How To Register a Company

Learn About Starting a Sole Proprietorship, Partnership, LLC and a Corporation

Registration of a company or business is an important requirement in running your own business. You need to have the necessary approvals and permissions in place before you start your own company.

To begin with the registration process, you will first need to decide what business structure you want to adopt. This is critical because based on the type of structure you choose; registration, tax liability and regulatory approvals are decided. This article discusses each of the available business structures from which you can choose, and the relevant registration and licensing formalities which flow from the chosen structure. Choosing the correct business structure depends on how you want to protect yourself from legal liability and how best to minimize your tax liability legally. For ease of remembrance, there are 5 basic business structures - sole proprietorship, general partnership, limited partnership, corporation and a limited liability company. The steps listed below discuss how to register a company and advantages and disadvantages for each type of business structure.

Step 1

Sole proprietorship. If you wish to start your business or company as a sole proprietor, there are a few formalities to be taken care of and not much cost will be incurred to get the registration done. Depending on the laws in the state or area where your sole proprietorship business is located, you will need to procure a business license, an occupancy permit for place of business and apply for a franchise or company registration number. This number is used by state authorities to track tax collection and statutory and administrative matters. The basic definition of sole proprietorship is that sole control over the business resides with you, including attendant liabilities.

Step 2

General partnership. A general partnership implies the basic definition of partnership: two or more individuals getting together to start and run the business. Important documentation required includes a detailed business partnership agreement, where the following conditions are clearly stipulated:

  • Upfront contribution of capital from each partner
  • Rights and duties
  • Profit and loss sharing methods and percentages
  • Authorization of cash withdrawal and salary disbursement from company accounts
  • Dispute resolution and partnership dissolution mechanisms

In addition, business license, occupancy certificate and registration number as in step one are also required.

Step 3

Limited liability partnership. In this version of a partnership, a limited liability partner does not play any active role in the business or company operations. In return for this, he is entitled to share in the company's profits, but is not liable for debt and contractual obligations or any wrong-doings or lapses on part of the business. Documentation formalities remain as described above, but the partnership agreement will have additional clauses with reference to the limited liability of that partner. As you can imagine, the limited liability partnership benefits may outweigh those of a general partnership.

Step 4

Corporations. At some point--or even from the start--you may decide to undergo business incorporation. A corporation is considered to be an artificial legal entity which is separate from the individuals or parties creating it. To start a corporation, you will need to file an application for a charter as per the relevant state law, the charter must provide information on the purpose of the corporation, names and addresses of the individuals or parties joining up as incorporators, amount and type of capital stock the corporation can issue and the rights of owners of each class of stock. The advantages of starting a corporation are:

  • Corporations have an unlimited life, not depending on the life-span of any one individual and can be in existence indefinitely or until it becomes bankrupt or merges with another entity or meets with the desired objective for which it was set up in the first place.
  • Productive company meetingOwnership interest in a corporation can be transferred, sold or bequeathed to a family member, without any changes or effects to the existing corporate structure.
  • It is easy to raise investment capital.

Disadvantages of registering as a corporation are additional, complicated documentation and maintenance of accounts and balance sheets, additional tax burdens, especially of you incorporate your business as a Chapter C corporation, where you will be subject to double taxation.

Step 5

Limited liability Company (LLC). This is the best way to register your business or company if you're concerned about legal liability protection; simple tax structure and if you're otherwise not able to get your company as a Sub-chapter S entity. Starting an LLC offers more freedom in the ways in which to write-off business losses and to remove assets from the company without additional tax burdens. Registering a business as an LLC is subject to legal and statutory provisions which differ from state to state, and you need to look at these separately to identify what obligations and formalities are required in your area.

Having gone through the different types of business structures under which you can register your business, you are now in a better position to understand and appreciate the requirements. If necessary, it is preferable to seek professional advice from your attorney or CPA, who will be able to guide you in the best and advantageous direction.  You can also enroll in online courses for business owners; these classes can help you learn the most effective ways to follow state and federal guidelines.


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