Starting a business involves a specific sequence of decisions and registrations: choosing a structure, registering with your state, getting a tax ID, opening a bank account, securing licenses, and setting up insurance. Each step unlocks the next, so doing them in order saves time and prevents backtracking. Here’s what the full process looks like.
Choose Your Business Structure
Your business structure determines how you pay taxes, how much personal liability you carry, and how much paperwork you’ll deal with every year. This is the first decision because nearly everything else, from registration to tax filing, flows from it.
A sole proprietorship is the simplest option. There’s no formal registration required in most cases, and you report business income on your personal tax return using Schedule C alongside your Form 1040. The downside is that your personal assets (home, savings, car) are on the line if your business gets sued or can’t pay its debts.
A limited liability company (LLC) separates your personal assets from business liabilities. You file articles of organization with your state and draft an operating agreement that outlines ownership and management rules. A single-member LLC is taxed like a sole proprietorship by default, meaning income still flows to your personal return. Multi-member LLCs are taxed like partnerships, filing Form 1065 as an informational return, with each member receiving a Schedule K-1 showing their share of profits or losses.
A corporation is a separate legal entity that files its own tax return. C corporations file Form 1120 and pay corporate income tax. S corporations file Form 1120-S, but income passes through to shareholders’ personal returns, avoiding double taxation. To elect S corp status, you file Form 2553 with the IRS. Corporations involve more formalities (boards of directors, annual meetings, corporate minutes) but can make raising outside investment easier.
Partnerships come in several forms. A limited partnership requires a certificate of limited partnership and a partnership agreement filed with the state. Limited liability partnerships work similarly but offer liability protection to all partners. All partnerships file Form 1065 and distribute Schedule K-1s to partners.
Register Your Business
Your location and structure determine exactly what registration looks like. If you operate as a sole proprietor under your own legal name, you may not need to register at all. But if you use any name other than your own, you’ll need to register a “Doing Business As” (DBA) name with your county clerk or state government, depending on where you’re located.
LLCs, corporations, partnerships, and nonprofits typically register with the Secretary of State’s office or equivalent business agency in the state where they’re formed. You’ll need a registered agent in your state before you file. A registered agent is simply a person or company authorized to receive legal documents on your business’s behalf. If your business operates in multiple states, you’ll need to file for foreign qualification in each additional state by submitting a Certificate of Authority.
State filing fees range widely, from under $50 to several hundred dollars depending on the state and entity type. Processing times also vary, though many states offer expedited options for an additional fee.
Get Your Federal Tax ID
Most businesses need an Employer Identification Number (EIN) from the IRS. Think of it as a Social Security number for your business. You’ll use it to file taxes, open a bank account, and hire employees. Sole proprietors without employees can use their Social Security number instead, but getting an EIN is still a good idea to keep your personal number off business documents.
Applying for an EIN is free and can be done online through the IRS website. You’ll receive your number immediately after completing the application during business hours.
Open a Business Bank Account
Once you have your EIN, you can open a dedicated business bank account. Keeping personal and business finances separate is essential for maintaining liability protection (especially for LLCs and corporations) and makes tax time dramatically simpler.
Banks commonly ask for your EIN (or Social Security number for sole proprietors), your business formation documents (like articles of organization or incorporation), ownership agreements, and your business license if you have one. Some banks require additional documentation, so call ahead or check their website before visiting a branch. Shop around, as fee structures, minimum balance requirements, and transaction limits vary significantly between banks and credit unions.
Apply for Licenses and Permits
The licenses you need depend on what your business does and where it’s located. There’s no single universal business license, so this step requires some research specific to your situation.
At the federal level, you only need a license if your business operates in a federally regulated industry. This includes businesses involved in agriculture, alcoholic beverages, aviation, firearms and explosives, commercial fishing, maritime transportation, mining and drilling, nuclear energy, radio and television broadcasting, and interstate transportation of oversize vehicles. Each of these is regulated by a specific federal agency.
State, county, and city governments regulate a much broader set of activities. Construction, restaurants, retail stores, dry cleaning, plumbing, farming, vending machines, and auction businesses are commonly regulated at the local level. Many cities require a general business license or occupancy permit just to operate within city limits, regardless of your industry. Your state’s business portal and your city or county clerk’s office are the best starting points for identifying exactly what you need.
Don’t overlook professional licenses if your work requires specific credentials. Fields like accounting, real estate, cosmetology, and healthcare each have their own licensing boards at the state level.
Understand Your Tax Obligations
How you file depends on your business structure, but every business owner needs to understand estimated taxes. Unlike W-2 employees who have taxes withheld from each paycheck, business owners are responsible for paying taxes throughout the year. Quarterly estimated tax payments are due on or around April 15, June 15, September 15, and January 15.
Key filing deadlines to know: S corporations must file Form 1120-S (or request an extension using Form 7004) by March 15. Sole proprietors, partners, and LLCs taxed as sole proprietorships or partnerships must submit their returns by April 15, or file Form 4868 for an extension. C corporations on a calendar year also file by April 15.
Beyond income taxes, hiring employees adds payroll tax obligations, including withholding federal income tax, Social Security, and Medicare from employee wages, plus paying your employer share. You’ll also need to collect and remit sales tax if your state imposes one and your product or service is taxable.
Get Business Insurance
If you have employees, federal law requires three types of insurance: workers’ compensation, unemployment insurance, and disability insurance. Beyond those requirements, several other policies are worth considering based on your risk profile.
General liability insurance covers bodily injury, property damage, and lawsuits. It’s relevant to virtually any business, whether you have a physical location, visit clients, or sell products.
Professional liability insurance (sometimes called errors and omissions insurance) protects service-based businesses against claims of malpractice, errors, or negligence. If clients could claim your advice or work product caused them financial harm, this policy matters.
Product liability insurance applies to businesses that manufacture, wholesale, distribute, or retail physical products. It covers financial losses from defective products that cause injury.
Commercial property insurance protects physical assets like equipment, inventory, furniture, and your building against fire, storms, vandalism, and other covered events. If you run your business from home, a rider on your homeowner’s insurance can cover a small amount of business equipment and liability for third-party injuries on your property.
A business owner’s policy bundles general liability and commercial property coverage into one package, often at a lower cost than buying each separately. For most small businesses, this is the simplest and most cost-effective starting point.
Set Up Your Accounting System
Getting your books in order from day one prevents headaches later. Choose an accounting method: cash basis (recording income when received and expenses when paid) or accrual basis (recording when earned or incurred, regardless of when money changes hands). Most small businesses start with cash basis because it’s simpler and aligns with how you actually see money moving.
Track every business expense from the start, even before revenue comes in. Startup costs like registration fees, equipment, marketing, and professional services are often deductible. Use accounting software or a dedicated spreadsheet to categorize expenses consistently. Save receipts. The IRS can ask for documentation of any deduction you claim, and “I think I spent about…” is not a sufficient answer.
Build Your Foundation Before You Launch
Before you start selling, make sure you’ve covered a few operational basics. Set up a dedicated business phone number and professional email address. Create a simple website, even if it’s just a single page with your contact information and a description of what you offer. Register your domain name early, as the one you want may not be available later.
If you plan to sell online or in person, set up a payment processing system. If you’re hiring, get familiar with Form W-4 (for employees to declare withholding) and Form I-9 (to verify employment eligibility). You’ll also need to report new hires to your state’s directory within a set timeframe, typically 20 days.
The entire process from choosing a structure to being ready to operate can take anywhere from a few days (for a simple sole proprietorship) to several weeks (for a corporation with multiple licenses and employees). Moving through each step in order, rather than circling back to fill gaps, keeps the timeline as short as possible.