Contents:
- Why the Order Actually Matters
- Step 1: Choose Your Business Structure
- Step 2: Register Your Business Name
- LLC vs. Sole Proprietorship
- Step 3: Get an Employer Identification Number (EIN)
- Step 4: Secure Licenses and Permits
- Common Permit Categories
- Step 5: Open a Business Bank Account
- Step 6: Get Business Insurance
- Frequently Asked Questions
- How much does it cost to legally open a small business?
- Do I need a lawyer to open a small business?
- Can I run a business without an LLC?
- How long does it take to legally set up a small business?
Nearly 33% of new small businesses fail within two years, and a surprising share trace back not to bad products but to skipped or out-of-order legal steps that cost time, fines, or lost bank accounts. Getting the sequence right saves hundreds of dollars and weeks of delay.
Why the Order Actually Matters
Banks won’t open an account without an EIN. The IRS won’t issue an EIN cleanly without a finalized name and structure. Most city permit offices require your EIN before issuing a license. Skip a step and you’re stuck refiling, paying duplicate fees, often $50 to $150 each time a state rejects a mismatched filing.
Step 1: Choose Your Business Structure
An LLC costs $50 to $500 to form depending on your state (California is priciest, at $70 filing plus an $800 annual franchise tax). A sole proprietorship costs nothing but offers zero liability protection. For most budget-conscious owners, a single-member LLC is the sweet spot: cheap to form, and it shields personal assets if sued.
Step 2: Register Your Business Name
If your LLC name differs from your brand name, file a DBA (“doing business as”) with your county or state, typically $10 to $100. Check the USPTO trademark database first; operating under a trademarked name can trigger a costly rebrand later.
LLC vs. Sole Proprietorship
A sole proprietorship is the default if you do nothing; free, but it leaves your house and savings exposed to business debts. An LLC requires state filing and modest fees but separates business liability from personal assets, worth the cost for any business with foot traffic or contracts.
Step 3: Get an Employer Identification Number (EIN)
The IRS issues EINs for free in about 15 minutes online. Skip any third-party site charging $75 to “process” this for you. You need this number for taxes, hiring employees, and opening a bank account.
Step 4: Secure Licenses and Permits
Requirements vary by city and industry. A home-based consultant might need only a general business license ($25 to $100 annually). A restaurant needs health permits, a seller’s permit, and possibly a liquor license running into the thousands. Check your city clerk’s site and your state’s Secretary of State portal first.
Common Permit Categories
- General business license
- Sales tax permit
- Zoning permit
- Industry-specific permits (food, contracting, childcare)
Step 5: Open a Business Bank Account
Commingling personal and business funds is one of the fastest ways to pierce your LLC’s liability shield in court. Most banks require your EIN, formation documents, and a $25 to $100 minimum deposit. Many credit unions waive fees that big banks charge $15 to $30 for.
Step 6: Get Business Insurance
General liability insurance runs $400 to $700 a year for a typical small service business, cheap protection against a single slip-and-fall lawsuit that could cost tens of thousands.
Expert take: “The owners who struggle most are the ones who register a name, buy inventory, and only then think about permits,” says Denise Ferraro, a business formation attorney with 14 years advising small business owners in Texas. “Reverse that order and you’re paying twice, once for the mistake and once for the fix.”
Frequently Asked Questions
How much does it cost to legally open a small business?
Budget $150 to $1,000 total for most sole-owner LLCs, covering state filing, a DBA, and a basic license, though regulated industries cost more.
Do I need a lawyer to open a small business?
Not for a simple LLC formation, but a one-time consultation ($150 to $300) is worth it for partnerships or businesses with higher liability exposure.
Can I run a business without an LLC?
Yes, as a sole proprietorship, but you assume full personal liability for any business debts or lawsuits.
How long does it take to legally set up a small business?
With no complications, expect 2 to 4 weeks from LLC filing to a functioning bank account and permits.
