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Demystifying Business Registration: Why and How Do I Register a Business?


Tax form on a table with a pen
Fill out those government forms before you start selling!

Why Starting Your Business Without Registration Might Cost You More Than You Think

Are you thinking of starting your business with the idea of registering it only when you make a certain amount of money? Many women start side hustles or think their homegrown business is too small to bother to fall into that trap. That risky move could cause more problems and cost you more in the long run.


Let's dive into the risks and consequences of skipping the registration step.


Think of registering your business as giving it an official identity. It's like obtaining a birth certificate for your brainchild. When you file with the state, you're essentially telling the world, "Hey, I'm here, and I'm serious about this business thing." It's not just a formality; it's a foundational step that can impact your business's credibility.


In short, your business is created through the law, and without following the law, you will have no business.


Key Takeaways

  1. Early Registration Boosts Credibility: Registering your business early fulfills legal requirements and builds immediate trust with customers and partners, setting a professional tone for your venture.

  2. Legal Compliance is Proactive Protection: Just as following traffic rules prevents tickets, adhering to legal requirements proactively safeguards your business, avoiding costly penalties and ensuring a smoother journey toward growth.

  3. Strategic Business Entity Choice Matters: Choosing the right business entity, such as LLC or Corporation, is akin to selecting the perfect outfit, providing crucial legal protection and long-term benefits for both personal and business assets.


Why should I register my business ASAP?

If you still aren’t convinced that you need to register your business, consider the following:

  1. Avoid Legal Hassles and Penalties:

  2. Build Trust with Customers and Partners:

  3. Access to Business Opportunities:


What do I need to know before I register my business?

Now, let's talk about business entities. Choosing the right one is like picking the perfect outfit for your business's persona. Each one has different types of legal protections.


Sole Proprietor

The ‘easiest’ way to form your business is as a Sole Proprietor and then file a ‘Fictitious Name” or “Doing Business As” (DBA). You would still track expenses and income in this case, but they would go to your personal taxes. The DBA is to say your business has a different name than you (and it can be added to any type of business entity). However, just about any lawyer will recommend against this. Why? If heaven forbid, something goes south in your business, your personal savings and belongings (think house, car, savings, retirement, etc.) could be at risk. You have no legal or financial protections for your personal property.


LLC

The most popular choice, the LLC, does provide you a bit of a legal shield, but you are still listed on state records, so people could still theoretically sue the business to go after you, so do not consider it an iron shield for your personal assets. (If you still decide to go this route, use the Manager managed format to give your information more privacy)


Partnership

You could choose Partnership, but that can be messy and is not recommended. If you choose this route, make sure you get a lawyer to help you draw up a detailed agreement for when things go wrong because they will. Most partnerships begin with the best intentions but end up more stressful than an ugly divorce.


Corporations

The best long-term choice is considered a Corporation because it is what you want your business to be eventually and provides the highest protection level. Most people think that because they are just one person and not making any money, they shouldn’t form a corporation, but that is limited thinking. You can form a corporation and be president, CEO and every officer, but you will still be protected. Best of all, you never have to change your entity!

I wish I had known this when I started instead of climbing up the ladder and changing my entity every year. Being a corporation will also save you taxes in the long run and force you to develop the discipline to pay yourself a regular salary, which is a good practice for all entrepreneurs. Even if you initially pay yourself $1 per month, at least you have the structure. It makes it easier to hire help, which helps your business grow, and it brings even more legitimacy if you are seeking funding. It is more structured, which can seem overwhelming at first, but it can make it easier in the long run. Even if you don’t choose this form in your early days, you want to switch to this for tax benefits when you profit over $50,000-60,000 (this amount will change each year with tax rules).


How do I Register a Business?

You can navigate this paperwork jungle on your own, by going to your state’s “Department of State”. Obviously, you will save the most upfront costs this way, but like assembling a complicated piece of furniture, there's a risk of missing a crucial piece.


The safest bet is a local attorney. Why? They will be able to adjust to your personal situation and ensure you have completed everything correctly. Attorneys will also help you find out about local requirements you may not know about. For example, you may need to register with your local county to run an office out of your home. Building a relationship with a local attorney ensures you also have a go-to person for future questions and concerns.


Don’t just find an attorney with a fancy office; find someone you can trust and freely communicate with. You ideally want to find someone you can maintain a relationship with for the life of the business.


Attorneys will require a hefty fee, but it is a worthwhile investment in your business as it will save you time and money in the end.


You can use a service like Zen Business for under $1000 to help do the filing and make sure you stay compliant, but you cannot be assured that everything is personalized to your needs. You can also add in other services like checking for other licenses.


In addition to the registration with the state, you may have other requirements. Depending on your industry or how you operate, such as medical or legal services, certifications might be in order. A physical address might trigger inspections. Getting these ducks in a row before proclaiming your business open is like setting the stage for a smooth performance.

In the end, filing your business isn't just a paperwork shuffle; it's a strategic move. It's about positioning yourself for success, safeguarding your assets, and ensuring you're ready to tackle any special requirements your business might face. So, take that step, find the right attorney, and let your business shine in its official identity!


Looking for a guide to help you on your business journey?

Schedule a strategy call to find out what next steps you can take to birth your business!




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