Do I Need to To Register My Online Business? Here’s the answer.

**Important note: I’m not a CPA or a Lawyer, so do your due diligence and check with a professional before making your final decision. This post is for informational purposes only.

One of the biggest hangups new bloggers, freelance writers, or anyone starting an online business has comes down to the idea of their business structure, or a business license.

I get asked questions like this multiple times a week:

“Do I need to register my online business?”

“Do I need to get an LLC?” 

“Do I need to do anything to start a business online?”

The short answer is no, you don’t.

In this post we’re going to give you a crash course on business structures so that you can decide what the best fit is for you and your new business.

DO I Need to Register My Online Business? (VIDEO)

Don’t want to wade through all the details? Here’s a quick video answering the most important question: do you need to do anything to formally start a business?

What Types of Business Structures Are There?

There are 5 general types of companies you can have and we’ll look into the pros and cons of each. By the end of this post, you should have a solid sense of what the best fit for you will be.

Here they are in order from least to most complicated:

• Sole-Proprietorship
• Partnership
• Limited Liability Company (LLC)
• S-Corp
• C-Corp

While learning about each of these you have some considerations to make that will help ensure you’re getting the best structure for your needs. Things to consider:

Let’s get started with this, shall we?

What is a Sole-Proprietorship?

If you’re doing any kind of business, right now, by yourself, you may be surprised to find out you already have a business structure.

What is it?

You have what’s known as a sole-proprietorship. If you don’t choose anything, this is the default.

This may be a good fit if:

• You want the easiest structure to start
• You haven’t made any money yet
• You aren’t sure if you’ll want to continue with this business in the future
• You’re in a business that presents very limited chance of lawsuit (*Chances are, there could be more of a possibility of this than you think).
• You’re the only employee

This is probably not the best fit if:

• You’re already making at least $1,000/month
• You have considerable personal assets (Real estate, retirement, savings etc)
• There’s more than one person in your company
• You have plans for major growth

Starting a Business with Someone Else? Welcome to a Partnership

A partnership is essentially the exact same thing as a sole-proprietorship, except it’s when two or more people are involved.  This is the default business structure when there are multiple people, so if you are in any kind of working arrangement with another person, you’re essentially already in a partnership without even knowing it!

This is scary for so many reasons, but just to name a few:

• You (and your personal assets) can be liable for your partner’s actions.
• If business takes off and you haven’t agreed to the terms of your relationship, it doesn’t take much to go from best friends to mortal enemies
• Taxes and distributions can be less clear

There are a lot of easy steps we can take to make sure none of this happens which we’ll look at with the next two types of business structure, but until then, here are some of the reasons why a partnership could be a good fit:

• You haven’t made any money yet
• You aren’t sure if you’ll want to continue with this business in the future
• You’re in a business that presents very limited chance of lawsuit (*Chances are, there could be more of a possibility of this than you think).
• You have at least two people and want the most simple structure there is

These sound familiar?

This isn’t right for you if:

• You don’t have full trust in your partner
• You want to bring on more partners later on
• You’d like to get funding or sell your business
• You or your partner have considerable personal assets

What is a Limited Liability Company (LLC)?

Alright, time to get serious.

If you have any hopes to you know, make money and become a successful entrepreneur, an LLC should be the minimum business structure that you should strive for.

Why?

For oh so many reasons:

• It gives you a corporate veil (meaning it keeps all personal assets separate)
• You can easily bring on partners or stay solo
• It’s the ultimate structure for an “agile business”
• Gives you a platform to launch multiple products and services under one entity
• It’s easy and relatively inexpensive to setup

My personal business is an LLC, and most people I know who are making under $100k/year have LLCs.  Why is $100k the magic number? Because once you get over $100k year, there could potentially be more tax benefits for going with an S-Corp.

Worried about making the wrong choice? Go with an LLC. You can elect later on to be taxed as an S-Corp.  As long as you decide by March of the following year, you can be taxed differently (this is what I do).

So, let’s say in 2021 you make $130,000.  You have until March 15th of 2022 to elect to be taxed as an S-Corp.

So why wouldn’t you want an LLC?

• If  you want to go public in the future

Costs Associated with an LLC

This type of business is luckily pretty cheap to setup.  This will vary by state, but in most states, it’s no more than a couple hundred dollars.

In Oregon, you’re looking around $100. In Washington, it’s around $200 if you do it online.

There are however a couple states where the price is significantly more, and that’s California ($800) and New York (Upwards of $1,000 because you must publish an announcement of your new business in 2 NY newspapers – weird right?) – so be aware if you’re in either of those states.

Also, costs for LLC and S-Corp are the same.  The only difference is you may pay more for legal fees to handle some of the particulars of your S-Corp.

Bottom line: This is really cheap insurance to make sure your personal assets are protected.

What else do you need to register your business?

The more difficult part of setting up an LLC isn’t the actual setting it up, but rather the maintenance of it (similar to s and c-corps as well)

Here are some of the things you’ll need to keep in mind on an annual basis:

• When you have an LLC it’s recommended that you create what’s known as a Standard Operating Agreement.  This is essentially just explaining the roles of all parties involved, so there’s no confusion as to who is doing what.
• You also need to hold an “annual meeting” to discuss the state of the business.  You will need “minutes” detailing what you talked about.  No need to get really fancy with this, at this point, it’s little more than a formality.
• Refile with the state on an annual basis.  The setup costs are annual fees, so keep that in mind when getting started.

If you want to really get into the details of an LLC, check out either of these books:

• Start Your Own Business
• Your LLC: An Operating Manual

However, if you just want a basic operating agreement, here’s a quick and easy template you can use.

S-Corp: Expect to Make Over $100k in the Near Term? This Might Be For You…

Moving up to the next level of complexity, you have an S-Corp.  This is a “Small Business Corporation”.

This generally has many of the same characteristics as a C-Corporation, however, it’s taxed differently and does have some different requirements than a traditional corporation.

Some of these requirements that may or may not affect you:

• You can’t have more than 100 shareholders (probably not a big deal at this point).
• You can’t have foreign shareholders (could potentially be an issue, as we’re talking about such global businesses)

An S-Corp could be a good fit if:

• You’re thinking about bringing new people on down the line and you want to give them equity in the business.
• You expect revenue of over $100,000 in the near to mid term.

What Makes the Most Sense for You?

At this point, we’ve really narrowed it down to two different options LLC or S-Corp.

We know we don’t want a C-Corp because we don’t want “double taxation”.

We also know that a Sole-Proprietorship or Partnership is out because we want the protection of having a “corporate veil”.

So this is what we’re left with.

A Few Notes About Where You Register Your Business

For almost everyone it makes the most sense to register your business in your home state, it’s the easiest and most affordable way (usually) to do it.

However, the big consideration for Delaware is privacy.  If you’re overly concerned with people not knowing who is behind the company, you should consider registering in Delaware or Nevada – as they have the greatest level of privacy protection.

If you’re someone who spends most of your time outside of the country, unfortunately, for U.S. citizens, you’re taxed on your global income.  Meaning that technically it doesn’t matter where you earn it, you’re still taxed on it.

Obviously, there are very advanced ways around this that are way beyond the scope of this post, but one thing to be aware of is if you’re spending over 11 months outside of the country you can qualify for the “foreign income exclusion act” and not pay a portion of your taxes for that year.

Details on Foreign Income Exclusion here

“Do I Need a Business License” 

Most states don’t have a general business license, and if you’re working as a blogger or freelancer – then you usually don’t need a specific business license. Whatever you choose as your business structure, whether it’s as simple as a sole-proprietor, or more robust like an LLC or S-Corp should be good enough.

However, there are a few exceptions. Here’s a list of business license requirements by state – so double check to make sure you’re good.

“So, Do I Need to Register My Online Business?”

To summarize, you don’t need to do anything right now if you’re just getting started freelancing or blogging. By default you’re a sole-proprietor.

But you might want to give some thought into considering an LLC in order to give yourself a bit of extra personal protection and peace of mind as the business grows.

Once again as a very important reminder, I’m not a legal professional, so this is simply for information purposes only. Do your due-diligence and verify everything I’ve said here with a licensed professional!

This post is an excerpt from our Business Structure Blueprint which you get inside of Location Rebel Academy. Interested in building an online business that’s actually sustainable over the long term? Come join us.

Sean Ogle

Sean Ogle is the Founder of Location Rebel where he has spent the last 12+ years teaching people how to build online businesses that give them the freedom to do more of the things they like to do in life. When he's not in the coffee shops of Portland, or the beaches of Bali, he's probably sneaking into some other high-class establishment where he most certainly doesn't belong.