Follow these steps to launch your business
1. Choose a business structure
Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.
You’ll need to choose a business structure before you register your business with the state. Most businesses will also need to get a tax ID number and file for the appropriate license and permits.
Choose carefully. While you may convert to a different business structure in the future, there may be restrictions based on your location. This could also result in tax consequences and unintended dissolution, among other complications.
Consulting with business counselors, attorneys, and accountants can prove helpful.
Common business structures:
- Sole Proprietorship
- Partnership
- Limited Liability Company(LLC)
- Corpotation(C Corp, S Corp,B Corp,Close Corporation, Nonprofit Corporation)
- Cooperative
2. Select your state
You’ll need to register your business, pay taxes, and get licenses and permits in the place you choose to locate your business.
Where you locate your business depends in part on the location of your target market, business partners, and your personal preferences. In addition, you should consider the costs, benefits, and restrictions of different government agencies.
State and local taxes
Consider the tax landscape for the state, county, and city. Income tax, sales tax, property tax, and corporate taxes can vary significantly from place to place.
In fact, some states are well-known for creating tax environments that are very friendly to certain kinds of companies. That’s part of the reason why tech startups, financial institutions, and manufacturing tend to concentrate in certain areas of the country.
State and local government incentives
Some state and local governments offer special tax credits for small businesses. You might also find state-specific small business loans or other financial incentives.
Incentive programs and benefits are often related to job creation, energy efficiency, urban redevelopment, and technology.
Federal government incentives
The federal government offers benefits to small businesses that contract with the government and are based in underutilized areas.
Popular registration states
For most small companies, the best location to open a business is in the state in which they plan to operate.
Several states could be a better choice when registering an company out of state.
Delaware: Delaware is a popular state for out-of-state company registration, as it offers favorable tax laws, business-friendly regulations, and a predictable legal system. It also has a reputation for being a corporate-friendly state.
Nevada: Nevada is another popular state for out-of-state company registration due to its low taxes, business-friendly regulations, and efficient regulatory process. It is also known for its privacy protections.
Wyoming: Wyoming has low taxes and a business-friendly regulatory environment, and it allows for anonymous ownership of LLCs and corporations. This can be attractive to companies looking to maintain privacy.
Florida: Florida has no personal income tax and a business-friendly regulatory environment, making it an attractive option for out-of-state companies. It also has a large and diverse population, with many young and skilled workers.
Texas: Texas has no personal income tax, a business-friendly regulatory environment, and a growing economy. It also has a large and diverse population, with many major cities and industries.
3. Choose your business name
Selecting a business name that aligns with your brand identity and doesn’t conflict with the goods and services you offer is crucial. It is also essential to ensure that your chosen name is unique to prevent confusion with any existing registered companies.
After deciding on a suitable name, it is imperative to protect it. There are four methods of registering a business name, each of which serves a unique purpose. Depending on your business structure and location, some of these registration methods may be legally mandatory.
- Entity name protects you at a state level
- Trademark protects you at a federal level (Intellectual Property)
- Doing business as (DBA) doesn’t give legal protection, but it might be legally required
- Domain name protects your business website address
When it comes to entity names and business names, you have the option to keep them the same or choose different names, depending on your branding and marketing strategy.
Your entity name refers to your business’s registered legal structure, which is used for tax returns, business bank accounts, loan applications, and lawsuits. Therefore, it is crucial to ensure that your entity name is registered with the state.
Registering a DBA (Doing business as)— also known as a trade name, fictitious name, or assumed name, may be necessary based on your business location and structure. While it doesn’t provide legal protection, many states require it. Even if it’s not required, registering a DBA can still be useful for branding purposes and to operate your business under a name that’s different from your personal or formal business entity name.
4. Choose a registered agent
A registered agent is a person or entity appointed by a business to act as the point of contact between the business and the state for the purpose of receiving legal notices and other important documents on behalf of the business.
While all states permit you to act as your own registered agent, there are drawbacks to doing so. One such disadvantage is that you must be present during business hours, which can be challenging if you need to run your business elsewhere.
Outsourcing a registered agent service can alleviate the burden of acting as your own agent and offer numerous benefits:
- Allowing you to travel more flexibly during regular business hours.
- Meeting the requirement of having a physical office without the need for a permanent physical location.
- Eliminating the need to update your listing with each move, as the agent’s address can be used as your business’s permanent address.
- Helping maintain and organize your legal documents to ensure that you can access them easily when needed.
5. Register your business
If your business is a limited liability company (LLC), corporation, partnership, or nonprofit corporation, you’ll probably need to register with any state where you conduct business activities.
Typically, you’re considered to be conducting business activities in a state when:
- Your business has a physical presence in the state
- You often have in-person meetings with clients in the state
- A significant portion of your company’s revenue comes from the state
- Any of your employees work in the state
File for foreign qualification
If your business operates in multiple states, it may be necessary to form your company in one state and then file for foreign qualification in other states where your business is active. This means that the state where you initially formed your business will view it as domestic, while all other states will consider it as foreign.
To ensure compliance, foreign qualified businesses usually need to pay taxes and file annual reports in both their state of formation and in states where they have obtained foreign qualification.
To foreign qualify, you’ll need to submit a Certificate of Authority to the relevant state, and some states also require a Certificate of Good Standing from your state of formation. Each state has its own filing fee, which can vary depending on the business structure and state.
It’s important to check with state offices to determine foreign qualification requirements and associated fees.
File state documents and fees
In most cases, the total cost to register your business will be less than $300, but fees vary depending on your state and business structure.
The information you’ll need typically includes:
- Business name
- Business location
- Ownership, management structure, or directors
- Registered agent information
- Number and value of shares (if you’re a corporation)
The documents you need — and what goes in them — will vary based on your state and business structure.
Stay up to date with registration requirements
Some states require you to provide reports soon after registering depending on your business structure.
You may need to file additional documentation with your state tax board or franchise tax board. These filings are typically referred to as Initial Reports or Tax Board registration, and most often need to be filed within 30-90 days after you register with the state.
Check with your local tax office or franchise tax board, if it applies to you.
6. Get federal and state tax ID numbers
Your state tax ID and federal tax ID numbers, also known as an Employer Identification Number (EIN), serve as unique identifiers for your business.
Get a federal tax ID number
Your Employer Identification Number (EIN) is your federal tax ID. You need it to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits.
Your business needs a federal tax ID number if it does any of the following:
- Pays employees
- Operates as a corporation of partnership
- Files tax returns for employment, excise, or alcohol, tobacco, and firearms
- Withholds taxes on income, other than wages, paid to a non-resident alien
- Uses a Keogh Plan (a tax-deferred pension plan)
- Works with certain types of organizations
Change or replace your EIN
If you already have an EIN, you might have to change or replace it with a new one if certain changes have occurred with your business, depending on your business structure and the kind of change that occurred.
Get a state tax ID number
The need for a state tax ID number ties directly to whether your business must pay state taxes. Sometimes, you can use state tax ID numbers for other functions, like protection against identity theft for sole proprietors.
Tax obligations differ at the state and local levels, so you’ll need to check with your state’s websites.
To know whether you need a state tax ID, research and understand your state’s laws regarding income taxes and employment taxes, the two most common forms of state taxes for small businesses.
Identifying State Taxes That Apply to Your Business
Different types of companies may be required to pay different taxes. Some of the most common taxes include:
- Income tax
- Sales tax
- Property tax
- Excise tax
- Industry-specific taxes
- Environmental-impact taxes
- Employment taxes, such as unemployment insurance and employee withholding tax
- Self-employment tax on business shares for sole proprietors, partners, and LLCs
7. Apply for licenses and permits
Before starting commercial activities, most companies must obtain certificates issued by various departments at the local, state, and federal levels, including at least a business license and permit. Companies should identify licenses and permits that are required to legally run and operate the business.
Federal licenses and permits
You’ll need to get a federal license or permit if your business activities are regulated by a federal agency.
Requirements and fees depend on your business activity and the agency issuing the license or permit. It’s best to check with the issuing agency for details on the business license cost.
State licenses and permits
The licenses and permits you need from the state, county, or city will depend on your business activities and business location. Your business license fees will also vary.
States tend to regulate a broader range of activities than the federal government. For example, business activities that are commonly regulated locally include auctions, construction, and dry cleaning, farming, plumbing, restaurants, retail, and vending machines.
Some licenses and permits expire after a set period of time. Keep close track of when you need to renew them — it’s often easier to renew than it is to apply for a new one.
You’ll have to research your own state, county, and city regulations. Industry requirements often vary by state. Visit your state’s website to find out which permits and licenses you need.
8. Open a business bank account
Opening a business bank account when your business starts accepting or spending money. The bank account helps your company stay legally compliant and protected. A business account includes a checking account, savings account, credit card account, and a merchant services account. Merchant services account allows you to accept credit and debit card transactions from your customers.
Important documents for business bank account
- Employer Identification Number (EIN)
- Your business’s formation documents
- Ownership agreements
- Business license and permit
Benefit for a business bank account:
- Protection: It offers limited personal liability protection and ensures personal information is secure.
- Professionalism: Customers will be more convinced with your business and make checks out to your business. You will be able to authorize employees to handle banking tasks on behalf of the business.
- Preparedness: It can be used in an emergency or if your business needs to purchase new equipment and inventory.
- Purchasing power: It can help your business make large startup purchases and help establish credit history for your business.
Things considering for merchant services account:
- Discount rate: The percentage charged for every transaction processed
- Transaction fees: The amount charged for every credit card transaction
- Address Verification Service (AVS) fees
- ACH daily batch fees: Fees charged when you settle credit card transactions for that day
- Monthly minimum fees: Fees charged if your business doesn’t meet the minimum required transactions
9. Get business insurance
Business structures like LLCs and corporations provide limited personal liability protection, but it may not be enough to fully protect your personal and business assets. Business insurance can help bridge the gap and provide additional protection from unexpected events. Some types of insurance may be legally required, such as workers’ compensation, unemployment, and disability insurance for businesses with employees. Check your state’s requirements for additional insurance.
After obtaining insurance that is required by law, it is recommended to consider purchasing additional insurance to cover any other business risks. Generally, it is advisable to insure against potential losses that the business may not be able to cover on its own.
To determine what types of coverage are appropriate for your business, consult with insurance agents and compare the terms and prices to find the best deal. Here are 8 types of business insurance that are commonly sought after:
- General liability insurance
- Commercial Property insurance
- Professional liability insurance
- Product liability insurance
- Home-based business insurance
- Business owner’s policy
- Business interruption insurance
- Cybersecurity insurance
10. Stay legally compliant
Registered Agent
A registered agent must be kept up to date in order to maintain the legal status of a business entity. The registered agent is responsible for receiving legal and tax documents on behalf of the business, so it is important that their information is accurate and current. Many states require businesses to renew their registered agent designation annually or every two years, and failing to do so can result in the loss of good standing and legal consequences. It is important to stay on top of registered agent renewals to ensure the smooth operation of your business.
Annual Report
To remain compliant and in good standing, businesses are usually required by most states to file annual reports and pay taxes. It’s important to note that each state has its own unique filing requirements, which can be overwhelming for business owners to keep track of. However, if you find keeping track of your annual report worrying, there’s no need to fret. You can utilize an annual report service that will remind you when your reports are due and help you stay on top of your filing obligations.
If forget to file annual report
Late fine: Most states impose a penalty or late fee if a business fails to file an annual report by the deadline. This fee can range from a few dollars to several hundred dollars, depending on the state and the size of the business.
Loss of good standing: If a business fails to file an annual report for a certain period of time (often two years), it may lose its good standing designation with the state. This means that the business will no longer be able to legally operate in the state until it files the necessary reports and pays any associated fees.
Loss of liability protection: If the business is a separate legal entity (such as an LLC or corporation), failing to file an annual report can result in the loss of liability protection. This means that the owners of the business could be held personally liable for any debts or legal judgments against the business.
- Dissolution of the business: In extreme cases, a business may be dissolved by the state if it fails to file annual reports for an extended period of time. This means that the business will cease to exist and any assets or property owned by the business will be liquidated to pay off any outstanding debts or liabilities.
Licenses, permits, and recertification
In order to legally operate, businesses are required to obtain licenses and permits at the local, county, state, or federal levels. The exact requirements vary depending on the business location, industry, and activities, which can make the process overwhelming. It is crucial to stay compliant with these regulations, as noncompliance can lead to legal consequences, fines, and other penalties. To simplify the process, seeking guidance from professionals or researching the specific requirements for your business can be helpful. Additionally, many states and cities require businesses to renew their licenses on a yearly or biennial basis.