Registration for an online small business is always an advantage. A registered online small business encourages trust in your future clients, not to mention that you’d be legally protected in a number of ways. Working in the shadows never pays off, not to mention that almost all types of online business would not function properly without all the paperwork sorted in advance. Use this guide to make the registration process as smooth as possible.
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Written by Martin Nikolaev: Point of Sale Expert
Registration for an online small business is easier and faster than you think. This guide will make sure you’re not missing a piece of the puzzle. You’ll also realize that the whole process will not set you back a hefty amount of money too.
There shouldn’t be a dispute regarding the need for proper registration, licenses, certificates, copyrights, and other aspects of starting an online business. Trying to cut corners is never the right approach. Understanding every detail related to the legal status of your new project and taking the required steps are the only ways to build a sustainable online business that can grow exponentially.
I’m assuming you’ve already done all the preliminary steps of weighing the pros and cons of your online business ideas, calculating your online business startup costs, and funding your business. If not, then you can always start with the first chapter of this Small Online Business Guide that I’ve meticulously put together: How to Start an Online Business With No Money.
Otherwise, let’s dive right into this detailed guide:
- Things to Consider Before Registering Your Online Business
- 5 Steps to Register Your Online Small Business
Things to Consider Before Registering an Online Business
There are a few aspects to sort out before you proceed with registering your online business. These decisions are vital for the further development of your idea, and this is why you should take your time with them. The bottom line is to find the most appropriate business structure for your idea or project.
Start by asking yourself a few simple questions. Their answers would lead you toward making the right decision. Here’s a handful of examples:
- How do you intend to run your business: as a solopreneur or as a partner? Depending on the question, you will choose the format of your new company (sole proprietorship and, respectively, the limited partnership would be the two most appropriate choices).
- How do you intend to differentiate your personal finances and your business endeavors? If you want to avoid mixing up the two, consider registering an LLC (limited liability company).
- What’s the purpose of your business? If you intend to focus on causes or fundraisers, for example, then you can register a nonprofit organization or a co-op (cooperative society).
How to Register an Online Business: The 5 All-Important Steps
To properly register an online business, you need to deal with some paperwork, which can be tedious, but it’s neither difficult nor time-consuming to handle it. There might be differences and additional requirements depending on the state or country you’d like to operate in, but I’ll share the common process that’s applicable to most cases.
Here’s a short list of the important steps, which I’ll highlight below:
- Choose the best-fitting structure for your idea
- Come up with a name for your project and register it
- Register your business and consider all jurisdictions and permits needed
- Obtain Your EIN
- Create a business bank account
1. Choose an Appropriate Structure for Your Business
I’ve already mentioned the questions you need to ask yourself before filing your registration papers, but I’ll list the most common options for you to compare and choose from.
Possible Business Structures
- Sole proprietorship: This is a form of legal entity that doesn’t distinguish the business from its owner, both financially and legally. It’s a common choice that solopreneurs make when they’re starting a new project without investors or partners by their side. Typically, sole proprietorships need to be registered according to the requirements of your local SBA (Small Business Administration) and the specifics of your business. This is the cheapest way to register an online business: it costs less than $100.
- General Partnership/ Limited Partnership: If you have at least one partner, you can opt for the General Partnership business type. It involves a specific agreement that dictates the partners’ obligations and responsibilities. With Limited Partnership, some partners invest in the business without managing it, while the main (General) partners run the business.
- LLC (Limited Liability Company): This is the missing link between a partnership and a corporation. Its meaning is to ease the stress on small businesses when starting out, but it’s also the best type of legal status for a company that aims to grow in time without mixing its finances with the personal finances of its owner.
- Nonprofit: This structure allows businesses to use their profit for charitable events, which also qualifies it for tax exemptions.
- Co-op (Cooperative Society): This type of business aims to provide equal benefits to all members of a type of business structure. It’s unlikely for most online businesses to use such a legal form, but it’s possible.
2. Choose the Name of Your Business
You need the best possible name for your online business, but choosing it is easier said than done. It should be impressive, catchy, and easy to remember and type. You are not supposed to like it, but your target audience must love it. In the best-case scenario, it should also be related to your industry. Also, you need to make sure the domain name of your website or online store that matches your company name or DBA isn’t taken (I’ll mention what this means below).
How to Come Up with an Appropriate Name
The best way to come up with a fitting name is to research your industry and all your competitors. Your choice of a name needs to be as relevant as theirs, but it needs to be different as well, so it could stand out from the rest.
Don’t make the mistake of following a current trend or an outdated one when picking the name. If you can come up with a name that would appear as modern and appropriate in five or ten years as it does today, then you are on the right path.
Set up Your DBA
I need to mention that most businesses don’t need a DBA (Doing Business As) name. But if you do need one, remember that it’s different from your company name. A DBA is essentially the public brand name you decide to use for particular reasons.
The advice above applies to choosing a DBA as well. There are local-specific DBA requirements you’d need to meet if you want to register a DBA.
Check if the Name You Chose Isn’t Already Taken
Being able to figure out the best name for your project is not enough. You also need to make sure it’s not already taken. The best way to confirm this is to search the USPTO (United States Patent and Trademark Office) registry.
3. Register Your Online Business
This is the most important part of the registration process, which needs you to deal with all the relevant institutions and authorities. Assuming you’ve already chosen a name. This is a multi-step process that involves the following aspects:
Register Your Company Name – and DBA (If You Need One)
When you come up with a company name and pick the structure that fits your needs best, you need to register your new legal entity. The specifics of this process depend on the state you’re in, and local agencies usually list the requirements they have on their websites. No matter which state we’re talking about, the registration process should cost you less than $300.
Sole proprietors and partners usually opt for a DBA because their names are also part of the names of their business names. This is why some states require them to register a DBA in order to indicate that a particular person or business enterprise is operating under a name other than their legal name. Assumed name (DBA) laws are consumer protection laws. Filing for one is done in local, state, or country agencies, depending on your location. When you have a DBA, and you apply for an EIN, you can also have a business bank account, and I’ll share more details on that later.
Unless you are a solopreneur, you’re likely to need to register with your state. If your SBA isn’t the relevant authority in your case, then you can check with the local office of the Secretary of State or your local courtroom. When doing this, you need to check if your chosen name is not in conflict with another business’ trademark or website. The industry you’re in matters a lot in this case.
Register Locally and Obtain all Necessary Licenses
To determine the licenses or certificates you’d need to run your business legally, you need to consider your location, niche, state, or country (usually a combination of all of these factors). As I mentioned earlier, your local SBA (Small Business Administration) should answer all your questions related to the specific paperwork you’d need to deal with.
You’ll need an operating license that’s valid across the chosen jurisdiction. The license may be valid only in a particular city or throughout the state. Your town hall is the place to visit to file for this.
Additionally, you’ll need an occupational license, depending on your niche or line of work (if you’re a freelancer offering services online, for example). In some cases, you may opt for a home occupation permit, which is a great option for dropshippers or e-Commerce entrepreneurs. Having such a permit eliminates the need for most of the typical licenses or permits and gives you the chance to engage in legal business activity from your home.
4. Apply for an EIN (Employer ID Number)
Most offline and online businesses need an EIN (Employer ID Number), which stands for your federal tax identification code. Additionally, you’d probably also need to file a registration with local/state tax authorities. Your EIN is often the key to most licenses you’d need to start your business, so it’s a vital part of your entrepreneurial journey online.
Having an EIN will help you differentiate your business finances from your personal ones. It’s like an SSN (Social Security Number) for your online business. Having one makes taxation and filing documents for different permits much easier. If you know you’ll need an IRS number to run your business and deal with various institutions, then you need an EIN.
File Your EIN Application
It’s relatively easy to secure your EIN. You can complete the process online and it wouldn’t take long before you have a valid EIN. During the application process, you’ll need to provide information related to your business, alongside personal data such as your SSN.
Once the process is completed, you will receive a confirmation, alongside a downloaded file containing your 9-digit EIN. Completing this step is very important for every online small business owner because it allows for easy interaction between them, the IRS, and the rest of the relevant authorities.
5. Get a Business Bank Account
To open a business bank account, you need to go through all the steps listed above. Once you have an active account, you could avoid mixing your business affairs and your personal finances. This is especially important when it comes to tax events.
Having a business bank account is a must for several reasons. You would be able to execute transactions, but you would also be able to monitor spending and profits. One of the biggest advantages of having such an asset is credibility: a business bank account speaks of legitimate business.
How to Register an Online Business | FAQs
How do I start my own online business?
To start an online business, you need to research your idea and make sure it has potential. Once you create a business plan and name your project, you need to register a company and build a strong online presence thanks to marketing activities.
Do I need to register my website as a business?
You are not obliged to register a business entity because you have a website. However, if you want to use it for any kind of commercial activity, then you’d need to register a legal entity.
How do I register for online selling?
You need to register a business entity in the form you prefer when you decide to sell products or services online. The possibilities include sole proprietorship, general or limited partnership, LLC, non-profit, and co-op. You may also need specific licenses or certificates, depending on your niche.
Should I start a small business online?
The rapid development of the e-commerce industry and the projected growth in the next years are good enough reasons to start an online business. The lower initial and recurring costs and the usually higher profits are other reasons to do the same.