What’s the Difference between Incorporating and Registering a Business?

29
April 2019

You understand your customers. You’re confident in your ability to deliver a top-quality product or service. But do you know how to run a business?

Many business owners are understandably confused by the myriad of bureaucratic and legal issues related to starting and running a business.

One of the first decisions you’ll need to make is whether your business should be registered or incorporated.

What Does it Mean to Register a Business?

Depending on where you live and what you do, you might want to register your business with a few different state and federal agencies.

Federal-level registration is usually minimal. You’ll need a federal tax ID number, which is used for paying taxes. Additionally, certain types of businesses might register with the federal government for a variety of other reasons, such as for tax-exempt status or to register a trademark.

However, most business registrations occur on the state level. Depending on the state, you’ll need to register with the Secretary of State’s office, a Business Bureau or Business Agency. Corporations, partnerships, LLCs and nonprofits are all typically required to register.

Aside from having a physical presence in the state, businesses might also need to register if they derive a significant amount of revenue or have a certain number of employees within a state. Registration is usually done either online or by mail.

Registration typically requires designating someone as a registered agent. They’ll receive all official paper and legal documents. Although the business owner can act as their own registered agent, services are also available if the owner doesn’t live in the state or doesn’t want to deal with the paperwork.

Registering your business with your state increases your visibility among customers. Plus, it often helps convey a sense of legitimacy for your business. It can even help improve your credit score.

However, registration benefits are relatively limited. They provide no liability protection or tax benefits. Additionally, they provide no copyright or trademark protections.

What is an Incorporated Business?

Incorporating a business is more complicated than registering one, but the benefits can be substantial. An incorporated business exists as a separate legal entity from your personal assets. Your personal finances remain protected from any legal or financial risk associated with your business. Additionally, incorporating your business allows you to take it public and issue stock options.

Incorporating your business is fairly complicated, and you’re almost certainly better off hiring a corporate lawyer. Even minor mistakes in filing can have long-lasting legal and financial repercussions, so an attorney is almost always worth the extra up-front costs.

In most states, the Secretary of State’s office handles everything related to business incorporation. You should be able to find forms and other information on your state’s official website.

Incorporating a business often makes long-term financial sense, but does require some up-front costs, especially if you hire an attorney. Plus, when your business is ready to be incorporated, it’s likely been growing steadily for a while.

If you’re looking for an easy and fast way to boost funding while incorporating your business, consider a merchant cash advance. Working capital between $5,000 and $750,000 can be yours in as little as three days after completing the simple application process. No collateral is required, and you can qualify even if you have a less-than-perfect credit history.

Should I Incorporate My Business?

In many cases, the decision to incorporate isn’t up to the business owner. Instead, it’s required by state and federal guidelines. Generally, any business not designated as a sole proprietorship or general partnership is required to incorporate.

Many times, the decision about whether to incorporate is made for the business owner. An entity must incorporate unless it’s a sole proprietorship or general partnerships.

A sole proprietorship is a business owned by a single person, while a general partnership involves two people conducting business together while remaining personally liable for any of their company’s legal or debt issue. Most businesses with employees, including cooperative associations and nonprofits, must incorporate.

What are the Different Types of Incorporation?

Incorporating a business doesn’t necessarily turn it into a corporation. Instead, you choose between incorporating as a limited liability company (LLC), a sole proprietor or a corporation.

LLCs are the most popular option. They provide liability and asset protection for an individual or small group without requiring certain types of taxes such as the self-employment tax. Each state has different requirements for forming an LLC.

A corporation is typically created for large organizations interested in attracting investors. They have the strongest tax shield as well as the most significant tax advantages.

In most cases, you’ll want to register your business with your state. Registration is usually quick and easy, although it provides limited benefits. Incorporating your business is a fairly involved process, but provides significant protections including personal asset security. As your business grows, consider a merchant cash advance to help maintain solid financial footing.