The United States of America is home to over 33 million businesses, according to the U.S. Small Business Administration (SBA). The SBA’s 2023 report puts the total number of businesses in the U.S. at 33,185,550 small businesses and 20,868 large businesses. The SBA describes a small business as “any independent business with fewer than 500 employees.”
Information on how to start a business through each of the 50 states and Washington DC can be found here:
United States Economy Trends
- Small firms constitute 99.9% of U.S. businesses.
- Small businesses account for 97.3% of the exporting firms in the U.S., employ 46.4% of the total U.S. workforce (about 61.7 million workers), and makeup 43.5% of the U.S. gross domestic product.
- In the last 26 years, small businesses have generated 17.3 million net new jobs in the United States, accounting for 62.7% of net new job creation since 1995.
The proliferation of small businesses in the United States creates a low-entry bar for starting entrepreneurs. However, any entrepreneur venturing into a new business in the U.S. has some tasks they must complete and varying regulatory conditions to satisfy. Chief among them is that the party must work with several federal, state, and local government bodies to set up their business. Hence, many aspiring business owners often need help knowing where to begin.
From determining startup legal prerequisites to writing a business plan and choosing a business structure, this all-inclusive guide takes new business owners through the steps they will need to establish their business in any region of the United States.
- Step 1: Performing Market Research
- Step 2: Drawing up a Business Plan
- Step 3: Acquiring a Business License or Permit
- Step 4: Securing Funding
- Step 5: Choosing a Business structure
- Step 6: Choosing a Business Location
- Step 7: Registering the Business with the Appropriate Government Authority
Step 1: What Kind of Business Should I Start?
Every month, the U.S. receives over 410,000 business applications. Independent sources estimate some of the most common industries in the country to include:
- Real Estate and Rental and Leasing
- Health Care and Social Assistance
- Retail Trade
- Professional, Scientific, and Technical Services
- Transportation and Warehousing
- Arts, Entertainment, and Recreation
- Accommodation and Food Services
- Administrative, Support, and Waste Management
Owning a business comes with several benefits, including being one’s boss, creating wealth, pursuing a passion, getting away from the corporate 9 to 5, and making an impact in society. However, any good business idea requires an adequate amount of research to come by. Further, the type of business that succeeds is often determined by where it is situated and its product/service offerings, among other factors. Hence, entrepreneurs cannot overlook market research and competitive analysis to vet their idea against the current consumer market and economy.
How To Do Market Research
Market research looks into economic trends and consumer behavior/attitudes to find out if an idea has a customer base. The research helps budding entrepreneurs ascertain if their idea is original and viable. It asks questions like:
- Whether a demand exists for a product or service
- Whether other similar product/service offerings are available
- Where the consumers are located and where the business can reach
- What the consumer demographics are, including their gender, ethnicity, age group (millennials, baby boomers, or Gen Z), socioeconomic status (education and occupation level, income range, marital status), etc.
- How interested a group of people would be in a product or service
With the investigation, entrepreneurs can learn about opportunities and limitations, refine their business ideas, and diminish startup risks.
There are two ways to perform market research: directly or indirectly. Direct research collects data from consumers, often through surveys, interviews, focus groups, observation, online forms, and social media monitoring. Meanwhile, the latter uses existing sources to complete the research. One can find free existing customer and market data from several independent and reliable sources. For example, the SBA compiles business and consumer statistics for the curious entrepreneur. Many entrepreneurs eventually combine direct and indirect sources for their investigations.
Competitive analysis, on the other hand, examines the competitor terrain to discover market advantages. By conducting a competitive analysis, prospective business founders can learn their competitors’ strengths and weaknesses, determine a competitor’s market share, and find opportunities to break into the market. The research also identifies internal and external threats that may affect a business, such as legislation changes, rising costs of raw materials, supplier or manufacturer inaccessibility, and natural disasters.
Step 2: How To Write a Business Plan
A business plan serves as a blueprint for a firm, mapping out where the business is, where it is heading, and how the founder intends to take it there. Some advantages of creating a business plan include:
- It articulates a firm’s objectives, value proposition, priorities, and action steps, thus providing potential financial backers with a clear direction and vision of the business.
- It helps an entrepreneur forecast financial needs, determine how to generate revenue, identify potential pitfalls, and flesh out staffing and operational needs.
- It demonstrates that a business owner is sincere about doing business.
There is no incorrect way to write a business plan. A well-conceived business plan is tailored to a firm’s goals and guides a business owner through the stages of launching, managing, and scaling their business. However, most business plans fall into one of two categories: traditional or lean startup. The distinction between the two is the detail included.
Traditional Business Plan
A traditional business plan entails the following:
- Executive Summary
This is the first page of a business plan, but it should be written last. It highlights what the company is about (a brief description), its future goals, value proposition (i.e., the product/service benefits), and customer base. If a business owner seeks funding, this section should also include the loan amount, purpose, and how it will be repaid.
- Company Description
Carries the company’s mission statement, a description of the company’s operations, the market gaps the business will fill, the consumers the business will serve, and the business location. This is where founders show that their idea is viable and that they are equipped to provide an enticing product or service that corresponds with the market’s needs.
- Market Research and Analysis
Examines the industry and economy in which the business will operate, the target market, and the competitive landscape. It looks into what competitors are doing and doing well, how well the business stands out against the competition, the trends and themes of the industry and market, and federal/state regulations that apply to the business operations.
- Organization and Management
Outlines how the firm will be run. It provides information on the firm’s legal structure, as well as the principal members, their qualifications, and the relevance of each member’s expertise and skills to the company’s objectives.
Describes the firm’s product/service offerings. This section includes the product features, benefits, and pricing structure. It also explains how the products compare to existing ones, what the product life cycle will be, which local suppliers and manufacturers the company will patronize, and what the company’s plans for intellectual property and research & development are (if applicable).
- Marketing Strategy
This section dives into the company’s product, pricing, and promotional strategies, such as how the business will communicate with its customers, how it strategizes to scale, how it will advertise or promote its offerings, how it will retain customers, how it will sell a product or service, and how much money will be dedicated to marketing efforts.
- Financial Plan and Projections
The financial plan is arguably the most important and intricate portion of a business plan. It carries the proposed budget for a business, along with financial projections and the funding request if the owner is seeking financing. The goal is to estimate how much capital a startup needs and how it will be distributed, project the company’s financial potential at different stages, and show how the firm can generate revenue to handle its operations and debts. Advisably, this part of the plan should be realistic and account for economic fluctuations, as underestimating or overestimating costs can lead to financial problems down the line.
This section provides supporting information that was requested (perhaps by a financial institution) or reinforces a previous section. Thus, the appendix portion varies by business. Examples of items in a business plan’s appendix include licenses, permits, legal documents, contracts, and resumes.
Lean Startup Business Plan or Business Model Canvas
In contrast, a lean startup plan is a more abridged business plan. It focuses on succinctly explaining or deconstructing a business idea. As such, it contains fewer components than a traditional business plan, can be completed more quickly, and is recommended for the less complex startup types. A lean startup plan uses a chart-style format to present a one-page business idea.
A standard lean startup plan has these nine components:
- Key partners: Suppliers, contractors, manufacturers, and other partners the business will work with.
- Key activities: The firm’s strategy to achieve competitive advantage.
- Key resources: Business resources the firm will utilize to reach customers. For example, their employees.
- Value proposition: The distinct benefits of the product/service to the consumer.
- Customer relationships: How consumers will interact with the business (electronically, in person, etc.)
- Channels: The channels the business will use to communicate with consumers. For example, an exclusive online group.
- Customer segments: A description of the firm’s target market.
- Pricing/cost structure: The firm’s pricing strategies and policies to add value and compete in the market.
- Revenue streams: How the business will generate income.
Budding entrepreneurs can choose between traditional and lean startup business plans, as well as other business plan types not discussed here, to develop their business ideas. For the interested entrepreneur, numerous business plan templates, including the increasingly popular lean canvas, are available online from official and independent sources.
Step 3: Do I Need a Business License?
Yes. In most cases, businesses starting up in the United States will need one or more licenses or permits from federal, state, and local authorities to operate. Examples include a business operating license (or, simply, business license), vendor’s license, tobacco license, firearms license, construction license, storage warehouse license, acupuncture license, junk dealer license, home occupation permit, and Doing Business As (DBA).
The procedures for obtaining the necessary licenses and relevant fees differ. The agencies responsible for certification and issuance at federal and state levels also vary. One way to determine which federal or state agency regulates one’s business operations is to ask a private attorney or business advisor. Nevertheless, several government agencies provide guides and resources for budding entrepreneurs on their websites. For example, the Small Business Administration compiles a list of federal licenses and permits a business may need to obtain and their issuing bodies.
How Much Does a Business License Cost?
The cost of a business license in the United States generally ranges from $15 to several hundred dollars. Depending on the locality and relevant legal provisions, certain applicants may be granted fee waivers. For example, qualifying veterans are exempt from general business license fees in California. Further, new business owners who complete an approved business training program in the City of Tigard, Oregon, are eligible for a one-time, one-year general business license fee waiver, and so on.
Entrepreneurs should contact local or state licensing authorities for the applicable fees and waivers.
How To Register for a Seller’s Permit
Registering for a seller’s permit is a legal prerequisite at the state government level. A seller’s permit (sometimes called a sales tax license or vendor’s license) is mandatory for businesses that sell taxable goods (i.e., taxable tangible personal property or services) that are subject to sales or use tax.
The process for obtaining a seller’s permit differs by state generally involves the following steps:
- Fill out a paper or online application and submit it to the state’s Tax Department, Department of Revenue, or Department of Finance and Administration, depending on the state.
- Pay a security deposit (if applicable). The deposit covers unpaid taxes in the event of a business’s closure. Some states, like California, assess the deposit amount at the time of application. Others work within a fixed limit. For instance, the Wisconsin Department of Revenue may require a deposit of up to $15,000 before or after a permit’s issuance.
- Pay the permit fee. Notably, applying for a seller’s permit in many states is free.
Besides a regular seller’s permit, states also issue a temporary seller’s permit to businesses that plan to sell for a short duration (e.g., a seasonal fireworks stand) or a one-time event (like a farmer’s or flea market). Note that any seller’s permit is limited to one location. Businesses that operate on different premises must obtain a separate permit for each location.
Eligible businesses that fail to obtain a seller’s permit may be subject to fines, which vary by jurisdiction. An offense may also lead to imprisonment. In Connecticut, for example, failing to obtain a seller’s permit can result in a fine of up to $500, imprisonment for up to three months, or both. Civil penalties may also be imposed for each day a person intentionally or neglectfully operates without a seller’s permit.
Step 4: How Much Does It Cost to Start a Business?
There is no predetermined cost to start a business in the United States. The finances required for a new business, although resting on several factors, ultimately depend on the kind of business a person wishes to start and where they want to establish it. The cost to form, say, an online business will differ from the cost to establish a brick-and-mortar store. Likewise, someone setting up a franchise in a new location and another person purchasing an existing business will be looking at different startup costs at the end of the day. For this reason, some companies take off with only some hundred dollars, and others require tens of thousands of dollars in capital.
Here are some of the usual costs associated with starting a new business:
- Incorporation Fees: The cost of registering a new business in a state before it can operate legally. The dollar amount varies by a business’s legal structure (e.g., corporation or limited liability company) and the jurisdiction where registration/incorporation must occur. According to the SBA, the cost to register a business at the state level is less than $300.
Depending on the state, extra fees may apply to register or expedite the processing period. For example, LLCs in Georgia who register by mail and want processing accomplished in an hour must pay $1,000 in addition to the $100 incorporation fee.
- Taxes: Each U.S. business, whether small or large, must pay taxes to the federal, state, and local government authorities. The amount and type of tax varies by jurisdiction. For example, states impose varying corporate income tax rates on businesses, typically ranging from 2.5% to 12%. Not all states levy taxes on corporate income, however.
Other costs include:
- Rent or Lease Costs
- License and permit fees
- Inventory and Office Supplies
- Insurance (for example, Workers’ Compensation)
- Marketing and Branding
- Employee salaries
- Consultants (e.g., an attorney or accountant)
Drafting a business plan is one recommended way to understand and define startup costs. An individual can also work with startup cost templates (like the one provided by the Small Business Administration) or business counselors to discover their new business’s cost implications.
How To Get Business Funding
Funding for a business can be sourced from a variety of places, including:
- Personal savings
- Government grants
- Government loans
- Loans from financial institutions
- Credit cards
- Friend and family loans
The funding option an entrepreneur chooses should be based on their startup cost estimations and cash flow projections, as it will determine the future of the business (whether it fails or succeeds). It is possible to use more than one funding source for a business.
How To Self Fund a Business
Self-funding, sometimes called personal financing or bootstrapping, is where an entrepreneur draws funds from internal sources and personal assets to meet business needs. Self-funding may mean taking capital from a savings or investment account, asking persons within one’s circle (e.g., family and friends) for the money, or selling personal assets to raise capital.
Business owners who choose to self-fund must remember that while no third party has a stake in the business, they assume all the risks. As such, entrepreneurs must assess available financial resources, analyze potential income sources, determine necessary expenses, and (preferably) check with a business advisor to see if other funding means may be better for the business.
How To Find Investors
Investors are third parties with the financial capacity to support a business idea or venture in exchange for profit, shares, interest, and other financial returns. There are different types of investors, including angel investors, private equity firms, mutual funds, venture capitalists, and pension funds. Each investor type has distinct conditions for financing a business, including how much they expect in returns, their investment timeline, their level of involvement (active or passive), the degree of control they will exercise over the business, etc. Thus, when looking for an investor, a business owner must consider their business objectives and priorities, the funds they need, and what they can relinquish to acquire the funding. This guarantees a mutually beneficial relationship.
A founder who is clear on investment as a path to their business’s success can find investors in the following ways:
- Join online business forums/groups (on social media as well) to meet potential investors. Examples include LinkedIn and AngelList.
- Attend industry events, conferences, and meetings to find investors, ask for introductions, or get professional recommendations. An example is the TechCrunch Disrupt event held in San Francisco each year to bring tech builders, founders, and investors together. Other examples include Microsoft Ignite, Web Summit, and SXSW. A great way to find these events or conferences is to find online listicles of industry events in a particular year.
- Use crowdfunding platforms, like Kickstarter, GoFundMe, Patreon, and Indiegogo, to raise funds from a large pool of investors.
- Participate in business incubators and accelerator programs. These programs link startups to an investor network via pitch contests and provide mentorship.
- Join business networking groups within one’s geographical area that can offer investor connections—for example, local SBA groups and chambers of commerce.
- Contact private investors or firms willing to infuse funds into a business.
- Contact local or state business-centered government agencies (like a business or economic department) for investor referrals or opportunities.
In sum, there is no one true pathway to meet an investor. Most times, business owners must do their own research and homework. However, founders should note that investors look at a business’s management structure, value proposition, competitive advantage, and growth potential before choosing to part with funds. All these can be outlined in a pitch deck.
How To Get a Loan To Start a Business
One funding option many entrepreneurs consider is a loan. In the United States, financial assistance is available to starting entrepreneurs through various sources, including financial institutions, non-profit organizations, and government agencies. These loans are available at competitive interest rates to different kinds of startups.
Getting a Loan From a Bank or Credit Union
Individuals seeking funding from a bank or other financial institution (also known as the traditional financing method) should contact the institution to find out the available offerings and requirements.
Getting a Loan From the U.S. Small Business Administration (SBA)
Several government agencies provide startup loan programs to entrepreneurs, including the Small Business Administration (SBA). One way to determine the availability of these financial resources is to check with a local or state business/economic development department or a community business development center.
To be clear, the U.S. Small Business Administration does not directly provide loans to startups. Instead, the SBA collaborates with banks to help reduce their risk in lending to small firms.
Individuals interested in an SBA-backed loan should meet with an SBA local lender to determine eligibility. Eligibility requirements are determined by the type of loan one requires, a business’s location, how the business brings in income, and the character of its ownership. However, favored businesses are those that can repay a loan, have a strong business purpose, and meet the SBA’s size standards. Business owners interested in an SBA-guaranteed loan can review the SBA’s loan programs before meeting a lender.
Crowdfunding For Business
Crowdfunding is a new-age funding approach that raises business funds by soliciting a large group of people. The crowdfunding model works by presenting a business idea, an innovative or socially focused project, or a prototype to people (a “crowd”) to receive small donations toward a funding goal. The donations are usually obtained through an online platform, and the financial backers often have no stake in the business and receive little to no financial returns. This type of funding calls on the public’s goodwill toward a product, person, or cause.
There are four main crowdfunding models:
- Donation: Backers fund a project or cause, but no product or service is received in return. Charities and nonprofits often use the donation-based model to raise money.
- Reward: Donors receive a reward or incentive in exchange for financial support. For example, early access to a product or free merchandise/samples. This is the most common crowdfunding method.
- Equity: Also called regulation crowdfunding, this model offers equity (ownership rights) for funding. In other words, businesses can sell stock to gain financing, and the investors profit from their donations. The equity-based crowdfunding model is often used by early-stage startups and businesses looking to expand. Unlike other models, companies selling securities through crowdfunding must adhere to federal securities laws. Equity-based crowdfunding is regulated by the U.S. Securities and Exchange Commission (SEC).
- Debt: Unlike other crowdfunding types, the debt-based model (also called Peer-to-Peer (P2P) lending, marketplace lending, or crowdlending) involves a loan. Here, investors loan money to a business that must be repaid with interest.
Individuals who want to crowdfund a project can follow these steps:
- Decide on the crowdfunding model and platform to use, taking into account regulatory requirements and possible pros/cons
- Create a campaign that appeals to a broad range of investors
- Post the campaign on various online platforms
- Engage with the audience
How To Find Business Grants
A grant is a funding option that does not require repayment from an entrepreneur (unlike a loan). Grants are often available through the government, nonprofit organizations, and foundations to support economic growth, provide public aid, or fund work or inventions in a particular field. However, although grants are free, they usually have competitive entry points and strict compliance requirements.
New business owners seeking grants in the United States should contact their state or local authorities, especially those providing business resources to starting entrepreneurs or regulating business entities. The federal government does not offer grants to start a business.
Can I Start a Business With No Money?
No. Contrary to popular opinion, it costs money to kick off any business. However, not all entrepreneurs will require a lot of capital to get started. It is possible to start with little funds, perhaps obtained from one’s savings account or friends and family, and then scale from there.
One way that entrepreneurs can minimize startup funds is to determine what can be achieved or obtained at no cost. A plethora of business resources and courses (like SCORE) are available to aspiring business owners on the web, which can educate them on how to save costs during the startup stage. For instance, where an entrepreneur may pay someone else to manage their social media account or online campaign, they can learn and apply these skills until the company expands enough to hire employees.
It may also be prudent for a new business owner to look into external funding sources, like small business loans, investors, grants, and crowdfunding.
Step 5: Choosing a Business Structure
A variety of business structures are available to new business owners in the United States, including:
- Sole proprietorship
- Limited liability company
The business enterprise an entrepreneur chooses impacts the following:
- How much taxes the founder(s) will owe the government
- How the business will be operated
- The extent of an owner’s liability
- Funding opportunities
- How assets and ownership interests will be transferred
- The firm’s registration requirements
If a business has only one owner or the owner wants to test a business idea in the market, then a sole proprietorship may be suitable. However, suppose a group of professionals want to set up a company that offers professional services to clients. In that case, a limited liability partnership may be the better option. In the same way, if the owners want to limit their financial liability in lawsuits or bankruptcy proceedings, a corporation or limited liability company may be the preferred route.
Given the legal implications of business entity types in the U.S., it is often best to consult an attorney or tax accountant who can advise on the structure that suits one’s business objectives.
How To Start a Sole Proprietorship
A sole proprietorship consists of one person who controls a business. This person (the owner) assumes complete responsibility for the business’s day-to-day operations, as well as the firm’s assets, profits, and liabilities. As a result, a sole proprietorship is the same as the owner for tax, personal liability, and other legal purposes. Notably, sole proprietorships are taxed less than a corporation.
In the United States, sole proprietorships require a general business license from the municipality where they are located to operate. These firms are not required to register as a business at the state or federal level. A sole proprietorship may also require other licenses and permits, depending on the firm’s product or service.
Many U.S. small businesses are established under sole proprietorships. Examples include a crafts store, freelance writer, personal trainer, entertainer, handyman, tutor, and independent contractor.
How To Start a Corporation
A corporation has the most complex business structure compared to other legal enterprises. Its primary advantage is that it creates a legal entity separate from the owners, thus shielding owners from debts and personal liability. For legal purposes, a corporation can make a profit. It can also be taxed and held accountable.
Unlike other business structures, corporations are closely regulated, require extensive record-keeping, and may be subject to double taxation. The S Corporation structure (the counterpart to the C Corporation type) sidesteps double taxation by passing profits and some losses through the owners—much like a partnership does. Details about the different types of corporations (C and S Corp) are available on the SBA’s website.
To set up any corporation in the United States, an owner or their legal representative must file Articles of Incorporation with the Secretary of State’s office or the authorized business agency in their state of incorporation.
How To Start an LLC
A limited liability company (LLC) combines partnership and corporation business structures to give owners several advantages. Similar to a corporation, LLC owners (“members”) are secured against personal liability, and like a partnership, owners have management flexibility and can pass profits and losses on individual tax returns.
Setting up a limited liability company requires filing Articles of Organization with a Secretary of State’s office or the assigned business division.
How To Start a Business Partnership
A partnership comprises two or more individuals who run and manage a business together. The three common types of partnerships are general, limited, and limited liability partnerships.
How To Start a Limited Partnership
Limited Partnerships (LPs): In a limited partnership, one partner has unlimited liability for the firm’s debts and obligations, but all others have limited liability.
To establish an LP, owners will typically need to file a Certificate of Limited Partnership with the state agency in charge of corporations in their place of business. Usually, this is a Secretary of State’s office. The document may have a different name, depending on the state.
Limited Liability Partnerships (LLPs). In an LLP, each partner has limited liability. This business structure protects each partner from debts arising from the company or a partner’s actions.
To start an LLP, one must file a Certificate of Limited Liability Partnership with the Secretary of State’s office or other commissioned regulatory body in their place of business.
How To Form a General Partnership
Entities in a general partnership agree to contribute labor, property, money, or expertise to a business exploit and share its profits, managerial duties, and liabilities. For tax purposes, general partners are treated as the same entity as their business—like a sole proprietorship. All profits and losses are reported on the partners’ personal tax returns.
To form a GP, owners can file their partnership agreement or contract in the local recorder’s office where the business is located. General partnerships are usually free from the statewide registration requirement.
How To Start a Nonprofit
Nonprofit corporations, like any other corporation in the United States, must comply with state registration requirements to be formed and operated. This means filing Articles of Incorporation with a Secretary of State’s Office or applicable business department and complying with specific rules regarding their earnings.
After state registration, nonprofits must also apply for tax-exempt status and obtain an Employer Identification Number from the IRS. By seeking tax-exempt status, these organizations are not subject to federal income taxes on their profits, as their work is for society. Thus, they are also named “501(c)(3) corporations,” after the federal law that exempts them. Nonprofits may also qualify for exemptions from some state taxes.
Step 6: Choosing a Business Location
Starting business owners can generally choose among four options to establish their businesses:
- Brick and mortar (a physical location)
- Mobile (e.g., a food truck business)
The location of a business has a substantial impact on its success or failure. Choosing the wrong place can lead to poor consumer turnout, high operating and overhead costs, and severe financial losses, among other consequences.
A business’s location also determines the regulatory requirements that will apply, including the amount of taxes the company will pay and the zoning regulations that may limit operations. Hence, market research is crucial before setting up a firm. Proper research ensures a business can maximize its profits and consumer reach at a choice location.
What Kind of Business Can I Run From Home?
Federal and state authorities do not regulate the establishment of home businesses in the United States. Instead, that right is controlled by city/county ordinances or homeowner associations. Therefore, any individual who wants to run a home occupation business must comply with local laws and regulations particular to their places of business.
Businesses that can be run from a home base are generally those that do not negatively affect other residents in the neighborhood. In other words, a business that does not produce odors, noise, dust, glares, or other emissions or cause a nuisance in a residential area.
Typically, municipalities outline prohibited businesses and other home occupation regulations in their ordinances. Parties can obtain these laws from a local zoning or community development division’s website.
How Do I Start a Small Business From Home
Prospective home business owners must comply with local ordinances to set up their business, even though certain state or federal requirements may apply.
Each new home occupation establishment goes through the phases necessary for business operation in the U.S. (planning, registration, securing funding, launching, etc.), as explained in this piece. However, there are legal requirements specific to home business owners.
Generally, a home business owner must acquire a business license from the city or county in which they will operate. The owner may also need to apply for a Home Occupation Permit (HOP). The proposed business location must be the entrepreneur’s primary residence. However, suppose the entrepreneur does not own the property where their business will be situated. In that case, they must provide the property owner, landlord, or manager’s signature on the HOP or another provided form.
An entrepreneur may also need to submit supporting documentation. For example, a tenant may need to provide proof of residency, and a licensed professional (like an architect or registered nurse) may need to submit a copy of their license to practice.
Starting a Business Online
Businesses in the United States generally operate from a brick-and-mortar location, a residential location, or the World Wide Web. Internet-based businesses buy and sell products or offer a service online. Examples include eCommerce stores, movie streaming platforms, travel & hotel booking companies, SaaS (Software-as-a-Service) providers, online education platforms, and freelance marketplaces.
Compared to other types of businesses, an online business is easy to set up—anyone can start one. Further, online businesses have low setup costs and, in most cases, little or no hands-on inventory. To get started, an entrepreneur may only need to purchase a website domain, desk or workstation, computer, and an internet subscription.
The specific steps to starting a business online in the United States are similar to establishing any other business. One must conduct market research, find suppliers or manufacturers (if applicable), choose a business name and structure, write a business plan, open a business bank account, etc. Online business owners must also comply with the relevant digital business regulations and formation requirements, including:
- Registering the business with the appropriate government authorities
- Obtaining federal and state tax IDs
- Obtaining the required permits and licenses
Step 7: Legal Requirements for Starting a Business
New business owners must comply with several regulatory provisions to set up their businesses in the United States. These requirements impact entrepreneurs at the national and regional levels and are often influenced by the following factors:
- The service or product offered
- The firm’s structure
- The firm’s industry
- The firm’s location
Still, there are basic legal requirements that apply to all new business owners. For one, a founder must register their business with an appropriate authority. This may be a city, county, state, or federal authority.
Registration provides businesses with legal, financial liability, and tax advantages. Business registration in a city or county is usually mandatory, but not so much at the state and federal levels. In U.S. state jurisdictions, registration is handled by a Secretary of State’s office (SOS), Corporation Commission, or other designated business agency. These departments impose mandatory and discretionary registration requirements on business entities. Generally, sole proprietorships are exempt from the statewide requirement to register. However, corporations and limited liability companies (LLCs) must register in their business state. General partnerships, limited partnerships, and limited liability partnerships may also be required to register. Meanwhile, most businesses are exempt from registration at the federal level, except to obtain a federal employer identification number (FEID) or a federal benefit (like trademark protection).
Another legal requirement that starting entrepreneurs share—regardless of business structure—is that they often require a license or permit to operate and federal and state tax IDs to pay business taxes.
The most efficient way to determine the regulatory requirements for starting a particular type of business in a United States region is to speak to a tax accountant, attorney, insurance agent, or other business advisor. One can also check with their local or state government agency or a business development center. For example, new business owners can take the legal requirements course offered on the SBA’s Learning Platform, or they can review online business guides like the Massachusetts government’s business guide, the North Carolina government’s business guide, or the California Office of the Small Business Advocate’s guides, where applicable.
How To Get an EIN Number
An Employer Identification Number (EIN) is issued by the Internal Revenue Service to identify businesses for federal taxation. The quickest method to get an EIN is to apply online using the EIN assistant (only for companies based in the U.S. or territories). Business owners can also apply by fax, mail, or telephone.
Mail and fax applicants must complete and submit Form SS-4 and send it to the address below:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
Mail/fax address for applicants with no principal place of business or legal residence in the U.S.:
Internal Revenue Service
Attn: EIN International Operation
Cincinnati, OH 45999
Fax: (855) 215-1627 (within the U.S.)
Fax: (304) 707-9471 (outside the U.S.)
Only international applicants can obtain an EIN by telephone at (267) 941-1099.
How To Get a Registered Agent
A registered agent is a business’s primary contact for receiving important correspondence. In the United States, all companies registering with a state must provide a registered agent on their formation documents (Articles of Incorporation, Articles of Organization, etc.). Otherwise, they cannot be established legally.
Businesses can hire a registered agent service or enlist a trusted person (e.g., an employee) to handle the role. The cost to hire a registered agent differs by professional but is typically around $99 to $300 yearly.
Patents, Trademarks, and Copyrights
Patents, trademarks, and copyrights are all tools under the intellectual property law that prevent one person from stealing another’s creative ideas, designs, and business tactics. These protections give creators and inventors the exclusive right to own and profit from their designs and inventions.
A patent prevents other businesses from producing, importing, or selling someone’s invention in the United States. Patents can cost thousands of dollars and typically last 14 to 20 years from the filing date, depending on the patent type (utility, design, or plant). To obtain a patent, an individual (regardless of age or citizenship) must file with the U.S. Patent and Trademark Office (USPTO).
A trademark is a phrase, word, symbol, color, design, or a fusion of these elements that distinguishes one product/service from the other. A trademark (denoted (®, ™, or SM) gives the owner the right to use that identifier in connection with the product or service. Generally, businesses can register state or federal trademarks. A state trademark only protects a firm’s designs within a particular U.S. state for a varying number of years. For instance, the Tennessee trademark lasts five years, while New York’s expires after 10 years. However, a federal trademark—a trademark registered with the USPTO—covers the U.S. jurisdictions and territories for 10 years and supersedes any state trademark. Both federal and state trademarks can be renewed for an indefinite number of terms. Interestingly, a trademark, even if it is unregistered, is protected so long as it is in commercial use.
Finally, a copyright (©) secures original and tangible works of authorship, such as music, books, architecture, computer programs, art, sound recordings, and motion pictures. The Copyright Office registers copyrights in the United States. Copyright protection lasts throughout the life of a creator and 70 years after the creator’s death for works generated on or after January 1, 1978. Meanwhile, copyright protection for anonymous/pseudonymous works and works made for hire lasts 95 years from the publication date or 120 years from the creation date, whichever is less. Other copyright durations can be found in the office’s pamphlet.
More information about patents, trademarks, and copyrights can be obtained from the U.S. Patent and Trademark Office or an experienced attorney.
Businesses must pay federal and state taxes to operate in the United States. These taxes vary by a firm’s legal structure, product or service, and operation state. As a result, one must check with the Internal Revenue Service for federal business taxes and their state’s taxation or revenue department to learn state tax obligations. Business taxes are also levied within municipalities, so it is important to contact the city or county where a company operates.
Taxes commonly levied against U.S. businesses include:
- Income Tax: Tax imposed on income that individuals and businesses earn. The percentage of income tax a person pays depends on their earnings.
- Employment Tax: These are the taxes that employer firms (businesses with employees) must pay to the federal and state governments to help fund public programs and benefits. Examples include Social Security and Medicare taxes, state employment training taxes, federal unemployment tax (FUTA), and state unemployment tax (SUTA).
- Sales and Use Tax: Tariffs on products and services a business sells.
- Excise Tax: Taxes imposed on specific goods or services at the time of manufacturing. Examples include gasoline, tobacco, and alcohol.
- Property Tax: Taxes levied on real property (lands & buildings) and business property (personal property used for business purposes, like machinery).
Are Business Records Public in the United States
Yes. Under public records laws enacted by the federal and state governments, business records are public information in the United States. As a result, members of the public can access paper and electronic business records maintained by federal, state, and local agencies. This includes records held by the courts of lawsuits filed by and against businesses, business records preserved by the Secretary of State offices, business documents maintained in the county recorder’s offices, business records retained by the Securities and Exchange Commission (SEC), and similar records held by a host of other federal and regional agencies.
Even so, the public’s right of access is not without limitations. Business records exempt from public disclosure are typically those that jeopardize a privacy right or expose sensitive information. This includes:
- Social security numbers
- Trade secrets
- Privileged financial information (like a bank account number or credit card information)
- Personnel files (when disclosure would constitute an unwarranted invasion of personal privacy)
The nine exemptions of the federal Freedom of Information Act are outlined on the U.S. Department of Justice’s website. Individuals can peruse these exemptions to find those that affect business records. To a great extent, state public records laws mirror the limitations of the federal FOIA. Still, one can check with a state or local government for specific restrictions on business records.