As the year draws to a close, you’re likely reflecting on the goals you have met or missed and making plans for the future. Everyone’s ambitions for the new year are different. Still, suppose you want to start your own business. In that case, we have some essential information you need to know about how to register your business—whether you’re launching a sole proprietorship, a partnership, a limited liability company (LLC), or a corporation—and some of the reasons why it is essential.

Protect Yourself From Liability

One of the main reasons to register your business is to protect yourself from liability. The extent of liability protection you’ll receive by doing so varies depending on the type of business you are setting up. Liability can refer to both legal liabilities if someone sues your business for negligence, and general liabilities, which is anything your business owes to another entity. 

If you’re setting up a sole proprietorship or a partnership, your assets aren’t legally separate from your business assets. That means if someone sues you, your assets are at stake. It also means that you can be held personally responsible for your business debts. If you cannot pay a creditor, they can go after your personal belongings to pay the debt. In the case of a partnership, each partner can be held responsible for the full extent of the liability. 

An LLC called a private limited company outside of the United States is what its name implies. If you own an LLC, you cannot be held personally liable, so your assets as an individual are safe in most cases. However, you can still lose the money you invested in the LLC. Liability in corporations is also limited in that you cannot be held personally responsible for a business’s debts, but you can lose whatever you have invested. 

Don’t rely solely on being an LLC or corporation to protect yourself from liability. Investing in liability insurance is never a bad idea. For added convenience when registering your business, make sure you know how to register a company online in 2021.

Makes Handling Your Finances Easier

The financial part of starting a business is, in most instances, what makes potential entrepreneurs hesitant. That’s understandable. However, when you register a business, managing your company’s finances gets easier—finding investors can become more straightforward too.  

Unfortunately, with sole proprietorships and partnerships, your opportunities to attract investors are limited. You can’t sell stock to raise capital, and banks may be reluctant to offer you a business loan because they’re worried about making their money back should your business fail. However, you’re still much more likely to receive funding if you can show you have the necessary licenses and paperwork in place. Investors want to support your business, not your personal life.

For partnerships specifically, having a detailed agreement in place can prevent complicated legal battles and disagreements in addition to protecting your interests. 

When you form an LLC or a corporation, it’s easier to get a business loan because you’re showing definitively that your company is separate from your personal life. You’re also offering proof that you’ve put effort into organizing your business, which reassures investors that you are serious and intent on operating professionally. While you cannot technically sell stock in an LLC, you can sell the stock if you have a corporation and need to raise funds. 

No matter which type of business you’re starting, it’s vital to keep it separate from your personal life. That means having separate bank accounts for business purposes and registering for an employer identification number (EIN) even if you don’t have any employees other than yourself. You can use your EIN for business paperwork rather than your social security number for an additional layer of security and separation, and you’ll have an EIN should you ever decide you want to expand. 

Comply With Local, State, and Federal Laws

The laws surrounding business registration are many, varied, and inconsistent. If you operate across the state or international borders, you’re likely to face further complications. While some laws may seem inconvenient or nonsensical, they’re there to protect either you or consumers, and complying with them is in your best interests. 

Depending on the business you’re starting, there are different licenses you will need to operate legally. You can register your business’s name as a trademark to ensure your company’s reputation remains distinct from other entities. Registering your business also makes it easier to keep up with the sales tax on products you sell and payroll taxes that apply either to you or your employees. Failing to register your business and file the proper paperwork may result in fines or time-consuming delays while issues are resolved. 

Registering a business doesn’t have to be complicated with the right tools, and it’s essential to your success. We’ve covered three important reasons to register your business, but there are others too. Whatever industry you’re looking to break into and whatever type of business you’re starting, make sure your registration and paperwork are in order.