One of the most important but confusing parts of launching a company is the process of officially registering with the government as a business. There are a lot of different factors, benefits, and legal rules to consider, many of which vary by state and change relatively frequently (hence the confusion).
It may surprise you to find out that the answer to “Do I need to register my business to begin operating?” is actually no. You don’t. You can begin operating, selling, and generating revenue without doing a thing.
This is because without registering as a business entity, the government by default treats any revenue you make as self-employment income. In official terms, you’re automatically “registered” as a sole proprietor. For freelancers and nascent businesses, this can be acceptable to begin with. But for most, it’s in the best interest of both themselves and their business to go through the process and actually register with the government as a separate business entity.
While you should always seek the expert opinion of an accountant or startup attorney for the most accurate advice for your best interest, here’s a brief rundown of what options you have when you register or incorporate your business.
What about non-profits, B-Corporations, and other entities?
Non-profits are technically legal corporations that achieve 501(c)3 status from the government. Though this is necessary if you plan your business to be purely for social benefit, filing as a non-profit can be exceptionally cumbersome and expensive (and disbanding it later can be even more complex!). So make sure you’re serious before going this route.
B-Corporations are also technically corporations and are actually taxed the exact same as a C-Corporation. However, B-Corporations are registered as entities that are pursuing some sort of social benefit, and therefore avoid some of the requirements and scrutiny that C-Corporations face. Different from non-profits, B-Corporations have much greater freedom with how they use their profits.
Note: Other entities also exist, but those listed above are by far the most relevant and important for entrepreneurs and startups to know.
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