Doing business in the United States means clearing two stacks of requirements at the same time: federal rules on taxes, employment, and interstate commerce, and state rules that govern how a company is formed, registered, and kept in good standing. At a minimum, you will choose an entity type, register it with a state, get a federal Employer Identification Number, set up tax accounts, meet employment rules once you hire anyone, and keep annual filings current in every state where you actually operate. The rest is detail, and the detail is where the penalties live.
Pick a Legal Structure First
Everything downstream — how you’re taxed, what you file, how exposed your personal assets are — flows from the entity you choose.
A sole proprietorship is the default when one person starts working for themselves. Nothing needs to be filed to create it. The trade-off is that there’s no legal separation between you and the business, so creditors can reach personal bank accounts, a home, and other assets to satisfy business debts. A general partnership is the same idea for two or more people sharing profits and losses, with the added wrinkle that any partner can bind the others through their business decisions.
A limited liability company is a separate legal entity from its owners, called members. It can own property, sign contracts, and be sued in its own name, and members’ personal assets are generally shielded from company debts and judgments. LLCs also have flexibility on federal tax treatment: they can be taxed as a sole proprietorship, a partnership, or a corporation depending on the number of members and any elections filed with the IRS.
A corporation is owned by shareholders, run by a board of directors, and carries the most formality — bylaws, stock issuance, board meetings, and detailed records. A C-corporation is taxed on its own profits, and shareholders are taxed again when those profits come out as dividends. An S-corporation passes income and losses through to shareholders’ personal returns instead, but eligibility is limited: no more than 100 shareholders, no nonresident-alien shareholders, and only one class of stock.1Office of the Law Revision Counsel. 26 US Code 1361 – S Corporation Defined Shareholders then report their share of income on their individual returns and pay tax at their personal rates.2Internal Revenue Service. S Corporations
Register the Entity with a State
LLCs and corporations don’t legally exist until they’re filed with a state. Sole proprietorships and general partnerships can usually skip state-level entity filings, though local licenses may still apply.
The business name has to be distinguishable from every other entity already on file with the state, and it usually has to carry a designator like “LLC” or “Inc.” Most states run a free online name search. You also need a registered agent with a physical address in the state, whose job is to accept legal papers and government notices for the company. That can be an individual, a professional service, or in some states a member who lives there.
The formation document is called Articles of Organization for an LLC and Articles of Incorporation for a corporation. Both list the legal name, principal office address, registered agent, and the names of initial organizers or directors. Corporate filings also require information on authorized shares, including classes and par values.3Legal Information Institute. Articles of Incorporation Filing fees range roughly from $50 to $500 depending on the state. Standard processing runs from several days to several weeks; most states offer expedited turnaround for an added fee. Once approved, you receive a Certificate of Incorporation or Certificate of Organization, which is the entity’s proof of existence. Banks, lenders, and future counsel will ask for it.
Get an EIN from the IRS
Nearly every business needs an Employer Identification Number, even one with no employees. The EIN is the business equivalent of a Social Security number and is required for federal tax filings, opening a business bank account, and hiring. If the principal place of business is inside the United States, the online application on the IRS website issues an EIN immediately at no cost. Applicants whose principal business location is outside the United States can’t use the online tool and must apply by phone, fax, or mail using Form SS-4.4Internal Revenue Service. Get an Employer Identification Number
Federal and State Tax Obligations
Federal income tax applies to business earnings under the Internal Revenue Code, with rates and filings that depend on entity type. Most states add their own income or gross receipts tax on top; a handful impose no state income tax at all. Many states also charge a franchise or business privilege tax just for the right to exist there, calculated on net worth, revenue, or authorized shares depending on the jurisdiction.
Sales Tax Nexus
If the business sells goods or certain services, it may have to collect and remit sales tax in states where it has “nexus.” After the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require collection from out-of-state sellers based on economic activity alone. South Dakota’s threshold, which the Court upheld, is $100,000 in annual sales or 200 or more transactions into the state. Most states have adopted similar rules with their own numbers.
Quarterly Estimated Tax Payments
Businesses and self-employed individuals who expect to owe $1,000 or more in federal income tax after withholding and refundable credits must pay quarterly estimates. The four periods and their deadlines are:5Internal Revenue Service. Estimated Tax
- January 1 through March 31: payment due April 15
- April 1 through May 31: payment due June 15
- June 1 through August 31: payment due September 15
- September 1 through December 31: payment due January 15 of the following year
You can generally avoid an underpayment penalty by paying at least 90% of the current year’s tax or 100% of the prior year’s tax through withholding and quarterly installments. If prior-year adjusted gross income was over $150,000, that safe harbor rises to 110%.5Internal Revenue Service. Estimated Tax Missing a deadline triggers a penalty calculated as interest on the shortfall for the quarter.6Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
Register in Every State Where You Operate
A business formed in one state that conducts real activity in another generally has to register as a “foreign” entity in the second state and obtain a certificate of authority. This is called foreign qualification. Skip it and you can face fines, lose the ability to enforce your contracts in that state’s courts, and pick up back taxes.
“Doing business” isn’t defined uniformly. States look at things like a physical location, employees, or regular sales activity in the state. Common exclusions include maintaining a bank account, isolated transactions, and pure interstate commerce. If you have a recurring economic footprint somewhere, check with that state’s Secretary of State. Foreign qualification also puts the company under that state’s court jurisdiction and creates ongoing reports and taxes there.
Local Licensing and Zoning
State registration doesn’t open the doors. Most cities and counties require a general business license, sometimes called a business tax receipt, before you begin operating. Costs typically run from around $50 to a few hundred dollars, and renewal is usually annual.
Zoning is the other trap. Local governments limit what kinds of business activity can happen in each zone. If your location isn’t zoned for what you plan to do, you may need a conditional use permit, which can involve a review and sometimes a public hearing. Operating without required local licenses can bring daily fines, forced closure, backdated fees, and problems enforcing contracts. Some jurisdictions warn first; others penalize immediately.
Hiring Rules to Know Before the First Employee
I-9 Employment Verification
Every U.S. employer has to verify each new hire’s identity and work authorization on Form I-9. The requirement comes from the Immigration and Nationality Act as amended by the Immigration Reform and Control Act.7U.S. Citizenship and Immigration Services. Handbook for Employers M-274 1.0 Why Employers Must Verify Employment Authorization and Identity of New Employees Employers examine the employee’s original documents and keep the completed I-9 for three years after hire or one year after employment ends, whichever is later. The statutory base penalty for paperwork violations is $100 to $1,000 per individual, adjusted upward each year for inflation.8Office of the Law Revision Counsel. 8 USC 1324a – Unlawful Employment of Aliens
Minimum Wage and Overtime
The Fair Labor Standards Act sets the federal floor. The federal minimum wage is $7.25 an hour and has not changed since 2009.9Office of the Law Revision Counsel. 29 USC 206 – Minimum Wage Many states and cities require a higher rate, and when they do, the higher rate applies.10U.S. Department of Labor. State Minimum Wage Laws Non-exempt employees who work more than 40 hours in a workweek must receive overtime at one and one-half times their regular rate.11Office of the Law Revision Counsel. 29 USC 207 – Maximum Hours Keep clean time records. Employers who can’t produce reliable ones face serious exposure to back pay and liquidated damages.
Unemployment Insurance and Workers’ Compensation
Employers register for unemployment insurance, a joint federal-state program funded mainly by employer payroll taxes. The federal piece, FUTA, is 6.0% on the first $7,000 in wages paid to each employee each year, with a substantial credit for employers who pay state unemployment taxes on time.12Internal Revenue Service. Topic No. 759, Form 940, Employers Annual Federal Unemployment Tax Return State rates vary by industry and claims history. Workers’ compensation, which covers medical care and lost wages for on-the-job injuries, is a state-level requirement and is mandatory in nearly every state. Both registrations typically go through your state’s labor or insurance agency shortly after the first hire.
Employees vs. Independent Contractors
Misclassifying a worker as a contractor when the relationship is really employment is one of the more expensive mistakes available. It can produce back taxes, penalties, and liability for unpaid benefits. Under the FLSA, the Department of Labor applies an “economic reality” test that focuses on two factors: how much control the business has over the worker’s performance, and whether the worker has a genuine opportunity for profit or loss based on their own initiative.13U.S. Department of Labor. Final Rule – Employee or Independent Contractor Classification Under the Fair Labor Standards Act Secondary factors include the skill required, the permanence of the relationship, and whether the work is part of the company’s core operations. What actually happens between the parties governs. Calling someone a contractor on paper doesn’t make them one.
Keep the Entity in Good Standing
Forming the company isn’t a one-time job. Most states require LLCs and corporations to file an annual or biennial report with the Secretary of State to update address, registered agent, and management information. The fees are usually modest, often under $100, but skipping the filing is expensive.
A company that stops filing loses good standing. The state stops issuing certificates of good standing that banks and counterparties routinely ask for. Continued non-compliance leads to administrative dissolution for domestic entities and revocation of authority for foreign-qualified ones. Reinstatement is available in most states but costs back fees, penalties, and interest, and the company loses its liability protection during the dissolved period. That problem usually surfaces at the worst possible moment, like the middle of a financing or a lawsuit.
Internally, corporations should maintain permanent records of board minutes, shareholder resolutions, and bylaws. LLCs should keep operating agreements and records of member decisions. These records protect the liability shield between the entity and its owners; courts are more willing to reach through the entity when formalities have been ignored.
What Changes for Foreign Nationals and Foreign Entities
A foreign national who needs to meet U.S. tax obligations but isn’t eligible for a Social Security number can apply for an Individual Taxpayer Identification Number on Form W-7, submitted with a federal tax return and proof of foreign status and identity. Applications go by mail to the IRS Austin Service Center, in person at an IRS Taxpayer Assistance Center, or through an IRS-authorized Certifying Acceptance Agent.14Internal Revenue Service. How to Apply for an ITIN Applicants whose principal business is outside the United States can’t use the IRS online EIN tool and must apply by phone, fax, or mail.4Internal Revenue Service. Get an Employer Identification Number
On beneficial ownership reporting: in March 2025, FinCEN issued an interim final rule that exempts all entities formed in the United States from beneficial ownership reporting, and Treasury announced it will not enforce penalties against U.S. citizens or domestic reporting companies.15U.S. Department of the Treasury. Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies The reporting requirement now applies only to entities formed under foreign law that have registered to do business in a U.S. state or tribal jurisdiction. Foreign reporting companies registered before March 26, 2025, had a filing deadline of April 25, 2025. Those registering after that date have 30 calendar days from the effective date of their registration. These foreign entities are not required to report any U.S. persons as beneficial owners.16FinCEN.gov. Beneficial Ownership Information Reporting
Tax treaties between the United States and the owner’s home country can reduce withholding on dividends and royalties and prevent the same income from being taxed twice. Treaty benefits are not automatic; the entity has to claim them on the applicable IRS forms when it files.