In this lesson, we will give you a run-down on how to register a business in the USA.
Each US state has different regulations and requirements for registering a business, although the basic process above will remain the same. You can find your state's business license information by running a quick Google search for “business license + the name of your state”. Some states even allow you to carry out a business name search and register your business online. However, before you register your business you need to decide what type of business you are going to set up.
The most common types of businesses are: sole proprietor, partnership, limited liability company, and corporation. Each type of business has different advantages and you should look into these carefully before you choose which one you are going to form.
For eBay sellers, the most common types of business structures are C Corporation, S Corporation, Limited Liability Corporation, and Sole proprietorships. Each have different advantages, for example:
Sole proprietorships require little legal structure and allow you to take advantage of tax benefits. It works very well for a one-man operation working from home. However, you are held personally responsible for anything that might go wrong and there is no scalability if your business grows.
On the other hand, Corporations offer you personal protection with limited liability and also have the ability to be expanded. On the downside, they have a minimum taxation of about $800/year, whatever the profit/loss situation, and they also require a formal legal structure. (See Appendix A on steps for forming a C Corporation).
For more information on different business structures and their advantages and disadvantages, visit the link on screen.
You may also wish to talk to your lawyer.
Forming a corporation in your own state is not always the most beneficial option. The states of Nevada and Delaware, for instance, are a very popular choice for corporations as they offer significant tax benefits.
- No corporate income tax
- No taxes on corporate shares
- No franchise tax
- No personal income tax
- No I.R.S. information sharing agreement
- Nominal annual fees
- Minimal reporting and disclosure requirements
- Stockholders are not public record
Be aware however, that while the benefits of incorporation in Nevada may be substantial, if your business is located in another state, it's possible you may have to pay your home state's fees also.
To find out more, go here.
If you are interested in incorporating, there are many different online companies who will help you incorporate for around $US200-US$400, although this can range up to US$2,500 or so if you want a higher level of service - such as someone to answer phone calls, a registered agent's services for a year, and so on.
Just some of the many companies who offer this service are:
Obtaining a Tax ID
All businesses selling products or services that pay any kind of taxes and/or have employees must have a sales tax ID number (also known as an employer identification number or EIN). This is a number assigned solely to your business by the IRS and is used to identify your business to several federal agencies responsible for the regulation of business. If you plan on buying from wholesalers and/or importing merchandise, you will need to have a tax ID number before they will deal with you.
To set up a sales tax ID, you can apply online at www.irs.gov, contact your nearest Local IRS Field Office, or call the IRS Business and Specialty Tax Hotline at (800)-829-4933.
Applying online is easy: Just answer a few questions, and enter your personal and company details.
Note: Applying for an EIN is a free service offered by the IRS. Be very wary of online service providers who charge you a fee to complete this process for you on your behalf.
Here’s a quick recap on what we have covered today:
- The most common types of business structure for eBay/online businesses are C corporations, Limited Liability Corporations, S corporations and sole proprietorships.
- Some businesses find that forming a business outside of your state, such as in Nevada, offers good tax benefits.
- All businesses selling products or services that pay any kind of taxes and/or have employees must have a sales tax ID.
That’s all for this lesson. Thanks for watching.