• What form of ownership best suits my business?
• How do I register my business? And where?
• Do I need a tax ID number?
• What about state taxes?
• Do I need any special licenses or permits?
• Are any trademarks, patents or copyrights necessary?
• Do I need business insurance?

What form of ownership best suits my business?

It’s critical to choose the business type that provides the appropriate tax structure and liability protection. We’ve compiled brief definitions of the basic forms of ownership below, and there are links to more in-depth explanations on the left. It’s advisable to speak with an attorney or certified public accountant (CPA) familiar with small business ownership in your area to help you assess the pros and cons of the various business structures.

Sole Proprietorship – If you own an unincorporated business by yourself, such as a solo consultancy. As a sole proprietor, you own all the assets of the business and the profits generated by it, and also assume complete responsibility for any of its liabilities or debts. The easiest and least expensive to start.

Partnership – Two or more people share ownership of a business, and function similarly to a sole proprietorship. Partners need a legal agreement that spells out how decisions will be made, profits shared, disputes resolved, how partners can be brought in or bought out, and more.

Limited Liability Company (LLC) – Provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

C-Corporation – A corporation is considered by law to be a unique entity, separate from those who own it. The owners of a corporation are its shareholders. A corporation can be taxed, it can be sued, and it can enter into contractual agreements.

S-Corporation – Certain corporations can avoid double taxation (once to the shareholders and again to the corporation) by choosing this structure. It enables the shareholders to treat the earnings as distributions so they pass through directly to their personal tax return, but then a shareholder, if working for the company, and if there is a profit, must be paid wages – which must meet standards of “reasonable compensation.”

Non-Profit – There are three types of non-commercial organizations: trusts, corporations, and associations. It’s worth your while to consult with an attorney who is familiar with non-profits to help you understand the ins and outs of obtaining tax exemption status. You can also start by reading up on the process of starting a non-profit

Tip: There’s a lot of information out there and while it's helpful to check different sources, always check with federal, state, and local agencies for the official word.

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How do I register my business name? And where?

You may wonder if this is actually necessary, especially if you’ve been freelancing for years. In fact, if you are operating as a sole proprietor under your own name, you do not need to register it. If you will be using a different name for your business (trade, assumed, fictitious, or DBA for “Doing Business As”) but are still the sole proprietor, you will need to register the business name. In most states, this is very inexpensive. Once the business name is registered, you can open a business bank account and start getting paid!

If you have elected for another form of ownership, registration and tax filing will be different. Because it also differs from state to state, be sure to follow the right guidelines for your state.

Which brings up another question – where should you register your business? You may assume that it’s in the state where you do most of your business, but this isn’t always the case. Many businesses all over the U.S. are actually registered in the state of Delaware because the process is easier than other states and Delaware offers a favorable tax treatment for companies headquartered elsewhere. Compare the pros and cons for your business before selecting a registration location.

Tip: Keep track of any expenses you acquire at this stage. These are start up costs and may be tax deductible.

Check out New York State's Online Permit Assistance and Licensing website and information on registering in the state of Delaware.

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Do I need a tax ID number?

In most cases, you will need a federal tax ID number, also called an Employer Identification Number (EIN). Business partnerships, companies with employees, and corporations (among others) must obtain an EIN from the U.S. Internal Revenue Service. You can apply for an EIN online.

Tip: If you are a sole proprietor, it is wise to use an EIN instead of your social security number on invoices. You never know who is looking at them.

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What about state taxes?

It may seem like overkill, but you also need to register with your state revenue agency (and possibly also the local level). If you plan to sell products and you are required to collect sales tax, you will likely need to obtain a Sales Tax Permit or Vendor's License from your state or local government (or both).(There’s more on permits and licenses in the next section.)

Check on your local and state tax requirements. Note that there’s more than one step to officially registering a business, and it differs by state, so always check with local agencies to make sure everything is set.

Do I Need Any Licenses and Permits?

Obtaining an industry-specific license may be obvious for hair salons and restaurants, but do you know if your location needs a sign permit? Most businesses are required to obtain some type of business license or permit to legally operate, and more may be required, such as an occupational license and licenses based on products you are selling (liquor, for example). A state business license [http://www.sba.gov/hotlist/license.html] is the main document required for tax purposes and conducting other basic business functions. And never assume, always look into what may be required to safely operate your business.

Read an overview of what sorts of licenses your business may need. And to save yourself a headache (or worse) down the road, check to see what sort of licenses are required for your specific business in your area.

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Are Any Trademarks, Patents or Copyrights necessary?

What about those little letters next to logos? Do I need them? And what’s the difference between them? Determining if you need to protect your “intellectual property” – inventions, processes, designs, symbols, artistic works, images, or names used commercially – can be confusing. It really depends on your business and what you can afford, but it’s always a good idea to protect what you can.

We’ve provided basic definitions below and you can read further on the different sorts of protection. We’ve also provided links for online applications.

Trademark – used to protect a word, symbol, device, or name that is used for the purpose of trading goods.

Servicemark – the same as a trademark except that it identifies and distinguishes the source of a service rather than a product.

The ® means the mark is registered with the U.S. Patent and Trademark Office (USPTO). If you have an application pending, or even if you don’t but “can claim rights” to a mark, use the TM or SM designation. Check the USPTO’s website for more information on trademarks. You can also apply online for a trademark or service mark.

Tip: If you are doing business internationally, U.S. trademarks might not offer any protection. Look into international standards.

Copyright © – protects original works that fall under the categories of literature, dramatic, musical, artistic, and intellectual. Note that a copyright doesn’t protect the subject matter of the work, just your particular expression of the subject matter. Read more about copyrights and how to register a copyright.

Patent – Grants a property right to the inventor that will prevent anyone else from making, using, or selling an invention. Read further on patents and how to apply for a patent online.

Realize that other people might have the same or very similar idea as you, so if you put off applying for a patent, someone might beat you to it. On the other hand, some people spend the time and money getting a patent, but then realize too late that it’s not that marketable. It pays to thoroughly research both your market and the trademark/patent process early on.

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Do I Need Business Insurance?

You may be wondering if business insurance is even necessary, and you’d like to cut costs where you can. However, some forms of insurance, such as Worker’s Compensation, are required in every state but Texas (if you have employees). Apart from what’s legally required (depends on the state), it’s always wise to be prepared for the unexpected.

Common forms of insurance small businesses use are General Liability and Product Liability, but you may also have a need for Home-Based Business Insurance (to cover what your home owner’s policy may not) or Internet Business Insurance (to cover damages caused by a virus).

Read about the various types of business insurance, see what applies to your business, and check with local agencies to see if any type is actually required for your operation.

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