Opening a business involves choosing a legal structure, registering with your state, getting a tax ID number, and setting up the financial accounts you need to operate. The process can take anywhere from a single afternoon for a simple sole proprietorship to several weeks for a corporation that needs multiple licenses. Here’s what each step looks like and what it costs.
Pick a Business Structure
Your business structure determines how you pay taxes, how much personal liability you carry, and how much paperwork you deal with on an ongoing basis. Most new businesses choose one of these four options.
A sole proprietorship is the simplest path. If you start doing business without registering any other structure, you’re automatically a sole proprietor. There’s no formation filing and no separate tax return for the business. The downside: your personal assets (home, savings, car) are on the line if the business gets sued or can’t pay its debts.
A limited liability company (LLC) separates your personal assets from the business. If the LLC faces a lawsuit or goes bankrupt, your personal property is generally protected. Profits flow through to your personal tax return, so you avoid the double taxation that corporations face. You will, however, pay self-employment tax on those profits to cover Medicare and Social Security contributions. Formation fees vary by state, ranging from $50 to $520.
A corporation (C corp) offers the strongest personal liability protection and makes it easier to raise money by selling stock. It’s also the most expensive and complex to set up and maintain, with formal requirements like a board of directors, bylaws, and annual meetings. State filing fees for corporations range from $45 to $315.
A partnership is the simplest structure when two or more people own a business together. In a general partnership, all partners share liability. A limited partnership lets some partners invest without taking on full liability, while the general partner remains personally responsible. A limited liability partnership (LLP) protects each partner from the other partners’ actions.
Register With Your State
If you’re forming an LLC, corporation, or partnership, you’ll need to file formation documents with your state’s secretary of state office (or equivalent agency). This typically means submitting articles of organization for an LLC or articles of incorporation for a corporation, along with a filing fee.
Filing fees for LLCs range from about $45 to $520 depending on the state, while corporation fees run from $45 to $315. Most states offer online filing, and processing can take anywhere from a few days to a few weeks. Some states offer expedited processing for an additional fee.
If you’re operating as a sole proprietorship under a name other than your own legal name, you’ll usually need to file a “doing business as” (DBA) registration with your state or county instead.
Get an Employer Identification Number
An Employer Identification Number (EIN) is essentially a Social Security number for your business. The IRS issues it for free, and you’ll need one if you plan to hire employees, operate as a partnership or corporation, or pay certain taxes. Even sole proprietors who don’t strictly need an EIN often get one to keep their Social Security number off business documents.
You can apply online at IRS.gov and receive your EIN immediately. The online tool is available Monday through Friday from 6 a.m. to 1 a.m. Eastern, Saturday until 9 p.m., and Sunday evening starting at 6 p.m. The application can’t be saved partway through, and it times out after 15 minutes of inactivity, so have your information ready before you start. You’ll need your business entity type and the Social Security number or taxpayer ID of the person who controls the business.
One important detail: if you’re forming an LLC, partnership, or corporation, register with your state first. The IRS recommends completing your state formation before applying for an EIN, because applying in the wrong order can delay your application.
Get the Licenses and Permits You Need
Most businesses need some combination of federal, state, and local licenses or permits. What you need depends on your industry and where you operate.
Federal licenses are required for businesses in specific regulated industries: alcohol manufacturing or sales, firearms, aviation, commercial fishing, broadcasting, nuclear energy, and mining on federal lands, among others. Most small businesses won’t need a federal license.
State and local permits are more common. Activities that are frequently regulated at the state, county, or city level include construction, restaurants and food service, retail, plumbing, dry cleaning, farming, and auctions. Many cities require a general business license just to operate within their limits, regardless of industry. Fees vary widely.
Check with your state’s business portal and your city or county clerk’s office to find out exactly what you need. Keep track of renewal dates, because letting a license lapse often means reapplying from scratch rather than simply renewing.
Open a Business Bank Account
Keeping your business finances separate from your personal accounts is essential for clean bookkeeping, easier tax filing, and maintaining the liability protection that comes with an LLC or corporation. If you mix personal and business funds, a court could decide your LLC’s liability shield doesn’t apply.
Banks generally ask for these documents when you open a business account:
- EIN: or your Social Security number if you’re a sole proprietorship
- Formation documents: articles of organization, articles of incorporation, or your DBA filing
- Ownership agreements: operating agreement for an LLC, partnership agreement, or corporate bylaws
- Business license: if your city or state requires one
Some banks may ask for additional paperwork. Shop around, because account fees, minimum balance requirements, and transaction limits vary significantly between banks and credit unions.
Register for State and Local Taxes
Beyond your federal EIN, most states require separate tax registrations. If you’re selling physical products, you’ll likely need to register for a sales tax permit through your state’s department of revenue. If you have employees, you’ll need to register for state payroll taxes, including unemployment insurance and income tax withholding.
Some localities impose their own business taxes or require separate registrations. Your state’s tax agency website will list the registrations you need based on your business type and activities.
What the Whole Process Costs
The baseline cost of opening a business is surprisingly low. A sole proprietorship can start with nothing more than a DBA filing fee (often under $50) and whatever your city charges for a basic business license. An LLC will cost between $50 and $520 in state filing fees, plus any local license fees. A corporation runs between $45 and $315 for state filing.
Your EIN is free. Beyond that, you may spend money on an operating agreement or bylaws (which you can draft yourself or pay a lawyer to prepare), insurance, a business bank account, and any industry-specific permits. All in, many small businesses launch for a few hundred dollars in government fees, with optional professional services adding to the total based on complexity.
Timeline From Start to Operating
A sole proprietorship with no special licensing can be up and running in a day or two. An LLC or corporation typically takes one to four weeks, depending on how quickly your state processes formation documents. Getting your EIN takes minutes online. The longest delays usually come from industry-specific licenses or permits, which can take weeks or even months in heavily regulated fields like food service, childcare, or alcohol sales.
The most efficient approach is to handle steps in order: choose your structure, file with your state, get your EIN, apply for licenses, and open your bank account. Each step feeds into the next, and trying to skip ahead usually creates delays.