So let’s talk about business licensing.
A business license is a registration with your state, county, and/or city that allows you to conduct business in that area; it allows you to legally exchange goods/services for money. So, it’s a good idea to obtain your business license before you exchange your product or service for cash for the first time.
Seems easy enough, right? But we can’t forget that there are multiple kinds of business licenses. To fully prepare you for obtaining your business license, let’s talk about the following:
NOTE: Business licensing varies from state to state, but the following information is generally the same no matter where you live. For more detailed information regarding special rules in your state, reach out to your local Small Business Development Center!
Sole Proprietorship / General Partnership
Becoming licensed as a sole proprietor or general partnership might be a good fit for your creative business early on. As a sole prop, you ARE your business. Generally, your business license will be registered under your name, and you can obtain a DBA (see below) in order to operate under another name. Come tax season, all your income is taxed as personal income. In this scenario, there is no separation between yourself and your business. Most independent contractors and freelancers file for this kind of business license. In Nevada, you might expect to pay about $225 for your initial registration.
Limited Liability Company (LLC)
A Limited Liability Company gives you a bit of separation between yourself and your company. In this case, you’re creating a separate business that is strongly connected to you, the owner. In order to maintain separation, all your business finances must be separate from your personal finances. Otherwise, you could still be held liable on the company’s behalf. What’s special about an LLC is that, come tax time, you will have two filing options: 1) You can be taxed as a general partnership and count all your profits as personal income–they will be taxed accordingly. 2) You can be taxed as a S-Corp, allowing you to take your own salary, then have the leftover profits taxed as earned income. Each taxing structure is different and will give you a different net profit after taxes are removed. I usually recommend that clients don’t file their taxes as an S-Corp until they’re making at least $75k a year. Consult with your tax person to learn more and find out which option is best for you. To file for an LLC in Nevada, you might expect to pay $425 for your initial registration.
NOTE: An LLC is a cool hybrid that gives you flexibility come tax time. But remember, you must keep all finances and operations separate from your personal life in order to avoid liability in the case of a lawsuit.
When you file as a Corporation, you are creating a legal entity that is entirely separate from yourself. It acts, and can be prosecuted, on its own. This means that you are (usually) completely protected from liability should the company be sued. However, Corporations must have their own Board of Directors and are often run in the interest of the shareholders, which isn’t always just you. Filing as a Corporation gives you the most protection, but can also reduce the amount of control you have over your creative business. In Nevada, you might expect to pay about $700 for your initial registration.
If you’re interested in becoming a non-profit organization, you must first become a C-Corporation, and then file additional paperwork in order to obtain non-profit status. When thinking about becoming a non-profit, you must think about your potential revenue streams. If your most likely revenue streams are grants and donations, then becoming a non-profit might be a good fit for you.
EIN (Employer Identification Number)
After filing for a business license, you must register your business with the IRS. You will receive an EIN to help you identify your business when you file federal taxes at the end of the year.
State Tax Registration
You must also register with your state tax agency. Most states have an online portal where you can create an account and pay your taxes digitally. State taxes are generally paid quarterly, so make sure to stay up-to-date to avoid unnecessary fees.
Doing Business As (DBA) aka Fictitious Firm Name
Some businesses file their business license under one name (i.e. Kayla’s Business) but want to operate under a different name (i.e. Kayla’s Super Awesome Business). If this applies to you, you’ll want to file for a DBA with your county. DBA’s usually cost about $25.
Depending on your type of business, you may need to file for additional licenses and/or permits (such as liquor licenses or cabaret licenses). Reach out to your local licensing office, or your local Small Business Development Center, if you think you might require additional licensing.
Remember: Licenses are generally renewed every year, so don’t file for your state business license until you’re truly ready to start conducting business. Practice truth and evaluate your business model realistically… is your creative business ready for launch?
What other questions do you have about the legality of starting your own art-based business? Drop them in the comments below! And don’t forget to follow Artrepreneurship – where ‘art’ and ‘entrepreneurship’ meet to get helpful content sent straight to your inbox.
NOTE: I am not an attorney. This article is educational, and therefore not meant to provide legal advice.