The legal requirements for starting a business in the United States fall into a predictable sequence: choose a legal structure, register the entity and its name with your state, get a federal Employer Identification Number and settle your tax treatment, obtain the licenses and permits your location and industry require, and then stay current on employment rules and annual filings once you open the doors. The specifics shift with your business type, your state, and whether you hire anyone, but almost every new venture works through the same checklist.
Choose a Legal Structure First
Everything else keys off this decision. The common options are sole proprietorship, partnership, limited liability company (LLC), and corporation. Each sets how much personal liability you carry, how profits are taxed, and how much paperwork you keep up with.
A sole proprietorship is the simplest, but you and the business are the same legal entity, so your personal assets are exposed if the business is sued or can’t pay its debts. An LLC creates a separate legal entity that shields personal assets from most business liabilities and lets you choose how you’re taxed. A corporation offers the strongest liability protection and a more formal governance structure, with more regulatory overhead. Partnerships split ownership between two or more people, with variations like limited partnerships that give some partners liability protection.
Taxes follow structure, but not rigidly. LLCs can be taxed as sole proprietorships, partnerships, or corporations depending on how you elect. Corporations face a second layer of tax on profits unless they elect S corporation status, which passes income through to shareholders. Getting the structure wrong doesn’t just raise your tax bill; it can expose you to liability you thought you had avoided.
Register the Entity and Its Name With the State
Your business name has to be distinguishable from names already on file with your state’s secretary of state. Check the state’s business name database before you file anything. That check only compares against other registered names in that state; it won’t catch federal trademarks or names used in other states.
If you operate under a name different from your legal name, or different from the entity name on file, you file a fictitious name registration, usually called a “doing business as” or DBA. This covers sole proprietors using a trade name and LLCs or corporations operating under a name other than their official one.
Most states also require a designator in the official entity name: “LLC” or “L.L.C.” for a limited liability company, and “Inc.,” “Corp.,” or “Incorporated” for a corporation. The wrong designator will get your paperwork rejected.
Articles of Organization or Incorporation
To create an LLC, you file articles of organization with the secretary of state (or equivalent office). For a corporation, the equivalent is articles of incorporation. Both typically require the business name, principal office address, the business purpose, and the people responsible for formation. Some states also ask whether an LLC will be member-managed or manager-managed.
Filing fees vary. Some states charge under $100 for an LLC; others charge several hundred, and entity types like limited partnerships can cost significantly more. Online filing is usually faster; paper filing by mail takes longer. Many states offer expedited processing for an added fee.
Your business does not legally exist until the state accepts the filing and issues a certificate of formation or similar confirmation. Any contract you sign on behalf of the business before that date can leave you personally liable, even if the other side knew formation was pending. Forming the entity afterward and having it ratify the contract doesn’t automatically clear your personal exposure.
Registered Agent and Governing Documents
Every state requires a registered agent: a person or company authorized to receive legal documents and official notices for the entity. The agent needs a physical street address in the state; a P.O. box won’t do, because the agent must be available for hand-delivered legal papers during business hours. You can serve as your own, but many owners use a commercial service to keep their personal address off public records and ensure coverage during business hours.
LLCs should have an operating agreement, and corporations should have bylaws. These internal documents set ownership percentages, voting rights, how profits are distributed, and what happens when an owner leaves or the business winds down. Many states don’t legally require an operating agreement, but without one the state’s default LLC rules govern every dispute.1U.S. Small Business Administration. Basic Information About Operating Agreements Those defaults rarely match what owners actually intended, and courts look to these documents when ownership fights arise. Drafting one at formation is much cheaper than litigating without one later.
Get an EIN and Settle Your Tax Treatment
Most businesses need a federal Employer Identification Number from the IRS. You need one if you have employees, operate as a partnership or corporation, or file certain tax returns.2Internal Revenue Service. Employer Identification Number Even a single-member LLC that technically doesn’t need an EIN will usually need one to open a business bank account. The online application is free; you have to form your entity with the state first, and you need the Social Security number or ITIN of the person who controls the business.3Internal Revenue Service. Get an Employer Identification Number
Entity type doesn’t automatically fix how you’re taxed. A single-owner LLC is taxed as a sole proprietorship by default; a multi-member LLC is taxed as a partnership. Either can elect corporate taxation. To be taxed as an S corporation, where business income passes through to your personal return and avoids the second layer of corporate tax, you file IRS Form 2553 no later than two months and 15 days after the beginning of the tax year the election should take effect.4Internal Revenue Service. Instructions for Form 2553 Miss that window and you keep the default treatment for the year.
Estimated tax payments catch a lot of first-year owners off guard. If you expect to owe $1,000 or more in federal taxes for the year as an individual, or $500 as a corporation, you generally must make quarterly estimated payments. Underpaying triggers a penalty even if you end up owed a refund when you file.5Internal Revenue Service. Estimated Taxes Set money aside for taxes starting with your first month of revenue, not your first profitable quarter.
Licenses, Permits, and Sales Tax Registration
Most localities require a general business license or operating permit before you can legally do business in their jurisdiction. These usually renew annually and carry fees that vary widely by location and business type.6U.S. Small Business Administration. Apply for Licenses and Permits Operating without one can lead to citations and daily fines.
Check zoning too. Home-based businesses often need a home occupation permit to avoid violating residential restrictions on noise, traffic, or signage. Commercial locations must line up with the local zoning plan for the business category. Operating in the wrong zone can result in an injunction that shuts you down.
Certain fields require professional licenses from state boards. Contractors, cosmetologists, food service operators, real estate agents, and healthcare providers all fall into regulated categories, each with its own education, testing, and experience rules. Operating without the required professional license can bring criminal charges on top of civil liability.
If you sell taxable goods or services, you generally need to register for a sales tax permit in each state where you have a tax obligation. Registration itself is typically free, but the obligation to collect and remit kicks in with your first taxable sale. Most states also require registration by remote sellers once sales into the state cross a threshold, commonly $100,000 in annual revenue. Thresholds and measurement periods vary, so check with each state’s tax department where you have customers.
State Registration Doesn’t Protect Your Name Nationwide
Filing with the secretary of state does not give you exclusive rights to your business name across the country. It only blocks another entity from filing the same name in that state. A business in another state using the same or a confusingly similar name is outside the reach of your state filing.
A federal trademark registered with the United States Patent and Trademark Office provides nationwide protection under the Lanham Act. It creates a legal presumption that you own the mark, allows infringement lawsuits in federal court, and lets you record the mark with U.S. Customs to block infringing imports. The base filing fee is $350 per class of goods or services for electronic applications,7United States Patent and Trademark Office. USPTO Fee Schedule and the average time from filing to registration is roughly 10 months.8United States Patent and Trademark Office. Trademark Processing Wait Times The lag is a reason to file early rather than wait until someone else is already using your name.
What Hiring an Employee Triggers
Hiring brings on a wave of new obligations. Nearly every state requires employers to carry workers’ compensation insurance, which covers medical costs and lost wages for job-related injuries. In many states that requirement applies even with a single employee. Going without coverage can bring daily fines, stop-work orders, and personal liability for injuries that happen while you’re uninsured.
You’ll also register for unemployment insurance tax, which funds benefits for workers who lose their jobs through no fault of their own. Rates vary by industry and your claims history; new employers typically pay a default rate that adjusts over time.
The Fair Labor Standards Act sets the pay floor. The federal minimum wage is $7.25 per hour, and most states set a higher rate; employees are entitled to whichever is greater.9U.S. Department of Labor. Wages and the Fair Labor Standards Act Non-exempt employees who work more than 40 hours in a week get overtime at one and a half times their regular rate. Misclassifying employees as exempt from overtime or as independent contractors is one of the most expensive mistakes a new employer can make.
Federal law requires employers to report every new hire to the state’s Directory of New Hires within 20 days of the hire date. Employers who transmit electronically may instead submit twice-monthly batches.10Office of the Law Revision Counsel. 42 USC 653a – State Directory of New Hires Employers must also withhold federal and state income taxes, Social Security, and Medicare from paychecks, then remit on a set schedule. Employment tax records must be kept for at least four years after the tax is due or paid, whichever is later.11Internal Revenue Service. Employment Tax Recordkeeping
Keeping the Entity Alive
Formation is not the finish line. Most states require LLCs and corporations to file an annual or biennial report with the secretary of state, with a fee. The report usually updates basic information like your registered agent, principal address, and the names of managers or officers. Miss the filing and you can face late fees, lose good standing, and eventually be administratively dissolved. Once dissolved, you lose the liability protection the entity existed to provide.
Many states also impose a minimum franchise or privilege tax on business entities for the right to exist in the state. These range from around $25 to $800 per year depending on the state, whether or not the business earned any revenue.
The IRS generally recommends keeping business income and expense records for at least three years; employment tax records need a four-year minimum.12Internal Revenue Service. Topic No. 305, Recordkeeping Keeping everything for seven years gives you a comfortable buffer against late audits and extended statute-of-limitations situations.
Expanding Into Other States
If your business operates in states beyond where it was formed, you may need to register as a “foreign” entity in each additional state. “Foreign” here just means formed somewhere else. The trigger is usually regular, ongoing business activity in the state: an office, employees, or property there. Occasional or isolated transactions generally don’t require registration.
Foreign qualification involves filing with the new state’s secretary of state, appointing a registered agent in that state, and paying an additional filing fee. You pick up that state’s annual reporting requirements and possibly its franchise or income taxes. Skipping this step can bring fines, loss of the ability to enforce contracts in the state’s courts, and back taxes for every year you should have been registered.