Registering a company formally in the US ensures the legal and financial security of a business's burgeoning venture. Registering a company provides business operations with a legal backbone and opens doors to several financial benefits and protections that an unregistered business cannot access.
In 2022, 5 million new businesses were created in the United States alone, with each venture setting out on the important step of company registration. Although this process may appear daunting at first, it's manageable when broken down into small parts. Registering a business in the US is less about ticking off legal requirements and more about building a strong, legally sound foundation for that entrepreneurial dream. Ensuring that a company stands on solid legal ground sets the stage for growth and expansion, while protecting it against potential liabilities and legal disputes. Here are the key steps of the process.
What's in this article?
- What does it mean to register a company?
- Why is it important to register a company?
- How to register a company in the US
What does it mean to register a company?
Registering a company in the US is the process of establishing a business entity formally and legally within a specific jurisdiction. This process generally involves recording the business's details with a government agency, thereby granting the business recognition as a legal entity that is separate from its owners. The registration allows the company to conduct business legally, assume liability and enter into contracts, while providing certain protections under the law. It also subjects the company to specific tax obligations and reporting requirements.
Why is it important to register a company?
Registering a company is important for several reasons:
Legal protection: registering a company creates a separate legal entity, which is distinct from the individuals who own and manage it. This legal separation is particularly beneficial when it comes to liability. If the company incurs debt or is sued, in most circumstances, the personal assets of the owners or shareholders (such as their homes, cars and personal bank accounts) are protected and cannot be used to settle the company's debts. This protection, known as the "corporate veil", is a key benefit for business owners.
Brand protection: when a company is registered, it secures the business name within the jurisdiction. This means that no other business can register under the same name in that region, which helps to protect brand identity and prevent confusion among customers. It's important to note that registering a company doesn't replace trademark registration, which offers more comprehensive brand protection on the national or even international scale, but it's a key first step.
Credibility and reputation: registered businesses are often perceived as being more legitimate and trustworthy than unregistered ones. Customers, suppliers and partners may feel more comfortable doing business with a company that is registered because it demonstrates a long-term commitment and a level of seriousness surrounding the business venture. Moreover, some businesses will only deal with registered entities.
Access to finance: most financial institutions require businesses to be registered before they can open bank accounts, apply for loans or access other banking services. If a business needs to raise money, investors will generally expect the company to be legally registered before they invest. If the business is registered as a corporation, it has the ability to issue shares of stock, which can be an effective way to raise capital.
Tax benefits and obligations: registering a company brings it into the formal US economy, which in itself comes with benefits and responsibilities. On the one hand, the company may qualify for certain business deductions, credits or other tax advantages that can lower the overall tax burden. However, on the other hand, it will need to comply with the US tax laws applicable to the type of business, which may involve paying corporate taxes, collecting sales tax, withholding income taxes for employees and more. It's important for a business to speak to a tax professional to understand the specific tax implications.
Contracts and agreements: as a legal entity, a registered business can enter into contracts, rent property and conduct other business activities under its own name. This is important for many aspects of running a business, such as signing a commercial lease, entering into agreements with suppliers, recruiting employees and negotiating deals with clients.
While there are significant benefits to registering a company, it also requires fulfilling certain obligations and responsibilities. These may include annual reporting to the relevant authorities, maintaining accurate financial records, and complying with business laws and regulations. As a result, it's wise to seek professional advice to fully understand what registration means for the business and situation in question.
How to register a company in the US
To build a solid foundation for a new business, an understanding of the legal processes involved is essential. One important step is registering the company, a process that formalises the business's legal existence and provides a basis for many other aspects of business operation. The US registration process might appear complex at first, but it quickly becomes manageable when broken down into individual steps.
Here are the steps to register a company in the US:
Choose a business structure: before a company can be registered, it needs to decide on a business structure. Options include sole proprietorship, partnership, limited liability company (LLC), corporation or non-profit. The type of structure that the company chooses will affect its operations, taxes and the legal obligations of the owners.
Choose a business name: the business will need to choose a unique name for itself, one that is not being used elsewhere in the jurisdiction. Many US state and local governments provide an online tool to check for name availability.
Register the business name: once the name has been chosen, the business can register it with the relevant government agency. In some US jurisdictions, the name may also need to be published in a newspaper.
File the relevant legal documents: depending on the business structure, the business will need to file certain documents to establish the business officially. For example, if setting up a corporation, the business will need to file articles of incorporation. If setting up an LLC, it will need to file an operating agreement. These documents detail the purpose of the business, its operational structure, and the rights and responsibilities of the owners.
Pay the registration fees: usually, there are fees associated with registering a business. These fees will vary depending on the jurisdiction and the type of business structure that is chosen.
Apply for necessary permits and licences: depending on the nature of the business, specific permits or licences may need to be obtained to operate legally in the US. This could include a sales tax licence, health department permits or a professional licence.
Get an employer identification number (EIN) or tax ID: in many countries, you need to get a tax identification number for your business. In the US, this is an employer identification number (EIN) and the IRS uses it to track the business's tax obligations.
Register for state and local taxes: depending on the jurisdiction and the nature of the business, businesses in the US may also need to register for certain state and local taxes, such as sales tax, unemployment insurance tax and state income tax.
Once these steps have been completed, the business is considered to be registered legally and is ready to begin operations. Registration is a major milestone in the business journey – it provides companies with a legal footing and sets the stage for future operations and growth. It's the moment when a business shifts from a concept to a recognised legal entity – one that is ready to recruit employees, serve customers and grow.