may need to register in each (don’t panic - it means more paperwork, but most can be done online and shouldn’t be too much of a hassle!).
Here’s a very brief overview of business registration in different countries:
- United States: As mentioned, you have the option to register in the state of your choice, so it’s worth looking into the different requirements and tax benefits. Depending on the type of business structure, you will be required to acquire different types of permits and licenses as necessary.
- United Kingdom: All companies must be registered in the United Kingdom in order to be legally considered as a business. You register with Her Majesty’s Revenue and Customs (HMRC) to determine the amount of taxes you will need to pay.
- European Union: EU citizens are entitled to set up a business in any EU country as well as Iceland, Norway and Liechtenstein. Each country does have its own specific rules and requirements, although most follow a similar format.
- Canada: Canada only has three types of business structures - sole proprietorship, partnership and corporation. The choice is dependent on your business goals and tax deductibility that you are interested in. Many businesses are not allowed to begin operations in Canada without first registering with the authorities.
- Australia: Similar to other parts of the world, Australian business owners can also choose the structure they are most comfortable with. All businesses require an Australian Business Number in order to identify the business in public records and for other tax and business purposes.
Step Four: Register with Local Authorities
Once you’ve determined exactly where to register your business, the next step is to actually fill out the forms and deal with the logistical steps of completing your registration. This process will be specific to the local authority in which you are registering your business. In most cases, the process involves getting a tax-ID number and making sure that you are all set up to pay taxes, benefit from any deductibles, hire employees when ready, etc.
Step Five: Acquire Licenses and Permits
The final step in registering a business involves acquiring any relevant licenses and permits that you may need to have. This is very specific to the type of business you run as well as the local laws. It’s very important to research what the laws are in your industry and make sure that you complete the process to obtain all of the licenses and permits that you need for your business to be legal.
No matter what type of business you are registering as or where you are registering there is certain documentation you will always need, including:
- Articles of formation or incorporation
- An official business name
- An official business address
- Identifying information about the company owner(s)
Documents Needed According to Business Structure
Depending on the type of business you register, you may be required to file additional paperwork. Some examples include:
- Federal trademark - if you are going to offer your service or product internationally, you should consider trademarking your business name and logo in order to protect your brand.
- “Doing Business As” name (DBA) - sometimes the name you want your business to go by is not the same as the name you want to use for the legal registration. This may be particularly relevant for sole proprietors who do not want their business name to be the same as their individual name. All that’s required to run your business with a different name is usually a fairly simple DBA form.
Starting a new business is exciting and we wish you luck on your journey! Start off on the right foot and save yourself a lot of unnecessary headaches later by understanding what you need to do in order to register your business. Don’t forget to check out our guides for registering a business in the United States, the United Kingdom and the European Union for more information about whichever one is relevant to you.