5 Myths About Registering Your Business


Registering your business is an essential part of establishing the legal foundation of your business. It’s a relatively easy process, but first-time and experienced entrepreneurs alike can get derailed and end up paying more in fees and penalties, or even risk non-compliance with the state. If you’re starting a business, here are the five most popular misconceptions surrounding registering a business. Avoid these common mistakes and you’ll be well on your way to running a legal business, avoiding unnecessary penalties and fees, and protecting your personal assets:

Myth #1: Registering your business automatically gives you the legal rights to run it

Make this common mistake and you could find yourself paying a hefty fee or even having the county office shut your business down altogether. When you form a corporation or LLC with the state, this step turns your business into a legal entity, protecting your personal assets and potentially giving you the flexibility to lower your taxes. However, you still need to get a business license in order to legally operate your business.

The specific licenses and permits you need will depend on your location and type of business. As you can imagine, a restaurant will have different permit requirements than a professional blogger. Check with your city hall or county office to see which permits are required for your business. Or, have an online service track down the permits you need and make sure you’re up to date.

Myth #2: Registering your business prevents anyone else from taking your business name

Nothing confuses customers and hurts your branding more than having another business come in and start using the same, or very similar, name. Could this actually happen to you? Maybe. When you form an LLC or corporation, you are stopping any other business from forming an LLC or corporation with the same name in your state. But, as you can see, registering an LLC or corporation doesn’t protect your name across the country; you’ll need to apply for a federal trademark in order to enjoy that level of brand protection in all 50 states.

Myth #3: It’s better to register your business in a state where there’s no state income tax

Let’s be honest: no one likes paying taxes. But taxes are necessary, and they’re also unavoidable. It can be tempting to set up shop in a state like Wyoming, Nevada, Texas or South Dakota that doesn’t have a corporate income tax. However, there’s a very big catch: your business is subject to the tax laws of whatever state you actually operate in. So, if you live in California, run your business from California, and make money in California, you most likely will be subject to paying California state taxes – even if you registered the business in Nevada.

Myth #4: Once you register your business, you’re set forever

Too many good entrepreneurs fail to keep up with their annual compliance requirements, putting both their personal liability protection and their business’ standing at risk. You can talk with an online legal filing service (or whoever handled your corporation/LLC paperwork) to find out what your ongoing requirements are to maintain your company.

Typically, you’ll need to file an annual report and pay a nominal fee to the state once a year. Corporations will also need to hold an annual shareholder’s meeting and record meeting minutes. And, you’ll also need to make sure that the state is up to date with any important changes, such as a change in address, change in board of directors, etc.

Myth #5: Home-based businesses don’t need to register

Running a business from your home is one of the best ways to bootstrap your business until it gets off the ground. However, once you’re making money through an activity (or even have the expectation of making money), you are considered a business and need to take your responsibilities seriously. This is true whether you lease space in an office park or set up shop in your dining room.

Registering your business by forming an LLC or corporation is an important step for any business, no matter the size. That’s because it enables you to minimize your personal liability from things that happen in the business. If you don’t register and form an official legal entity (e.g. LLC or Corp), there’s no separation between you and the business. That can put your personal savings, retirement, and other assets at risk.

Starting a business is exhilarating, as well as incredibly challenging. Fortunately, it’s not difficult to get your legal ducks in a row by forming an LLC/corporation, getting the necessary business licenses, and then keeping these things compliant and up to date year after year.

Founder of CorpNet
Nellie Akalp is a serial entrepreneur, small business advocate, speaker and author. She is the founder & CEO of CorpNet.com, an online legal document filing service, where she helps entrepreneurs start a business, Incorporate, Form an LLC, set up Sole Proprietorships (DBAs) and keep a business in compliance across all 50 United States.