If i don’t register my business that what can the troubles be? Also suppose I did, what would be the best one, for someone starting out and how much would it cost, LLC, INC and such.
Hmmm - I assume you are in the US.
Well, you don’t need permission to go into business for yourself and therefore may not need to register. The Constitution guarantees our right to contract with others on an individual basis.
So, as a sole proprietor, you need to register nothing - especially if your business is all web based. Now, if you have people coming to and leaving your home all day long while you sell your retail goods inside (hard to imagine) that may be a different story.
Now, if you want to separate your business from yourself, that involves a corporate setup. There are special benefits and costs related to running a corporation. Read a book or ask an attorney.
There are several types of corporate structures you can use. Again read a book or ask an attorney.
If you are involved in your business with a partner, it may be wise to set up a partnership agreement. This means that each of you have a say on the day to day running of the partnership. It also means you share in the debts and responsibilities. It protects each of you.
Again, go to the bookstore and buy a book. It’ll break it down so you can choose what to do. Then get an attorney for advice.
Assuming you are in the USA:
The downside of getting a business license:
If you are 18 or older, you will have to pay a quarterly business tax. It isn’t much, especially if you start out small. I have no idea about someone under 18 having a business license, ask your fellows here on SitePointForums if they have one. In some states I dont think you can register for one until you are legally an adult.
You’ll have to fill out an extra section on your taxes to show what you’ve earned and lost in your business venture. Make sure to keep excellent records and receipts of what you purchase and sell. Keep legal contracts and correspondence from your clients, but especially keep receipts, you’ll need those if the IRS ever audits you. Good bookeeping software/books will help you out tremendously.
The pros of getting a business license:
You will become a registered business in the state where you are located. This entitles you to lots of goodies like a monthly contracting newsletter that asks for bids on certain projects. Most of the time these aren’t web related, but occasionally they will have web design bids. Businesses that are in-state get first choice over out-of-state firms.
You can have checks written in your business name. This is known as DBA or “doing business as”. In some states you can get this without having a business license. You should check with your local chamber of commerce and your local bank to find out exactly what you’ll need to do if you register your business.
You can write off certain purchases as “tax-deductible” which means that once income tax refunds are issued, you will be given back whatever amount you paid in tax for the item, as long as it pertains to your business. For example, say you purchase a computer for $2000. You’ll have to pay the entire amount, but you will be refunded whatever the added tax is once you get a refund check. You can only do this for a few years, however, (I think its 4 years). It depends on how much of a profit/loss you show in your business dealings.
If anything I’ve said above makes you dizzy with confusion, then simply call your local bank or chamber of commerce and they can give you easy step-by-step instructions on what you’ll need to do. Its not complicated at all, it just sounds that way. Also, you should visit the Small Business Administration center in your area. The information they provide is invaluable.
Also, since you are just starting out, go for a Sole Proprietorship. This is the easiest to manage and create. If you start making thousands of dollars, consider becoming an LLC or a INC. Start out small though! I highly recommend purchasing a book called “Small Time Operator” (available at Amazon.com) It doesnt cost much and is a great guide for starting out in the business world.
Best of luck!
Originally posted by NetEthusiast
If i don’t register my business that what can the troubles be?
Not sure what you mean by “register.” but here’s some info:
(But first the disclaimers…) NOT INTENDED AS LEGAL ADVICE (Please seek an attorney or accountants advice that is familiar with your jurisdiction)
(Now the assumptions…)
Assuming that you mean “register” as in “obtain a business license”:
If you don’t obtain a business license it is possible that the state/county/city could fine you, force you to pay back taxes, or simply shut you down - internet or physical business. (Nearly all states maintain laws requiring registration and taxing any sale of goods or services occurring w/in their jurisdiction.)
pros/cons: Business license may subject you to certain taxes and will subject you to licensing fees. Many jurisdictions overlook small sole-proprieters operating w/out a bus. lic. A lic. will legitimize you in some people’s eyes and may open some doors (e.g. bank financing or business accounts, cham. of comm’c.)
Assuming you mean “register” as in “filing with the secretary of state as a business entity” (e.g. llc, llp, pllc, pllp, inc., limited partnership):
Most people agree that the main “problem” is unlimited personal liability - if you screw up (think “accidentaly” violate someone’s copyright when you make a Website for someone else) you (and not your company) can be sued for umpteen (think lots of zeros) dollars.
Additional problems may be perceived legitimacy, ability to obtain financing, lack of legal protections in the event of disagreements, contracts or bankruptcy.
pros/cons: May cost $100-10k (or more if you use an attorney). Inc.s allow for easier outside investment (in fact venture capitalists will INSIST that your business be inc’d before they’ll invest). A badly done inc. may be worse than no inc. at all. Legal entity status does not prevent all problems (e.g. partnership arguements; personal liability) Inc’s will have to pay fed (and maybe state) taxes quarterly. (LLC’s and LLP’s may have to do the same depending on the type of taxation they choose.)
Originally posted by NetEthusiast
Also suppose I did [register], what would be the best one, for someone starting out and how much would it cost, LLC, INC and such.
Depends on what you’re trying to accomplish. If you wanted to drive cross country would you use a Humvee or a Ferrari? Depends whether you’re taking the freeway or going off-road, right?
If you want (and think you can get) outside investment, have lots of assets you own and are trying to protect, are underage or intend on participating in certain types of businesses then incorporate. Estimated cost? free-thousands of dollars (plus state fees of $100 - thousands if you’re incorporating w/millions of shares)
If you want a minimum of hassels, have no assets (and are not expecting to obtain any soon), have a small income (and aren’t expecting to increase it soon) then just be a sole-proprieter. Estimated cost? The hope-and-pray you’re small enough not to be bothered with method:0. The legitimate get the forms I should method: $100-500 and $0 - $thousands/yr in other assorted fees
If you need outside cash and know one or a couple of people that will give it to you AND really believe that they’d NEVER screw you over; don’t get legal advice or just don’t care then form a partnership Estimated cost? The dip-sh*t do-it-yourselfer, they-would-never-screw-me-over method? 0. Get-an-attorney that doesn’t give good enough advice to talk me out of doing a partnership method: $100-thousands and then LOTS more later when you go to court to get out of the mess you’re in. (I think you can tell I don’t particularly care for partnerships by my tone.)
If you don’t intend on going public, or obtaining much outside financing, but do have assets that you want to protect and may/or may not have a few other people who’ll give you some $ form a llc, llp, pllc or pllp. Estimated cost? Self-help (assuming reasonable intelligence and due-dilligance in researching the issues) $100-500. Get-an-attorney: $250-$thousands.
Ready for the kicker?
Despite all of these, NONE of these will get you out of owing taxes on your business profits - internet or otherwise. The current “hands-off” posture of Congress regarding taxing the internet is in regards solely to sales taxes and NOT income tax. If you or your business is making ANY profit (tax definition not colloquial) - you owe taxes. Most likely federal AND state income tax, as well as state sales taxes that your customers didn’t pay. (Note that I say “owe” and not “will pay” - you not paying taxes you owe is between you and the government and their attorneys. But don’t say because you choose to not pay taxes you don’t owe them - and won’t end up paying them if the govenment comes after you.)
I understand that some of these points may challenge some common misunderstandings and surely will rub some people who want to believe otherwise, the wrong way. Rather than getting into any arguments. I’d simply suggest NOT taking my word for it - confer with an accountant or an attorney.
Bottom line is, it cost me $12. I live in Maryland and so your state, assuming you are in the USA, may have slightly different laws regarding this.
From a federal point of view, you can register as one of two different things. As a sole proprietor, which I am you can use your own SS# as your tax ID or you can request a free tax id number from the IRS. Either way, you have to pay quarterly self employment taxes including 7.5% social security as an employee that you normally pay plus 7.5% social security as the EMPLOYER that you don’t normally pay but since you work for yourself, you are the employer too, equalling 15% social security tax! yikes. The nice thing about taxes is the business deductions. working for yourself out of your own home, you can claim all kinds of things including your computer as a business related expense, and alot of people recommend that…but be careful. The more you claim as deductions, the more you open the door to be audited. Also as a sole proprietor you can only claim UP TO THE AMOUNT THAT YOU MADE IN PROFIT. So if you spend $1000 for software and only make $753.27 in profit, you can only claim $753.27 as a deduction. something to think about.
You can also incorporate and that has various benefits also. For one if you spen $1000 in software and only make $753.27, you can still deduct $1000 from taxes owed. However, you need to have independent trustees, an annual “business meeting” of shareholders (can be you and one other person who is the trustee) and if I want to borrow money from my busness, I have to have a written document on file that says aaron brazell Inc. loaned money to aaron brazell on such and such a day. Alot of red tape and paperwork.
From a state perspective, there are only a handful of things you need a business license for in MAryland. Day care, electricians, vending machine people, etc require licenses. Web designers do not. If you offer a tangible product, you need to charge state sales tax. Web design does not offer a tangible product. I don’t need sales tax. The only thing I payed for was $12 for a trade name. Alll the trade name does is guarantee that I am the only one IN MARYLAND allowed to operate under that name and it is defendable in court…but on the internet, that doesn’t make a big diff because someone in New York can operate under the same trade name no big deal. The trade name is not a requirement for a sle proprietorship.
Paying a lawyer is a good idea, although I didn’t do so.