In this short guide, we’ve detailed what you should expect when you’re registering a business in the USA. By registering your business, you protect your assets from business-related actions and establish the company as a distinct legal entity capable of accruing debt.
This creates a valuable separation between company property and the personal property of the founder(s) and shareholders. By getting this process correct from the start, you can also keep the cost of registering a business down.
You Need A Name
This is the first thing everybody expects. You’ll need to use the name when registering your company. The ideal business name is four things:
The appropriateness of a business name demands that it be relevant and useful to the product or service that your company offers. You don’t want potential customers reading your business name and thinking you’re selling something else because of it.
As for memorability, this is the catchiness and recognizability of the name. While the name is important for dry registration paperwork, you should also wear your marketing hat when deciding on a name.
Unique doesn’t necessarily mean not taken, many businesses all over the US are distinct yet have similar names. Instead, we mean you should check the US Patent and Trademark Office to see if the name isn’t already registered.
A futureproof name isn’t outdated in a few years. If you have long-term business goals, you want the name to stick around until they come to fruition. It’s much easier to get the name right the first time.
LLC Or Corporation?
There are two primary business registrations for your company, an LLC or a corporation.
LLC stands for Limited Liability Company, which is where individuals will not be personally liable for the debts that the business accumulates. This only changes if the business goes under while still having an outstanding debt. LLCs tend to be better for smaller business operations because there’s less paperwork involved and so it’s a less expensive process.
Registering as a corporation comes with distinct classifications, namely S or C corporations. The primary differences between S corporations and C corporations are how they are taxed.
S corporations are eligible for pass-through taxation, which is where the business is not taxed at any business level. Instead, you as the founder of the business will pay income tax on any and all revenue that the business generates. The downside here is that the government does not let non-citizens own shares.
C corporations are double-taxed. This is exactly what it sounds like, where your personal income is taxed while the profits of the business entity are also taxed. By taxing the owners and shareholders as separate entities from the business, the most they could lose if the business fails is what they initially invested into it.
Register At State & Federal Levels
Now that you know what to expect with the business name and the type of business you’ll register, it’s time to consider some logistics.
In the USA, you don’t need to register your business where you operate. This can be advantageous to burgeoning business ventures because different states offer different tax rates. By registering your business in a state with lower sales tax requirements, you can save your company a lot of money.
On the federal level, you need to obtain a code to register the company. This will either be the Federal Tax Number or an Employer Identification Number. Whereas you as an individual have a Social Security Number, your business will have one of these codes that identify your company at a federal level and will be presented on tax returns when they get filed.
If you’re a foreign national, you’ll need to wait before receiving an Employer Identification Number. This is typically 30 days but the expected registration process differs from each state and even whether your area is more urban or rural. You get a tax ID by sending an incorporation application to an IRS unit for verification if you’re not a US citizen.
When going through the registration process, you’ll need to have several documents at hand. This process has been streamlined over the past few decades as international businesses have become more popular and viable for the average person, thanks to the Internet.
You can even set up a business on American soil when you don’t have a visa and have no plans on coming to the US soon. This isn’t an excuse to neglect paperwork as legal documents are the backbone of your business registration.
With that said, what documents should you have when registering your business?
A Business Plan
This is optional and more for your peace of mind than the US government’s, but it can make the process much easier. A business plan is exactly what it sounds like, an overview of the company that contains the following information:
- What the company is.
- Who manages it.
- What they offer.
- Strategies for sales and marketing.
- Targeted markets.
- Identified business risks.
- Logistics about how your products or services will be transported if necessary.
Due to the cost and effort required in establishing a business, it’s common for there to be more than one owner pooling their resources. In these cases, you’re in a business partnership and will require a general partnership agreement. This makes it clear to all partners the costs, responsibilities, and terms of the business partnership. You don’t want a costly legal dispute due to a poor understanding between business partners. These agreements require the following information:
- Legal names of all partners.
- The duration of said partnership.
- How each partner contributes, namely land, cash, or business assets.
- How labor and authority are divided between partners.
- The process involved when adding partners.
- The process if an existing partner departs, willingly or through personal tragedy.
LLC Operating Agreement
If you’re an LLC, you’ll want an operating agreement, especially if there are multiple founding members. Once signed, it’s a binding contract between owners. An operating agreement should be submitted with other organization articles so that you’re protected from possible lawsuits or an IRS audit in the future. These agreements require:
- Legal names of the LLC members.
- How profits and losses are distributed among members.
- How key decisions will be deliberated.
- How the LLC will be taxed.
- The rights and obligations of LLC members.
- The operating and financial decisions to which LLC members are bound.
Corporation Meeting Minutes
This is a requirement of most states. You’ll need to detail how the corporation governs itself, its business structure, the roles of individuals involved, and how issues are settled within the business.
The minutes should include the types of meetings, their place and time, attendance details, any decisions taken, and any voting details if applicable, as well as absentee information.
These are boilerplate contracts that outline the expectations and obligations of company employees. They require the following information:
- Terms of employment.
- Wages, benefits, alternative compensations.
- Responsibilities of the employers.
- Working hours.
- Working positions.
- Non-compete clauses.
- Notice period and termination processes.
- Confidentiality clauses.
Terms of Service and Privacy Policies
These are the most common required documents. The terms of service are what users agree to when using a product or service, something every consumer is familiar with. Privacy policies then inform the user about how their data will be used. These should establish trust, ensure business operations are secure, and detail how online payments are carried out.
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