Starting your own business is an exciting process, but it’s also one that has many important decisions that need to be made along the way.
If you’ve never started a business before, it might be somewhat intimidating to think about everything that needs to be done to take your business from the idea phase and make it a reality.
That’s why we put together this guide to starting a new business in any state, packed with tools and resources to make this process as painless as possible. In this article, you’ll also find links to our state-by-state guides, which break down in further detail what needs to be done in order to form a compliant business in your home state.
Let’s dive into the 16 steps you should complete in order to form a new business entity in any state!
1) Write a Business Plan
The first step to starting any successful business is to properly plan your new endeavor. Without a proper business plan, your business runs the risk of being an unfocused mess.
The most important aspect of writing a business plan is the fact that it forces you to sit down and come up with concrete solutions for several different aspects of your new company. In your business plan, you should address the following areas:
- An executive summary which provides an overview of your purpose and plans
- A general description of your business
- An analysis of the market, including opportunities and competition
- Your company’s organizational structure
- The products and/or services you plan to sell
- Marketing strategies
- Financial goals and projections
2) Choose a Business Name
One of the most important aspects of starting any business is choosing the right name. You’ll need to brainstorm several different options, because your business name is your first opportunity to make a first impression on prospective customers. There are also some legal considerations with naming a business as well.
Most importantly, you cannot choose a name for your business that is too similar to any names already registered in your state. Therefore, you’ll need to run a business name availability search in your state for each name idea you come up with.
Furthermore, every limited liability company needs to have either the phrase “limited liability company” or the initials “LLC” in its name. Along those same lines, every corporation must have “incorporated” or “Inc.” in its name.
3) Choose a Legal Structure
The most common business types in the United States are the sole proprietorship, general partnership, LLC, and corporation. The sole proprietorship and general partnership are informal business entities that have no actual formation process — all you need to do to form one is simply start transacting business, either by yourself (sole proprietorship) or with at least one partner (general partnership).
An LLC is a highly popular option for small businesses, while the corporation is generally used for larger companies — although it’s important to point out that there are plenty of exceptions to both of these general statements.
Either way, the LLC and corporation are both much stronger business structures than the sole proprietorship and general partnership, because these entities protect your personal assets, whereas sole proprietorships and general partnerships do not.
Quick Note: If you decide to start an LLC, there are plenty of online LLC formation services (like LegalZoom and ZenBusiness) that can take care of the paperwork for you. It usually only takes about 10 minutes.
4) Designate a Registered Agent
The role of a registered agent is relatively simple, as this is the business entity or individual who is tasked with receiving important document deliveries from the state on your behalf. The registered agent must be available from 9am to 5pm every weekday, because the state does not announce in advance when it will make a delivery.
Whenever your registered agent accepts a document delivery — such as service of process for a lawsuit — they will immediately inform you and then forward the document to you. This is important because the state needs to have a reliable point of contact for your business, where an official representative of your company can be reached during standard business hours.
You are legally allowed to serve as your own registered agent, although this has some privacy concerns, and you would also need to be present at your place of business from 9am-5pm Monday through Friday, with no exceptions.
Our preferred option is to hire a registered agent service. These companies handle every aspect of the registered agent role, they’re typically not very expensive, and they also provide some privacy protections that you won’t get if you handle this role on your own.
5) Register Your Business
This is the step that officially forms your new business entity with the state. If you’re forming an LLC, you’ll file a document typically referred to as the articles of organization. For a corporation, you’ll need to create a document called the articles of incorporation.
Either way, these documents will be filed with your state’s Secretary of State (or equivalent office), at which point the state will form your business structure.
The information needed for these documents varies depending on which type of business you’re forming, as well as the state you’re forming it in, so make sure to check your state’s specific guidelines. If at any point you need help, a service like ZenBusiness can take care of the paperwork for you.
6) Acquire an EIN
The vast majority of businesses will require an EIN, or Employer Identification Number (also commonly referred to as a federal tax ID number). This is essentially the business version of a Social Security Number, as it is a nine-digit number that is used to identify your business.
You can obtain an EIN from the Internal Revenue Service for free, and the entire process can be completed rather quickly. You can find the EIN application form on the IRS website.
7) Open a Business Bank Account
If you operate an LLC or corporation, you will need to keep your business finances entirely separate from your personal finances. If you don’t, you run the risk of having your corporate veil pierced by the courts, which means you lose your personal asset protection.
To open a business bank account, you’ll just need to provide a bank with a copy of your articles of organization/incorporation, as well as your EIN, and some basic information about yourself and your business.
Once you have your bank account, you’ll need to direct all of your business income to this account, and also pay all of your business expenses from this account.
8) Handle Your Tax Obligations
Your specific tax obligations will vary considerably based on which state you register your business in, as well as which type of business you operate. In the vast majority of states, you’ll at least need to pay a sales and use tax if you sell any products or services, as well as unemployment taxes if you hire any employees.
Beyond that, it’s extremely difficult for us to make any generalized statements about your tax obligations, so we strongly suggest you read our business formation guide for your specific state.
9) Set Up an Accounting System
There are two good options for this step: you can either hire an accountant, or acquire reliable accounting software. If your company’s bookkeeping requirements are relatively simple, accounting software is an affordable and efficient way to keep your accounting records.
If your company’s financials are a bit more complex, you can’t go wrong with hiring an accountant.
While this option can be highly expensive depending on how your company is set up and how much business you transact, an accountant will be able to save you a ton of time compared to keeping your own records, so in the end you may actually save money by going this route.
10) Create an LLC Operating Agreement or Corporate Bylaws
These two documents are relatively similar, but depending on which type of business you form, you’ll need to create one or the other. For LLCs, the operating agreement is an internal document that lays out some important ground rules for how your business will be run. For corporations, the corporate bylaws serve a similar purpose.
Both of these documents are required by law in certain states, and not required in others. However, we strongly recommend that you draft the relevant document no matter which state your business operates in, because an operating agreement or bylaws can help prevent disagreements among your ownership group down the line.
Furthermore, these documents provide a welcome safety net in case of legal disputes, and they also enhance your company’s legitimacy to courts, banks, government agencies, and other business entities.
11) Obtain All Relevant Licenses and Permits
Again, this is another category that has a ton of variance depending on which state you’re in, as well as what kind of business you run. Some states have general business licenses, while others do not. Every state has a list of industries that require specific licenses or permits, but these lists vary depending on your state.
In general, you should check with the federal, state, and local jurisdictions your business operates in, because each of these levels of government can require different licenses and permits. No matter what kind of business you operate, it’s overwhelmingly likely that you’ll need at least one license or permit to operate in compliance with the law.
If you would rather hire someone to take care of the licensing step for you, most online business formation services offer license and permit research packages. With this service, you won’t need to do any research regarding which licenses you need to run a compliant business. Instead, the company you hire will find out for you, then send you the relevant applications.
12) Acquire Business Insurance (if Necessary)
Some businesses have quite a bit of liability that requires more protection than your LLC or corporation’s personal asset protection can provide.
In these situations, it’s smart to also obtain insurance for your business. Especially if your business has retail space, you should at the very least obtain general liability insurance to protect from simple incidents like slip and fall accidents.
In addition, if you hire employees, you will almost certainly need to acquire workers’ compensation insurance. For more information, the U.S. Small Business Administration has a handy guide to various forms of business insurance on their website.
13) Build a Business Website
Having a solid business website is a huge part of developing any company these days. Even small businesses that only operate on a local scale should still have a web presence, because many people use Google searches to identify businesses they want to use for local services.
Thankfully, you don’t need to be an expert when it comes to web design. There are plenty of services like WordPress and Squarespace these days, which provide powerful tools to dramatically simplify the website design process.
Some of these tools have simple drag-and-drop interfaces, while others are a bit more complex, with more powerful tools. It’s important to find one that suits your abilities as a designer, and to not overshoot your capabilities. Especially with websites for simple, local services, your site doesn’t need to blow anyone away. It just needs to be functional, with a clean and easy-to-use interface.
14) Launch Social Media Accounts
These days, a business website is just the start of your online presence. Most successful businesses complement their websites with a social media presence that spans multiple platforms. Facebook, Twitter, and Instagram are all great ways to connect organically with potential customers, and help you develop your brand voice.
The best part of social media for business is that you don’t need to spend any money to get these accounts up and running. You may want to enlist some assistance when it comes to making social media posts — especially if you’re short on time, or you don’t have experience with social media — and you may also find value in social media advertising as well.
Still, social media doesn’t have to cost you anything if you don’t want to spend anything.
15) Understand Ongoing State Requirements
This is another category that obviously varies considerably depending on which state your business operates in, as well as what type of business you own. In general though, each state has some type of annual report or franchise tax report requirement.
Depending on your state, the fees associated with these annual maintenance filings could be rather nominal, or they could cost hundreds of dollars. Still, the one consistent element is that nearly every state has some type of ongoing requirement to keep your business in good standing, and you should never overlook these requirements.
Failing to complete them could see your business fall out of compliance with state regulations, and you could even see your business dissolved or your corporate veil pierced if you ignore them for too long.
16) Check Out Small Business Resources
It’s important to remember that you’re not on this journey alone. There are plenty of free resources available to make starting and growing your business a smoother, easier process.
The U.S. Small Business Administration website is an excellent resource for businesses located in any state. This site has information about business development, loan opportunities, financial advising, networking, and much more. The SBA also has tons of state-specific information.
You should also check with your state to see what resources they have available. You might be surprised by how thorough some states’ official websites are when it comes to small business tools and tips.