The Importance of Registering Your Online Business: A Comprehensive Guide
Not every business needs registration, but for those venturing into the online marketplace, registering as a legal entity can provide numerous advantages. From enhancing customer trust to simplifying funding applications and offering liability protection, the benefits are significant. If you’re in the process of starting an online business or looking to register an existing operation, this guide will walk you through the essential steps to register your online company with state and local agencies.
Do You Need to Register Your Online Business?
Registering a business is often straightforward at both federal and local levels. However, it’s not always necessary. For instance, if you’re a sole proprietor selling online under your legal name, you might not need to register until you exceed certain thresholds, such as state economic nexus limits or payment gateway onboarding rules.
When Registration is Required
Incorporated Businesses and Nonprofits: These entities typically require registration regardless of revenue.
Revenue Thresholds: If your annual remote sales into a state surpass $100,000 (or 200 transactions), most states require you to register, collect, and remit sales tax.
Industry-Specific Licensing: Certain sectors, like restaurants and wholesalers, may need additional licenses. Online marketplaces such as Walmart Marketplace often require a state tax permit or business license before allowing sellers to go live.
Each business scenario is unique, and requirements can vary by location. It’s advisable to consult local agencies for tailored advice. While opting not to register may seem simpler, you could miss out on benefits like personal liability protection and tax advantages.
Quick Check
Are you collecting customer data, shipping across state lines, or using a payment gateway? If so, registration is highly recommended.
How to Register Your Online Business
1. Pick Your Business Name
Choosing a name for your online store that is both legally acceptable and reflective of your brand can be challenging. Start by brainstorming potential names and developing a shortlist. If you’re stuck, tools like Shopify’s business name generator can help spark ideas.
Once you have a list, check for availability:
Local Business Registry: Ensure no other entity is operating under the same or a similar name.
Social Media: Check if social media handles associated with your business name are available.
Domain Name: Use a domain name search tool to see if you can register a corresponding web address.
Selecting a business name is more than just a creative task; it lays the foundation for your brand identity.
2. Choose a Business Structure
The structure of your business affects your legal liabilities, tax responsibilities, and registration process. Here’s a quick overview of common business types:
Sole Proprietorship: Operated by a single owner who is liable for business debts and reports profits or losses on a personal tax return.
Partnership: Shared ownership between two or more people, with shared liabilities and tax responsibilities.
Corporation: An independent legal entity responsible for its debts and liabilities, with profits taxed separately from owners’ personal income.
Limited Liability Company (LLC): Offers limited liability protection while allowing flexibility in management and tax structure.
Business structures vary in registration processes. Sole proprietors and partnerships may not need to register, while corporations must file articles of incorporation.
3. Register with Federal Agencies
Here are the types of ecommerce business registration you may need at the federal level:
Employer Identification Number (EIN): Every business should register for an EIN, which keeps your Social Security number confidential and recognizes your business as an independent entity.
Financial Crimes Enforcement Network (FinCEN): From 2024, many US businesses must register their information with FinCEN to identify ultimate owners.
Trademark Protection: If you have a unique brand or product name, consider filing for a trademark with the United States Patent and Trademark Office.
Non-Profit Status: For tax-exempt status, register your nonprofit with the IRS. Visit the IRS non-profits page for more information.
4. Register with State and Local Agencies
Check with state and local government agencies to understand what is needed to legally register a business in your location and industry. This might include online seller permits, licenses, articles of incorporation, and associated fees.
If your business is structured as an LLC, corporation, or nonprofit corporation, you’ll likely need to register in any state where you conduct business activities. Signs of conducting business in a state include:
A physical presence (like a retail store)
In-person activity (like client meetings)
Significant revenue generation
Employees who live or work in the state
Local business registration is generally handled through the Secretary of State’s office or a Business Bureau. Many local authorities offer online registration.
5. Register for Taxes
Businesses selling products or services are required to collect sales tax, which varies by state. You’ll need to register for sales tax in each state where you have a sales presence.
Following the 2018 South Dakota v. Wayfair ruling, nearly every state adopted rules treating high-volume online sales as a tax presence. Most states require registration, collection, and remittance of sales tax once your annual sales exceed $100,000 or 200 transactions.
States Without Sales Tax
Five states do not collect sales tax:
Alaska
Delaware
Montana
New Hampshire
Oregon
If you’re operating in these states, you won’t need to register for sales tax purposes.
Doing Business in More Than One State
Expanding your business across state lines means navigating different rules for operations, including taxes, licensing requirements, and regulations. To stay compliant, register your business in each state where you have a presence. This could mean a physical store, revenue generated, or an employee.
Registering a Trade Name or DBA
If you want to operate under a name different from your official business registration, you can register a trade name, also known as a DBA (doing business as). This is useful for appealing to a target market or branching out into new areas.
The process typically involves:
Checking for name availability
Ensuring the name doesn’t infringe on existing trademarks
Filing required documents with your state or local government
Tips for Registering Your Online Company
Get Organized
Before starting any application, create a list of what you need, including personal and business information, EIN, forms, licenses, permits, and fees.
Use a Virtual Mailbox Service
If you run your store from home, a virtual mailbox gives you a real street address for state filings while keeping your personal address private.
Hire Help
For complex registrations, consider enlisting the help of qualified tax professionals or business attorneys who can guide you through the process.
Go to the Source
Always check directly with official bodies for the latest information regarding business registration requirements. Set reminders for expirations or renewals.
Conclusion
Registering your online business may seem daunting, but it’s essential for legal protection and maintaining good standing. By following the steps outlined in this guide, you can navigate the registration process with confidence, allowing you to focus on growing your business.
FAQs
Can you run a business without registering it?
Yes, if you operate as a sole proprietorship or partnership, you can run a business without formal registration.
Is it important to register a small business?
While not always necessary, registration helps consumers identify your store as legitimate and may be required for financial tasks.
Do I need to register my small business with the IRS?
You don’t need to register to start your enterprise, but obtaining an EIN is essential for protecting your identity and building business credit.
How much does it cost to register a business?
Costs vary by state and business structure, typically involving state filing fees.
Can I register a business online?
Yes, many local authorities offer online registration.
Can I register my business without a physical address?
Yes, you can use a registered agent’s address or a virtual office.
This comprehensive guide aims to equip you with the knowledge needed to successfully register your online business, ensuring you can operate legally and effectively in the digital marketplace.
