Registering your creative small business doesn’t have to be hard!
You know what they say: there’s a fine line between running a business and having an expensive hobby.
One thing that makes a difference: profit. And the other? Having your business legally registered.
Whether you’re just getting started, or have been doing business for years and put this step off, this post will help you set up your business as an LLC.
Your business has to be registered
Registering your business establishes it as a legal entity separate from you, the business owner. Having your business registered allows you to hire and pay employees, gain insurance coverage, access money and other resources, and limit your own personal risk should something happen.
It doesn’t matter how much money you’re making, how long you’ve been in business, or what industry you’re in — registering your business will legally protect you as an entrepreneur or creative.
Why an LLC structure is advantageous
When you legally register your business, there are several business structures you can choose from: sole proprietor, partnership, LLC (limited liability company), or corporation. They each have pros and cons, and there’s no one right business structure to choose. Which structure you opt for depends on a wide variety of factors, like the number of owners of the business, how much revenue you generate per year, whether or not your business has a social impact initiative or non-profit component, and much, much more.
Most creative small businesses find benefit in registering as an LLC (of course, consult with your CPA and attorney!), and this is one of the easier entities to form, so that’s what we’ll be covering today.
One distinct benefit of an LLC is that it offers the most flexibility in how you run your business, and pay the owners of the business (and your taxes).
How to set up your business as an LLC
Why you might want an attorney's help
Setting up your business as an LLC only takes a few steps. But, due to the difference in state requirements from one state to another, it can be tricky to know which additional steps you have to take, depending on which state you register your business in. For this reason, it can be really helpful to work with a business attorney to register your business. Our sister company, East & Bay Law, offers project-based support to help you register your business.
Step One: Choose your business structure
The first step is to confirm how you want to register your business. Like we mentioned, we’re going to choose LLC as the entity structure.
Step Two: Choose your business name
The next thing you’ll do is select a business name. The legal name of your business does not have to be the same as your business’ alias, also known as a “doing business as” or DBA name. The legal name of your business is what will be reflected on your important paperwork, business bank account, and permits and licenses, but you can use your DBA on your marketing material, such as your website, social media, and more. You’ll use both your legal business name and your DBA on your legal contracts.
Step Three: Pick your business location
Your business location determines the taxes, regulations, and rules your business is subject to. While filing at the federal level (with the US government) is the same for all businesses, each state government has its own requirements for small businesses, and within each state there can sometimes be local regulations as well (like for a city or county). You can research the most advantageous place to register your business, but keep in mind that you’ll need a making address and/or physical address in whichever state you choose.
Step Four: Register your business at the federal level
Registering your business at the federal level will give you an Employer Identification Number (EIN), which is your federal tax ID. You need it to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits. If you move your business from one state to another in the future, you do not need to get a new EIN. Think about this like your personal social security number: it stays with you for the entirety of your business’ lifetime.
Step Five: Register your business at the state level
Registering your business at the state level will give you a state tax ID, which is how you’ll pay income, employment, and other taxes. Typically, you register with your state’s Secretary of State, though in some states, you’ll also have to register with the Department of Revenue.
Step Six: Apply for licenses and permits
The necessary licenses and permits you might need in order to operate your business in good standing varies widely by state. In some states you don't even need licenses or permits. Required licenses and/or permits are also dependent on the type of business you own (not your structure, which is an LLC. This is what industry you’re in and the type of product and/or service you sell). Research which licenses and/or permits your business needs to operate, based on which state you’re in and what you sell.
Step Seven: Get a business bank account and credit card
Once you’ve registered your business at the state and federal levels, you can get a business bank account. Many banks will have a minimum required deposit in order to open the account, so be prepared to make a deposit on the day you open the account! This will allow you to keep your persona and business finances separate. All money received for services rendered through your business should go into your business bank account.
Once you have a business bank account, apply for a business credit card. Any expenses you pay related to your business should be paid for with business funds, not personal funds. Having a business credit card makes this easier, especially when you link it to your business bank account.
Trust me — tax time will be much easier if all your revenue and expenses for the business are separate from your personal!
Oh, and while you’re at it: be sure to save all your receipts. I like to take a picture of mine and upload the picture into my Google Drive — then I can throw the receipt out. I’ll name each Google Drive Upload with the date and amount of the purchase so it’s easy to find digital receipts later.
Step Eight: Get business insurance
A lot of small businesses, especially those providing a service, skip this step. Just like you want renters’ insurance in case someone breaks into your home, or health insurance in case you get hurt, you want business insurance to protect yourself from large, unexpected expenses.
You never know what could happen in your business, and you want to be covered in the event of an unforeseen event. You may not think your business is established enough for business insurance, but I caution you to rethink that. It only takes one unhappy client, genuine on-site accident, or global event (like a pandemic) to financially destroy what you’ve worked so hard to build. At a minimum, I recommend general liability insurance (to cover you and your business in the event of someone else’s dissatisfaction) and property insurance (to protect the assets you’re purchasing, like your computer or camera).
Step Nine: Register your trademark
You didn’t think I’d let you forget this one, did you?! I talk all about trademarks in this blog post. Similarly to step eight, a lot of businesses don’t file a trademark when they register their business, and instead wait until much later their intellectual property is already at risk. I recommend you register your trademark when you register your business, especially because it can take up to a year for your application to process.
Your business is registered! Now what?
Congrats on your LLC! You are officially a legal entity, ready to take over the world. Now what?
I bet you know what I’m going to say here, too. The first step after you're set up as an LLC is to make sure you have a contract in place. Don’t believe me? Read this post and I bet you’ll be convinced. We happen to have a whole bunch you can choose from. Hint: shop our bundles for the best deal.