DISCLAIMER: This article is for informational purposes only, and doesn’t constitute professional legal advice. Oberlo is not liable to you in any way for your use or reliance on this article.
It’s essential that ecommerce entrepreneurs know how to register a business, especially at the start of their entrepreneurial journey. By registering an ecommerce business as a legal entity you’ll ensure that both your personal assets, and those of your business, are legally secure. Once your online store has been registered as a legal entity you’ll also be protected if any of your customers, or competitors, decide to file legal action against you.
If you’ve never registered a business in the USA before, the thought can be quite daunting. We’ve created this article to walk you through all the necessary steps which you’ll need to consider when you’re registering a business in the USA.
You’ll soon know how to register a business and get the stability and legal security which ecommerce business owners who are just starting their entrepreneurial journey need.
Naming Your Business
Every ecommerce entrepreneur will need to take the first step towards registering their business by deciding on a name for their online store. It’s essential that you come up with a memorable name for your online store– something which is going to catch the eyes of your audience and leave a lasting impression. Make sure that the name is related to your niche, and something which you’ll be able to build a marketing strategy around.
Coming up with an idea for the name of your ecommerce business which will stand the test of time can be tricky. Check out some of your competitors and analyze the types of names which they use. Make a note of the ecommerce business names which you like and then think about how your idea compares with it. Does your idea stand out from the crowd? If not, what can you do to make it unique?
Registering a Business Name
Once you’ve come up with an amazing name for your ecommerce business you’ve already overcome one of the most difficult parts of registering a business. It’s critical to make sure that your business name isn’t already registered with the United States Patent and Trademark Office (USPTO). The USPTO will automatically reject any registration for a business name that’s already registered in their system. You’ll also lose any processing fees from the application.
To avoid any of these problems, research your local business directories to verify if the business name you’d like to use is available. You can also use USPTO’s free tool to check if your business name is available.
Future-Proofing Your Business Name
When you’ve found a memorable business name that is available, take some time to think about the long-term goals of your business. Do you think that the name of your business is future-proof? Will it stand the test of time?
Try to avoid choosing a business name which stems from a current trend. If you were to name your ecommerce business ‘Selfie Stick Corporation’ you may see success initially, but how popular will your business be in the next few years?
It’s important to consider the staying-power of a name before you register your business, as it’ll be inconvenient to change your name later on. Changing your name once you’ve created an established ecommerce business is a hassle legally, and can also lead to confusion for your existing customers.
Picking Your Business Entity
After you’ve decided on a name for your ecommerce business, you’ll need to choose the type of business entity which best fits your online store. There are two main options; registering your business as an LLC, or incorporation. There are distinct differences between these two options, so we’ve broken down the key points which you’ll need to know so you can make the best decision for your ecommerce business.
Registering your ecommerce business as an LLC, or a Limited Liability Company, is often less expensive than incorporating the business. Setting up your business as an LLC will require less paperwork than it would if you were to incorporate, which means that you’ll have more time to focus on getting your store off the ground.
When you’ve registered your ecommerce business as an LLC you won’t be personally liable for any debts which your company accumulates. This means that your personal assets like your savings, car, and house will be completely safe if anything were to happen to your ecommerce business.
Another benefit of choosing to register as an LLC is that you’ll be able to rent your personal assets to your ecommerce business. For example, if you run your ecommerce business from a home office, you’re able to claim that space as a business expense. You’ll save some extra money by doing this which you’ll be able to put into other aspects of your business.
You’ll also be able to decide how your company is taxed. You’ll have the option to choose corporation tax for your ecommerce business, which means that you’ll be taxed at a much lower rate for the first $75,000 that you earn. You can apply for this taxation scheme by filling out the IRS form 8832.
When most think of corporations they think of multi-million dollar companies with hundreds of employees, but incorporation merely means that you’ll develop from a sole proprietorship into a company which is formally recognised as a legal business entity.
There are two main options which businesses can choose when they are incorporating; registering as an ‘S’ corporation, or a ‘C’ corporation. There are no prerequisites to registering as either, it’s all down to which option is better for your ecommerce business.
Registering your ecommerce business as an ‘S’ corporation will give you the option of ‘pass-through taxation’, which means that your ecommerce business will not be taxed on a business level. Instead, you’ll pay income tax on the revenue that your ecommerce business generates, but not the actual business itself.
On the other hand, ‘C’ corporations are considered as a separate entity when it comes to taxation. This means that your ecommerce business will be subject to ‘double-taxation’, which means that you’ll be taxed on your business’ profits and you’ll still be taxed on your personal income.
Whichever structure you choose for your business entity, bare in mind that it isn’t set in stone. As your business matures you’ll be able to move from one structure to another depending on the needs of your ecommerce business.
Choosing the State You’ll Register In
Take some time to consider in which state you’ll register your ecommerce business. The tax rates vary from state to state. However, you aren’t required to register in the state where you operate your ecommerce business. Incorporating in a state which has low, or non-existent sales tax rates makes a lot of sense as it’ll save your ecommerce business money. Amazon, one of the biggest online retailers in the world, take advantage of this option.
Have a look through each state’s tax rates and decide which state is best to register in for your ecommerce business’ goals and immediate needs.
Obtaining Your Business’ Federal Tax Number
You also need to register your business on a federal level. To do this, you’ll need to obtain a federal tax number for your ecommerce business. Your federal tax number is also known as an employer identification number (EIN), and it’s the equivalent of a social security number for your business.
As you’ll be filing tax returns and submitting reports on your business activity, it’s essential that you get a EIN number for your business. Without this number, you won’t be able to submit your tax forms to either the federal or the state government.
If you decide to change the way that your business entity is taxed, like mentioned above by applying for corporation tax with the IRS form 8832, then you won’t need to get an EIN number right away.
You can apply online for your ecommerce business’ EIN number. It’s a simple application form and you’ll be able to get your EIN number on the same day that you submit the online form.
Opening a Business Bank Account
Banks in the USA require you to prove that your ecommerce business has been registered as a legal entity before they will allow you to open up a business bank account. It’s essential that ecommerce entrepreneurs know how to register a business if they are looking to open a business bank account.
As an entrepreneur, you’ll find that opening a business account is a great way to separate your personal finances from those which you’ll be using to fund your ecommerce business. Having a business account is also clever for tax reasons– you’ll be able to invoice certain payments and claim them as business expenses.
Opening a business account will give you a clear idea of the amount of money which your business is costing each month, and you’ll know the exact amount of money which your ecommerce business is making.
It’ll also give your ecommerce business more professional credibility. Customers will make payments for orders to your business account, instead of your name. This distinction instills confidence in your customer that your business is legitimate.
Register Your Ecommerce Business
Now that you’ve read how to register a business in the USA, you can go ahead and get started on running a legitimate ecommerce business. Once you’ve completed the registration process we’ve detailed in this article, your ecommerce business will be considered as a legal entity. And you’ll officially be the owner of a professional business.
If you have any further questions regarding the legalities of registering a business in the USA, just drop us a line in the comments section. Remember, all questions are good questions!