How to register a business: a guide for small businesses
Starting a small business is often exhilarating. It can also be a slog: No matter how original and compelling the idea, starting a business just isn’t as simple as hanging an “Open” sign on your door. You’ll first need to navigate business registration and licensing requirements at the federal, state, county, and/or local levels.
Here are answers to common questions for business owners when it comes to business registration, fees, and licenses:
Do I need to register my small business?
Do I need to register my business with the federal government?
Do I need to register my business with the state, county, and city?
How do I register my business?
How much does it cost to register my business?
What’s the difference between registering a business and licensing a business?
What’s the difference between business registration and tax registration?
Do I need to register my small business?
Probably. While some states may not require all types of businesses to register at the state level, most businesses will need to register with at least one state or local entity — and often with more than one. Even home-based businesses may need to register with the secretary of state or department of revenue.
However, you may not need to register your small business if you operate as a sole proprietor under your full legal name. Whether you’re required to register depends on the exact nature of your business, including your business entity and where you’re setting up shop.
The type of company you operate can impact your business registration and tax requirements.
A sole proprietorship is typically the simplest form of business. It’s run by a single person and doesn’t require separate tax filings. However, all business liabilities, losses, and profits are directly associated with the individual’s personal assets.
A limited liability company (LLC) must operate under a business name rather than an individual’s name. LLCs enjoy some of the simplicity of sole proprietorships with added protections.
A general partnership is a legal relationship between two or more people to do trade or business. Partnerships equally manage the business, contribute resources, and share profits and losses.
A corporation is a legal entity that operates separately from its owners. A C corporation is recognized as a separate taxpaying entity and generally takes the same deductions as a sole proprietorship when figuring its taxable income. An S corporation is a corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.
There are benefits to registering your business even when it’s not strictly necessary. Registering your business makes it a distinct legal entity, which can provide personal liability protection. There may also be legal and tax benefits to registering your business.
And of course, you may need to register your small business; you cannot legally operate certain types of businesses without registering. If you’re not sure, the state-specific business license and permit requirements page at avalara.com is a great place to begin your research. You can also contact government entities such as the office of your secretary of state, your county assessor, and/or your city government.
Do I need to register my business with the federal government?
If you plan to operate a company under any name other than your own name, you’ll need to register with the federal government to obtain a federal tax ID or employer identification number (EIN). This allows you to pay federal taxes and hire employees.
Registering your business with the federal government can also help you to secure tax-exempt status if you qualify for it, and provide trademark protection.
And, if you’ll be selling alcohol, firearms, tobacco, or similar highly regulated products, you’ll need to register with the Alcohol and Tobacco Tax and Trade Bureau, or TTB.
Do I need to register my business with the state, county, and city?
It depends on your business and its location. Requirements vary from state to state, county to county, and city to city.
For example, there’s no general business license requirement in Texas, but new businesses must register with the Texas Secretary of State and may need to register with additional regulatory agencies. Most registration requirements in Texas are at the city and county level.
By contrast, Washington state requires nearly all businesses to get a business license. You’ll need to register with the Washington State Department of Revenue if you meet any of a number of conditions, including:
- Your business requires city, county, and state endorsements
- You’re doing business under a name that’s not your full legal name
- You plan to hire employees within 90 days
- You sell a product or service subject to sales tax
- Your gross income is $12,000 or more per year
- Your business is required to pay taxes or fees to the Washington State Department of Revenue
- You buy or process specialty wood products
- Your business has nexus with the state
Domestic corporations, limited companies, limited liability partnerships, and partnerships in Washington must file with the Washington Secretary of State before applying for a business license.
Local registration requirements and processes also vary. Many cities in Washington allow you to apply for their endorsements (i.e., business licenses and registrations) at the same time you file for your state licenses and registrations. Other cities, including Seattle, require you to work directly with the city. Likewise, you can apply for endorsements in unincorporated Franklin County through the Washington State Department of Revenue but must work with other counties directly.
Not all businesses need to register at the local level, but many do. When in doubt, check with your city and/or county officials.
How do I register my business?
Because business registration processes vary by location and business type, one of the most challenging aspects is determining which business registrations and licenses are necessary.
Registration requirements for a construction contractor will be different from registration requirements for a hair stylist. Requirements in San Francisco aren’t the same as requirements in New York City. It’s easier to navigate the process in some states, counties, and cities than in others, but it’s almost always helpful to have a guide.
Government websites often offer a wealth of information. Texas Economic Development, a branch of the Office of the Texas Governor, has a Start a Business in Texas webpage that can point you in the right direction. New York state provides helpful information on its Start a Business in New York State page.
Another option is to outsource the burden of business registration and licensing. Avalara offers comprehensive support with license research, registration, and filing for new and growing businesses. We offer two business license solutions: Avalara License Guidance helps you discover your license requirements and how to submit applications. With Avalara License Filing, our team of experts files the necessary applications for you.
How much does it cost to register my business?
By now you’ve probably guessed that it depends on the type of business you’re opening and where you’re opening it. Typically, the total cost to register your small business will be no more than $300, but fees do vary.
It can cost much more to license a business. A tobacco license is typically pricey and an alcohol license can cost even more: The application fee for a general priority license that permits the sale of beer, wine, and distilled spirits in California costs more than $17,000. Such licenses often need to be renewed on an annual basis, for a fee.
What’s the difference between registering a business and licensing a business?
Registering your new business designates its name as a legal entity that’s recognized by state and local authorities. Your business classification determines how you open a bank account and file taxes. Often registration is a one-time event, though some registrations may need to be renewed.
If you register your business name, you must also apply for an EIN.
Licensing your business grants you the right to operate your business within a particular jurisdiction (the state, county, and/or city). The industry and the location of your company determine the type and number of licenses you need. Some businesses need multiple licenses that must be renewed regularly. And licensing a business so it can operate is not the same thing as getting licensed for all the various activities you may conduct.
For example, a pet store in Los Angeles may need as many as five different business licenses and/or permits, including a Los Angeles pet shop license. A home bakery in Fort Lauderdale may have to get up to seven business licenses and/or permits, including a Broward County food establishment permit. A dry-cleaning/laundry business in Chicago may require up to eight business licenses and/or permits, including a local Chicago environmental permit.
Just as no two businesses are exactly alike, no two businesses will need exactly the same business registrations or business licenses.
What’s the difference between business registration and tax registration?
As explained above, registering your business makes it a legal business entity in the eyes of the city, county, state, and/or federal government.
Registering your business for tax enables you to collect and pay the taxes you owe and file returns with the appropriate taxing authorities. For example, you need to register for a sales tax permit in states where you have nexus (aka, a sales tax obligation).
Sales tax nexus laws vary from state to state, which unfortunately can lead to sales tax registration mistakes. All states with a general sales tax now have economic nexus laws that base a sales tax obligation on a remote seller’s sales activity in the state. In many states, doing just $100,000 in sales in the state or making just 200 separate transactions in the state in the current or previous calendar year can give you sales tax nexus.
In some states, you’ll need to register for sales tax as soon as you cross the economic nexus threshold — by the very next transaction — and every state has a different sales tax application process. Unfortunately, it’s not always easy for small business owners to drop everything and register. Many other tasks require attention.
Outsourcing sales tax registration can ease the burden of compliance. With Avalara Sales Tax Registration, simply fill out our form once and we’ll prepare and file sales tax registrations in the jurisdictions you specify. We’ll prepare the necessary application forms, make payments, and follow up with jurisdictions to ensure the process went smoothly.
Don’t let the weight of business registration and licensing requirements smother your new business before it starts. Let Avalara help you with your business license and tax registration needs.
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