You’ve done your research and laid out your strategy, and the time is looking good for launching your business. So how do you make your vision a reality? Figuring out what steps you need to take and which regulations apply to your venture can be a challenge, especially in the age of online sales and remote employees.
To help you sort it out, we asked our compliance teams to provide answers to the six most common questions entrepreneurs ask about forming, registering, and licensing their businesses.
1. Do I need to license a home-based business?
In many cases, you can do business under your own name without forming a business entity, yet you may still need to apply for business licenses and permits based on your location and activities. Zoning and licensing requirements are set by state, county, and local jurisdictions, making it difficult to determine which regulations apply to a home-based business. If you rent, start by checking your lease, which likely outlines permissible use. If you own your property, then contact each jurisdiction, starting locally. Sometimes the licenses are obvious, as in the case of the District of Columbia’s Home Occupation Permit, and sometimes it takes some digging.
One disadvantage of operating without forming a separate business entity is that the business’s financial and legal liabilities are yours as well. If your business is sued or loses money, your personal assets and credit are at risk.
2. What are the steps for forming a business?
Establishing a business entity can limit your personal liability, save you money on taxes, and set the stage for more complex ownership arrangements and hiring employees.
The first step in forming your business is to choose a structure. For many new small businesses, the limited liability company (LLC) is the most advantageous choice. In addition to providing important legal protection, LLCs are inexpensive to start and easy to run, and they allow you to save money on taxes with pass-through taxation. Businesses may also be formed as a sole proprietorship or general partnership, but you lose the legal and tax advantages of an LLC. Incorporation is typically suited for more complex ownership and investment structures.
You’ll also need to research entity name requirements and availability in your state. Some states restrict use of certain words or require inclusion of specific suffixes.
Next, you’ll file formation documents with the appropriate state agency, usually the secretary of state. As part of this process, you will need to appoint a registered agent to receive legal documents and important notices from the state on your company’s behalf. (Here’s why you’ll want to appoint a professional agent).
Once the state department approves your filing, your business is officially established.
3. Do I have to register for taxes?
Depending on your activities, you may need to apply for a federal employer identification number (EIN). The IRS publishes helpful guidelines regarding when an EIN is required. You may also need to register for a variety of taxes at the federal, state, and local levels depending on your location and business activities. Potential taxes include sales and use, income and privilege, payroll, and self employment taxes, among others.
If you sell goods that are taxable within a given state, you will need to apply for a state sales tax license. Sales tax generally applies to tangible goods and certain services. In addition, you may need specific licenses to sell regulated products such as alcohol and tobacco.
We can help you with registering for taxes in any jurisdiction. Simply get in touch and we’ll handle the paperwork for you.
4. What do I need to do to start operating in another state, or work across state lines?
So your business is expanding, and word is getting out, and suddenly you have opportunities to serve clients in other states. What do you need to do? You may need to register to do business in the new state as an out-of-state or “foreign” company, a process known as foreign qualification. Whether or not you need to register will depend on factors such as how much business you’re doing in the state, the types of activities you’re engaged in, the frequency of activities, and a host of other considerations.
If you hire remote employees, generally they are employed in the state where they physically work, so you’ll need to research the requirements in their state of residence and potentially foreign qualify there. In addition, you may need to register for payroll taxes, among other requirements.
Another potential trigger to beware of is acquiring assets such as offices or other facilities in another state, which may require foreign qualification. You may also be required to license or register your business before advertising your services or submitting proposals or bids to residents in a new state.
In any state where you have office locations or employees, collect sales tax, or have other state tax obligations, you’ll probably also need to register for taxes.
5. If I’m doing business online, do I have to register? If so, where?
Generally, it makes sense to form an online business in the state where the owner lives and works. Unless you’re involved in other activities that require foreign qualification such as offices or employees in other states, offering products and services over the internet alone generally doesn’t require foreign qualification. However, you may be required to collect sales tax.
You can read more about registering an online business in our prior blog post.
6. What licenses are required for my business?
In addition to registering your business, you may be required to apply for separate business licenses at the state, county, or local level. Our online business licensing guide breaks down the requirements in all 50 states and provides links to licensing authorities.
In addition, many professions require professional licenses for individual practitioners and their firms. Examples include pharmaceuticals, architecture, engineering, construction, childcare, real estate, finance, and nonprofits. The requirements vary widely from state to state, so it’s important to check state regulations carefully if you are working in a regulated industry. Don’t assume that a license is not required in a new state based on your experiences elsewhere.
By building your business on a secure, compliant foundation, you can avoid costly disruptions, safeguard your business’s reputation, and set the stage for future profitability and growth.
If you would like to enjoy the benefits of compliance without wading through the paperwork, we get you. We can get you there and provide cloud-based software to make maintaining your new business a cinch. Just give us a call, 1-888-995-4895, or get in touch. We’re glad to help.