How to Start an Online Business in 8 Steps

How to Start an Online Business in 8 Steps

by Jane Haskins, Esq., September 2014

When you own an online business, you can work from anywhere, set your own hours and make a living on the Internet. Online businesses can also have extremely low startup costs—making them perfect for a new entrepreneur without a lot of cash.

Here’s a step-by-step guide on how to start an online business.

Step 1: Choose a Business Structure

When you start a business, you must decide whether you’ll operate as a sole proprietorship, limited liability company or corporation.

An individual or husband and wife can operate as a sole proprietorship. This is the simplest type of business structure and you don’t need to file any paperwork to set one up. However, sole proprietors have no protection from liability for the business’s debts and obligations.

For this reason, many people who are starting a business choose to form a limited liability entity such as a limited liability company or a corporation. The owners of these types of business entities are typically not personally liable for the business’s obligations.

An LLC is generally more flexible and involves less record-keeping and reporting than a corporation. However, a corporation may be a good choice if you want to bring in money from outside investors.

Step 2: Decide Where to Form Your Business

You’ll form an LLC or corporation by filing paperwork with the state.

For most small businesses, it’s best to file formation documents in the state where you’re located. By doing this, you’ll avoid the added costs of registering to do business in your home state and hiring an out-of-state registered agent. However, if your business will have significant nationwide activity or you expect to attract venture capital, you might consider incorporating in Delaware.

Step 3: Choose a Name

It’s worth taking some time to choose a unique name for your online business. A unique name:

  • Helps you market your business
  • Minimizes the chance that a similarly named business will accuse you of trademark infringement
  • Increases the chance that you’ll be able to get a domain name that matches your business name
  • Complies with state law requirements that corporation or LLC names be different than all other entity names registered in your state.

Once you have a name in mind, you can conduct a Google search to see if any similarly named businesses come up. You can also search trademarked names at the U.S. Patent and Trademark Office website, and most states allow you to search registered business names online.

Step 4: Get a Domain Name

As soon as you decide on a name, register a domain name for your business. The domain name is your Internet address, typically ending in “.com.” You can check your proposed domain name’s availability by typing it into the address bar of your Internet browser and seeing if an existing website appears.

Many companies offer domain name registration—you simply set up an account, identify the name you want to register and pay an annual fee.

Step 5: File Your Business Formation Papers

Forming a business entity requires filing documents with the state agency that handles business filings. You’ll also need to pay a filing fee, which varies from state to state. Once your corporation or LLC is formed, you’ll receive a certificate confirming that your new business entity exists.

Step 6: Set Up Your Finances

You can obtain a federal tax ID number from the Internal Revenue Service website. If you’re a sole proprietor or a single-member LLC, you can opt to use your Social Security number instead.

You’ll also need to open a business bank account when starting an online business and, if you’re going to be processing transactions through your website, an account with Paypal or another online payment service.

Step 7: Understand Sales Tax and Licensing Requirements

If you are selling things online, you’ll most likely have to collect and pay sales tax for transactions in any state where your business has a physical presence. However, procedures vary from state to state and it’s a good idea to contact your state’s taxation department and/or an accountant to find out your responsibilities.

You should check with your city or county to find out if you need a business license or are required to register a fictitious business name or DBA.

Step 8: Set Up Your Website

To get your website up and running, you’ll need to purchase web hosting, which is typically offered by the same companies that provide domain registration. Hosting gives your website a place to live on the Internet.

It’s possible to set up a website yourself, but unless you’re a designer or Web developer, you can expect a pretty steep learning curve. If you have the budget, consider hiring a professional to help you with some or all of the following: configuring the site to look the way you want and include the features you need; creating and inserting a logo; optimizing the site for search engines; and creating text and images.

Once you’ve chosen a name and business structure, filed paperwork with the state and set up your website, you’re ready to get going with your online business. Remember that the Internet is a busy place and you can’t sit back and wait for customers to come to you. Look for ways to actively promote your business through online advertising, social media and old-fashioned word of mouth.

Need help deciding which business structure is right for you? Try our Start a Business Wizard or check out our handy business structure comparison chart. LegalZoom’s business formation services include filing your paperwork with the state, obtaining your EIN from the IRS, and connecting you with independent lawyers and tax professionals through our business legal plan to answer any questions you might have.