I have a question with regard to online businesses. I run an online music video website that will soon be adding e-commerce as a revenue stream. Is it necessary to register my business in a particular state although the transactions will primarily take place online?
There are three main reasons — and depending on your long term plans, a fourth reason — to register a business with the state: liability, credibility, taxes and ownership. Liability is a concern if you operate a business with a physical space where an accident can happen, or if you operate a business in an industry that is highly litigious. An example of such an industry is financial services where people might allege that a business ripped them off and take civil action to recoup their losses. But it doesn’t sound like liability is a big risk for you.
If you are the sole owner of your business, and are planning to give ownership to others as you expand, then you may consider registering with the state so that you codify your business and operating agreements.
Now we’re down to the two reasons that probably matter most for you: taxes and credibility. A well-managed, unregistered business is no less credible than a registered business, but a registered business creates a perception of higher authority and trustworthiness. Since you operate an online business, you should take advantage of that perception. People have heard of Napster, iTunes and Amazon.com, but they may not have heard of you. Most people are accustomed to shopping online at this point, but scores of people are still leery (including my mom). So, if they wanted to check to make sure your business is legit before making a purchase from your website, then an easy way for you to create instant credibility and set them at ease is to be registered with the state.
Also, there is the issue of paying and collecting taxes. You can take advantage of most business deductions whether you are registered or not. But some advanced deductions may require that you are a registered entity. Plus, if you were to ever be audited by the IRS, they would have a harder time declaring your deductions invalid because your business seems like a hobby if it is registered with the state. (This is more of a concern for part-time entrepreneurs who could more easily be pegged as hobbyist. I am mentioning this because I’m not sure of your status.)
As far as collecting sales taxes, generally, if you have a physical presence in a state, like a store or business office open to the public, then you must collect and remit sales taxes from online purchasers in that state. But this is a murky subject because there is no consistent rule from state to state. Check with your state revenue department and tax attorney for the final word.
Ultimately, you don’t have to register, but it’s a good idea to do so. You can simply register in the state where you reside and from which you operate your business.
Grace & Peace,
Felicia Joy is a nationally recognized entrepreneur who created $50 million in value for the various organizations and companies she served in corporate America before launching her business enterprise. She is often called on to discuss the ins and outs of entrepreneurial success and has appeared on CNN, FOX and in other national press. Felicia operates Ms. CEO Inc., a company that helps women entrepreneurs achieve more success, faster — as well as Joy Group International, LLC, a business development and consulting firm. Send her your questions at email@example.com or www.twitter.com/feliciajoy.
Article Posted by The Atlanta Post