Every business requires federal and state tax identification numbers, a name by which it will conduct business, and appropriate licenses that allow it to operate, according to the Small Business Administration. Additionally, any business-specific licenses, such as a real estate agent’s license or a liquor license, need to be acquired depending on the business. Costs of registering differ depending on the business structure you choose.
A sole proprietorship is an unincorporated business with one owner. You can operate this business under your own name or acquire a doing business as, or DBA, license from your city hall or county clerk’s office. The cost for a DBA license might range from $10 to $100 depending on your county, as of publication. Sole proprietorships are typically not required to register with any state or federal agencies. As owner, you are responsible to claim revenues, expenses, profits or loss on a Form 1040 and Schedule C as part of your personal tax filing annually. You also must pay self-employment tax. You can file your business taxes using your Social Security number, or apply for a separate employer identification number, or EIN, from the IRS.
A partnership is an unincorporated business with more than one owner. Securing a DBA from city hall or the county clerk’s office also is necessary for a partnership. A contract between partners should be drawn up and reviewed by an attorney detailing clear terms on each partner’s percentage of ownership, rights and responsibilities. The agreement should also detail what will happen to the business if any partner leaves the partnership. Request an EIN from the IRS that each partner uses when filing business taxes. If your business is a reseller of wholesale goods, you’re required to get a resale license from your state’s Secretary of State’s office to collect sales tax from your customers’ purchases.
Launching a corporation requires submitting articles of incorporation including a trade name, your corporate bylaws, directors’ names and addresses, stock issuance information, and required fees to any state’s Secretary of State’s office. Owners, called shareholders, can unanimously elect to register their corporation under Subchapter S of the Internal Revenue Code by filing Form 2553, which makes their company an S corporation. This status ultimately lets the shareholders divide and pay their corporation’s tax liability as part of their personal tax filings, and avoid paying separate corporate taxes to the IRS. Only companies with fewer than 75 shareholders can become S corporations. Corporations must hold annual board of director and shareholder meetings, and keep meeting minutes on file subject to state or federal review.
Limited Liability Companies
A limited liability company, or LLC, is a form of corporation that states consider to be separate business entities from their owners, but that the IRS does not. Start an LLC by registering articles of incorporation with any state’s Secretary of State’s office. The IRS taxes owners of an LLC, called members, as unincorporated partners. Your LLC will need an EIN, and, if applicable, a resale license from your state.