Why should I register my business?
If you are thinking about starting a business, or run a part-time business that brings in sporadic earnings, you may be asking yourself “Why go through the legal hassles of registering?” You can operate without registering however, regardless of your profit or size; there are big advantages to registering your business.
It sounds obvious, but legally registering your business legitimizes it. It shows potential customers, lenders, and vendors that you are serious about your work and your responsibilities as a business owner.
One of the more appealing reasons for registering as business, as opposed to simply reporting your additional income, is extra money in your pocket. Businesses can receive tax deductions for business-related expenses, including use of your car, a home office, rented storefront, insurance, and more.
Business Name Protection
Registering your business name protects it from being used by other businesses. When you register as a business, you will a file a business name with your state and local governments. Once your name is registered, you can also opt for more protection by registering a trade name or trademark. Other new businesses will have to check if your business name has been registered with the state before they can legally use it.
When you register your business, you will declare a business structure (Ltd liability, non profit, S-Corporation, society etc.). Your business structure determines the amount of regulatory paperwork you have to file, the taxes you have to pay, and your personal liability regarding investments into your business. Certain business structures, like Limited Liability Companies and corporations provide personal liability protection for business decisions or actions of the LLC. This means that if the LLC incurs debt or is sued; its members are not required to satisfy the claims with their personal assets.
Business Loans or Grants
The government and local economic development agencies and numerous non-profit organizations provide low-interest loans to small business owners who may not qualify for traditional commercial loans. Each loan program has unique application and eligibility requirements, however, most lenders ask for the same information from you. Before you apply for a loan, you should get some basic documentation together that will go into just about any loan package. This includes business registration certificates.
Requirement to tender
Tendering is a process whereby governments and financial institutions invite bids for large projects that must be submitted within a finite deadline. One of the requirements of participating in these bids is that you need to be registered. It also provides legitimacy to your bid.
Opening bank accounts
If you want to open and operate bank account for your business then you need to be recognized as a separate entity from your business. One needs to register a business name to be considered separate which is registered in order to open an account with it. With this, your business can receive payments via cheque from clients.
NB: Why you should keep your business finances and personal finances separate
- Calculation and filing of your personal return and your business return would become a very complicated thing for you and your auditor.
- Having a separate business account entitles you to take all possible advantages and deductions offered by the government.
- Should you require a loan, it would become difficult, if not impossible, for a bank to sanction a loan if your business account is not separate. You will not be able to show your independent income if it is mixed with business income.
- If you do not have a distinct business income, you would not be in a position to write off certain business expenses that could be written off.