Starting a business can be a bit complicated especially if you are not familiar with the process. One of the difficulties during this first step is understanding how to operate through all the red tape that needs to be cut in order to get set up as a business.
If you have decided on incorporating your start-up business, one of the first things you should do once you create a business name and legal structure (sole proprietorship, Limited Company, or LLC) is to apply for a business registration number. This article will discuss what it is and why you need to get one for your business.
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A business registration number is essentially a numerical identification number for your company, which identifies your business amongst others. When you register a company, your company will have two important numbers, a company registration number and a business registration number.
A company's registration number is given by the relevant Registrar of Companies and is unique to the specific company. The business registration number, on the other hand, is given by a relevant tax authority of the country you will be incorporating.
A business registration number is required by any business that is carrying out income-taxable activities. That means any type of activity that will result in receiving money, or any transaction involving goods or services which are not for resale.
For instance, if you are buying and reselling products for a profit, this would be considered taxable because it is a business transaction, or if you are hiring employees, or receiving income related to the business development.
Your business registration number is the legal entity for accounting purposes. This means that it is this number that will be used by your accountant to create any invoices, track your cash flow, or any other type of accounting function.
Your company registration number is not used in accounting matters because it belongs to the government, not your company. It is for this reason that you want to have one business registration number per company.
You do not want to use your company registration number as a business registration number as it may lead to accounting issues down the road. In order to start using this number, you'll need to apply for it through a relevant state or national authority depending on where you live, which is essentially a request for the purchase of your business registration number from the government.
As mentioned above, if you are doing any type of sales, you may need to pay value-added tax (VAT) (country dependant). This will be an additional 15% of your revenue and is especially important if you are selling online.
For this reason, it is a requirement that any business operating in Hong Kong, or other former British Territory that has VAT, to have a VAT taxpayer status. Also, any business that is paying their staff a salary will have tax obligations which are managed through monthly or quarterly filings of the Business Tax Return.
What happens when you apply for your business registration number, is that the government will check to see if you are paying corporate income tax, profits tax, real-estate tax etc...
As a business owner, you have total control of your finances, and this will be reflected by the number of different bank accounts that you open for the company. In the case where you are hiring employees, it becomes crucial to have a way to differentiate employee salaries from your salary and your personal bank account.
For this reason, you want to set up a separate business bank account and use your business registration number as the sole identifier for any salary payments that need to be made. Also, in the case of your employees receiving cash in any form, they will need to show their business registration number when declaring it.
If you want to make sure that your company is protected from any type of unforeseen circumstances, you can use your business registration number to obtain certain types of insurance for your business.
This includes protection for liability, machinery breakdown, fire, and flood, or even debt insurance.
When creating a company website, it is important to always include the business registration number on the contact page.
Also, when you create a logo for your company, it is important to always display the business registration number next to it. This is to show that you are an actual legal business entity.
If your business provides services for clients, then you will need to have a written contract for each one of them. It is said that having the correct service contracts may protect both parties from any future disputes or disagreements that may arise. Doing this will protect your company if any changes need to happen in the future because you can always refer back to your contract.
If there is ever a dispute between two parties, in the case that it goes to court, you can refer back to your contract and use it as a solid legal argument for any type of settlement.
It is important to mention that any bank account opened under your business registration number will be tied to your personal identity and tax file number (unless corporate nominee services are used.).
This means that if there was ever a situation where you had to reveal how much money you had tied to the business, you would want to be able to differentiate between personal and business accounts and assets. This will be beneficial to you when planning your future.
Registering a business is a necessary step to take when starting a business, especially getting a business registration number, as it will give you liability protection, provide a separation of powers, and allow you to make contracts, take on debts and acquire insurance.
Getting a Business Registration Number is something that every business should look into. This way you will have all your bases covered so that both you and your business are protected against any potential liabilities.
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