banner

Steps to Registering a Company in 2021: All You Need to Know

Content Team7 minute read16 Sep 2021

image banner

Registering your business does not only open you up for more credit-related opportunities but can also separate you from liability risks, i.e, safeguarding your assets from legal lawsuits and abound debts.

Ramifications leading to a business legal formation include careful preliminary research and subsequent filing of formation documents to relevant authorities, which is draped with legal complexities that make the entire process anything but painless for many.

To help starting entrepreneurs better navigate through the ordeal, the following article contains steps to registering a company, complemented with a post-registration section detailing how to stay updated with your licensure and compliant with related regulations.

Step 1: Choose an Entity Type

image banner

Your business needs a legislative vehicle to enter the market as a legitimate entity, and registering it as a business structure can make that happen. Namely, they are LLC (Limited Liability Company), Partnership, Sole Proprietorship, and Corporation.

They all serve the same purpose of adding some level of legitimacy to your business but some have certain legal features (or lack thereof) that can make them more desirable than others. This, of course, depends on what you’re looking for as a business owner - growth prospects and protection or ease of registration and maintenance. With that being said, let’s take a look at what each option has to offer and how you should go about choosing one.

  • LLC (Limited Liability Company). Most of the existing LLCs were once growing small businesses that had their start as a sole proprietorship or a partnership looking to make the transition to accommodate future needs.

    An LLC provides a business with separate legal entity status which means full liability protection for business owners. To elaborate, your assets are secured as they’re not at stake if the company has become insolvent or is undergoing a lawsuit.

    Aside from the liability protection, an LLC allows you to rent your assets to your company and claim the payment later on as part of business expenses. Therefore, you as the lessor get to subtract items such as acquisition interest, depreciation, repairs and maintenance, insurance, and administrative costs.

  • Corporation (S-Corp and C-Corp). A corporation is similar to an LLC in terms of liability protection but is further categorized into two forms, being S - Corp, and C-Corp. Note that there are no prerequisites to either of them and the decision purely depends on what set of perks to which the business owners want to access.

    S - Corporations give shareholders the option of “pass-through taxation”. In layman terms, a control person within the company can pay corporate taxes via their own tax return (up to 20% deduction as “qualified business income” according to the Tax Cut and Jobs Act).

    C - Corporations are taxed on a corporate level but generally offer more flexibility as it doesn’t have an imposed restriction on the number of shareholders and preferred stock issuance. Shareholders can be a person or another legal entity which opens up more opportunities for equity funding.

  • Partnership and Sole Proprietorship. Unlike an LLC and a Corporation, any business that’s identified as a sole proprietorship or partnership ( except for LLP and LLLP) lacks the necessary legal features to be lawfully considered as legal business entity according to most corporate governance laws.

    However, they still require some level of formalities when setting up, such as in the case of a sole proprietorship, an obligatory procurement of the correct business licenses, and a name that separates the business from the owner. Other than this, registration with relevant authorities is not needed.

Verdict

Opting for either an LLC or a Corporation is for the most part recommended if your business is expected to turn a big profit and operates in any industries with high exposure to liability risks, e.g, law, insurance, finance, etc.

LLCs are generally easier to set up and maintain and allow for a more hands-on approach to business operation while corporations offer more financing opportunities.

Step 2: Pick Out a Name

image banner

This is a more interesting task in the steps to registering a company as you get to tap into the creative side for a change. Company names don’t have to be the most groundbreaking or unique, but it helps to have one that sticks with the customers.

On a more serious note, there are related statutes to naming a company in various legal Corpora that you should see first before sending out an application. In this respect, there are a few things you should keep in mind:

  • Availability. The first thing is to check if the name’s already taken by going on a company formation database consortium or contacting any relevant government agency that deals with patent and trademark protection for clarification.
  • Legal requirements. As a rule of thumb, make sure the company name conveys its entity type in the clearest way possible and is clear of any prohibited words. To effectively comply, you should actively seek out these restrictions to prevent any potential rejection down the line
  • Continuation. Additionally, if you want to do business in another state under a different name, a DBA (Doing Business As) form must be timely filed to the corresponding authority to inform them of the change. An alternative to this would be an amendment form which would mean continuing the business under an entirely different name.

Step 3: Get Your Business Licensed and Registered

image banner

Registering your business in your home state means filing several forms of paperwork with the Secretary of State or a state bureau either in person or online. Your company shall then be considered as a domestic firm upon confirmation of successful registration.

LLCs and corporations have the same typical procedure which begins with electing a board of directors/managers, followed by drafting the bylaws specifying the duties and responsibilities of each member, and finally submitting the articles of incorporation with some fees.

Additionally, a designated registered agent is also required by law to partake in legal proceedings on the LLC’s behalf. This can be a person who’s over the age of 18 but a company formation service provider is recommended for higher levels of professionalism and expertise.

As time goes, federal registration is almost inevitable for LLCs or corporations, especially for those with organizational involvement in trusts, estates, real estate mortgage investment conduits, nonprofit organizations, etc. The main catalyst for most businesses is obtaining a federal tax identification number (EIN/TIN). More on this in the next step.

Doing business outside of your state of domicile requires you to undergo “foreign qualification” which has its own distinct yet simple registration procedure with the Secretary of State. Each state has its corporate tax apparatus that cater to different businesses in types and scales which plays a huge role in your decision to either register domestically or on a federal level.

Tips

Tips

Registering outside of your state is possible but should be done with prior research on that state’s judicial and taxation intricacies. There’s no shortage of entrepreneurs looking to incorporate in Delaware because of its favorable business policies and relaxed regulatory environment.

Other than that, Wyoming, South Dakota, and Alaska are the top three states when it comes to saving money running a business as they don’t impose taxes on personal or corporate income. Further details can be found on the state’s respective local authority website.

Step 4: Apply for Federal Tax Identification

image banner

According to the U.S Constitution, a business entity has to perform its obligatory tax-paying duty in a state where a legal arrangement called “tax nexus” exists. In which, the triggering factor is the presence of the business entity, made known to the tax collecting authority via having a physical office address, employing workers, or turning major profits from that state.

Your business operations will determine the extent to which your tax nexus applies, but generally, you can expect to have the following taxes:

  • State income and franchise taxes
  • Sales and use tax
  • Employment taxes
  • Local taxes

In any case, you’ll first need to apply for a federal tax ID, aka EIN (Employer Identification Number) with the IRS (Internal Revenue Service). This is a 9-digit number that serves as identification for your business tax accounts with the IRS. Note that the applicant must already have a valid taxpayer identification number, Social Security Number, or another EIN to register.

Once an EIN has been issued to you, it can then be used to pay your federal business taxes through the Electronic Federal Tax Payment System. Aside from this, an EIN will also enable you to open a bank account, take out business lines of credit, apply for business permits, etc. Therefore, it’s almost always a good idea to procure one.

Other peripherals that you should consider to an EIN include:

DUNS (Data Universal Numbering System). A DUNS is often an accompanying code to your EIN that is the corporate equivalent to a Social Security number. Having one in your possession opens up more opportunities for entering lucrative business loans and government contracts from financial institutions.

NAICS (North American Industry Classification System). A NAICS is a 6-digit number that is issued to designated small businesses for the purpose of “collection, tabulation, presentation, and analysis of statistical data associated with the U.S. economy”. This is a good thing to have if you own a small business since it qualifies you for favorable federal business contracts. More can be found on small business size standards here.

Note

Note

An older alternative to the NAICS code is the SIC (Standard Industrial Classification) code. They’re both built on the same concept and share few structural similarities. For this reason, it’s possible to use a SIC code to track a new NAICS code.

Step 5: Open a Business Bank Account

image banner

Unless your business is one with an established banking solution already, applying for a business bank account helps to create clarity between personal and business financing.

It is a relatively straightforward procedure as you’d expect when opening a personal bank account in which proofs of business registration will need to be presented upon account opening request with a bank. They include, among others, the following prerequisites:

  • Identification documents for the applicant
  • Articles of incorporation
  • EIN (Federal Employer Identification Number)
  • Proof of business address

*Note that banks are also required to collect beneficial ownership information from their legal entity customers as pursuant to the CDD rule under the Bank Secrecy Act.

For non-resident applicants, the process can involve signatory travel to the state of which the chosen bank is located as a result of U.S stringent corporate banking regulations.

However, you can enlist help from a trusted banking agency or the same filing agent in your initial business registration for certain fees. Another good solution is to open an offshore bank account or seek alternative banking services from the likes of Wise, Skrill, Stripe, etc.

Post Incorporation Key Points

There’s more to be done after you’ve successfully registered your business, as now your concerns should be geared towards maintaining the legal stability of your business. In this respect, there are a few things you should get in order before resuming your operational duties.

  • Trademark protection registration. Most entrepreneurs make the mistake of only opting for trademark registration late into the life cycle of a business thinking that it wouldn’t matter in the early phase. And more often than not, this is a good way to welcome a cease and desist letter on your front door.

    You can future proof your company name by doing a quick trademark search and if it’s not already taken, register it with the relevant bureau in your state of incorporation.

  • Annual tax filing and renewal of licensure. In case it has never dawned on you, tax filing can still be a treacherous ordeal even with all the guidance materials before you. Professional help is oftentimes needed on board if you want to stay on the good side of the IRS.

    Towards this, numerous accredited tax preparers can help your business navigate efficiently through all the complex federal regulations and take care of your tax management problems.

  • Applicable international rules. For businesses that want to expand offshore to another jurisdiction, take into consideration all the key legal implications that can arise.

    One example of this is the fundamental difference between two legal systems, such as common law and civil law. Continental Europe follows the common law and the US and UK the civil law. Some jurisdictions even incorporate different factors from the two together in their rulemaking.

Conclusion

Now that you’ve reached the end of our guide, we hope that it’s given you the necessary insights and guidance to get your business off to a good start. A key point in the steps to registering a business you should pay to mind is the importance of an EIN as a recurring factor throughout and beyond the registration process.

On a more general note, remember that behind every successful incorporation is a slow and methodical precedent, account for as much as you can the key legal obstacles and overcome them accordingly. Some of which can be resolved via looking into various collections of resources and information, made available by local authorities to facilitate growth and prosperity within their borders.

If you want to expedite the entire process and save yourself the headache, you can leverage our company formation service for an even faster incorporation experience.

Share this article

sectigo