Registering a business: structure, EIN, licences

If you’ve searched for how to get a federal tax ID for a new business, you’ve probably already seen the sites that want $70, $200, sometimes more to “process your EIN application”. Here is the thing they’d rather you didn’t know: the IRS issues EINs directly, online, in minutes, for nothing. The IRS says it plainly on its own EIN page: “Beware of websites that charge for an EIN. You never have to pay a fee for an EIN.” The paid services are filling in a free government form on your behalf and charging you for the typing.

The second thing most people get wrong is the order. The EIN feels like step one because it’s the most official-sounding thing on the list, but it can’t come first. The application asks what kind of entity you are, and if you’re forming an LLC or a corporation, the IRS tells you to form it with your secretary of state before you apply. So the real sequence is: choose a structure, register with the state if your structure requires it, then get the EIN, then open the bank account. The SBA’s licensing guide confirms that ordering, right down to the bank account coming after the EIN.

Step one: pick a structure, because everything else depends on it

Your structure decides two things that matter enormously when you have little money: whether your personal assets are on the hook for business debts, and how the profits get taxed. The SBA’s structure guide and the IRS business structures page are the two primary references here.

Sole proprietorship: the default you’re already in

If you’re doing business and haven’t registered as anything else, you are automatically a sole proprietorship. There’s no separate entity — which means no separation between your assets and the business’s debts. You can be held personally liable, you can’t sell stock, and the SBA notes banks are hesitant to lend to sole proprietors. If borrowing is on your horizon, SBA microloans are worth understanding, but structure will still come up.

Partnership: two or more owners, one general risk-taker

A partnership is the simplest structure for multiple owners. In a limited partnership only one general partner carries unlimited liability; the limited partners get limited liability and typically limited control. Profits pass through to personal tax returns, and the general partner also pays self-employment tax. The partnership itself files Form 1065.

LLC: a state creature, not a federal tax status

The IRS describes an LLC as “a business structure allowed by state statute” — every state’s rules differ. Here’s the point people miss: federally, “LLC” isn’t a tax category at all. By default a single-member LLC is a disregarded entity (taxed like a sole proprietorship) and a multi-member LLC is taxed as a partnership, unless it files Form 8832 to elect corporate treatment. That election generally can’t take effect more than 75 days before you file it, so it’s not something to backdate at leisure.

Corporations: protection with paperwork attached

A C corporation is a separate legal entity that can be taxed and held legally liable itself — the strongest personal-liability shield, but also the highest formation cost and the most record-keeping. Profits can effectively be taxed twice: once at the corporate level, then again when paid out as dividends.

An S corporation elects to pass income, losses, deductions and credits through to shareholders instead, avoiding that double taxation, though it can still owe entity-level tax on certain built-in gains and passive income. Eligibility is strict: no more than 100 shareholders (spouses and their estates count as one), one class of stock, no nonresident alien shareholders, and no ineligible corporations such as certain financial institutions and insurance companies.

The S election has a genuinely hard deadline. Per the Form 2553 instructions, you must file no more than 2 months and 15 days after the start of the tax year the election takes effect — March 15 for a calendar-year corporation — or any time in the preceding tax year. Late-election relief exists, but if you don’t qualify for it you generally need a private letter ruling and a user fee, and relief must be requested within 3 years and 75 days of the intended effective date. Deadlines this specific are exactly why understanding the mechanism beats memorising steps.

Step two: register with the state

Sole proprietors usually skip this step entirely — that’s part of the appeal. LLCs, corporations, partnerships and nonprofits register with the state, typically the secretary of state. Per the SBA’s registration guide, in most cases the total cost to register is less than $300, varying by state and structure.

Before filing, these entities need a registered agent located in the state of registration. Note the wording carefully: you need an agent in the state, not a paid agent. The SBA says many owners “prefer” to use a registered agent service — it’s a preference, not a mandate. In many situations you can be your own agent.

Two more state-layer details. First, you don’t register with county or city governments to form the business, though they may require licences, permits and sometimes a DBA (trade name) registration — and some states require DBA registration too. Second, if you’ll do business in more than one state, the other states treat you as “foreign” and may require foreign qualification, with their own requirements and fees.

And the clock keeps running after you file: the SBA warns that some states require initial reports or tax/franchise board registration, most often due within 30 to 90 days after you register. Miss that and your fresh new entity starts life out of compliance.

Step three: the EIN — free, instant, and from the IRS only

Once the entity exists (or immediately, if you’re a sole proprietor who needs one), apply through the IRS EIN tool. If approved, the number is issued immediately. The online tool runs Monday to Friday 6 a.m. to 1 a.m. ET, Saturday 6 a.m. to 9 p.m., and Sunday 6 p.m. to midnight. Finish in one sitting: the application expires after 15 minutes of inactivity and can’t be saved. You’ll need the responsible party’s SSN or ITIN, the entity must be formed in the US or its territories with its principal place of business there, and nominees aren’t authorised to apply. One EIN per responsible party per day, across all channels.

If online doesn’t work for you, the IRS EIN hub lists the alternatives: fax Form SS-4 to 855-641-6935 and get the EIN back in about 4 business days, or mail it to Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999 — which takes about four weeks. Phone applications are for international applicants only. If a return falls due before your EIN arrives, write “Applied For” and the application date in the EIN space.

Do you actually need one?

Partnerships and corporations must have an EIN. A sole proprietor often doesn’t: Form SS-4 says one is required only in specific cases, such as establishing a qualified retirement plan or being required to file excise, employment, or alcohol, tobacco and firearms returns. Even so, you can request one voluntarily for banking — useful if you’d rather not hand your SSN to every client who sends you a 1099. If your income is irregular and you’re also on benefits, read starting a business while on benefits before your first profitable month.

A few housekeeping rules save headaches later. Changing your business name, address or responsible party does not require a new EIN; changing structure — incorporating, forming a partnership, taking a new corporate charter, declaring bankruptcy — generally does, per the IRS’s when-to-get-a-new-EIN page. Each entity should have exactly one EIN; they can’t be cancelled, only deactivated. Lost yours? The Business & Specialty Tax Line is 800-829-4933 (TTY 800-829-4059), weekdays 7 a.m. to 7 p.m. local time.

One more post-registration item: IRS guidance for new EIN holders notes that some corporations and LLCs may have to report their beneficial owners to FinCEN under the beneficial ownership rules. Those rules have been in flux — FinCEN issued an interim final rule in March 2025 narrowing the requirements and extending deadlines — so check the current position for your entity type before assuming you’re covered or exempt.

Step four: licences and permits — three governments at once

“A business licence” sounds like one document. It isn’t. Per the SBA’s licence and permit guide, most small businesses need a combination of licences and permits from federal and state agencies, and counties and cities add their own layer on top. Federally regulated activities need a federal licence, with requirements and fees depending on the activity and the issuing agency. States regulate a broader range of activities than the federal government does, and local fees vary by both location and activity.

The reason there’s no single answer here is that each layer regulates for its own purposes, independently — satisfying one doesn’t satisfy the others. Selling food, cutting hair, doing childcare from home: the state may licence the activity while the city permits the premises. If working out which layers apply to you feels overwhelming, there is free, in-person help available through SBA-backed advisers.

Licences also expire. The SBA advises tracking renewal dates, because renewing is usually far easier than reapplying from scratch after a lapse.

Frequently asked questions

Is it really free to get an EIN, even online?

Yes. The IRS states you never have to pay a fee for an EIN and warns against websites that charge for one. Apply at the IRS EIN page and, if approved, the number is issued immediately.

I’m a sole proprietor with no employees. Do I need an EIN at all?

Probably not. Form SS-4 requires one for sole proprietors only in specific cases, such as a qualified retirement plan or excise, employment or ATF returns. You can still request one voluntarily for banking so you’re not using your SSN everywhere.

Do I have to pay for a registered agent?

No. State law requires an agent located in the state of registration; a paid service is one way to meet that, but the SBA describes it as something many owners prefer, not something you must buy.

I changed my business name. Do I need a new EIN?

No — name, address and location changes don’t require a new EIN. Structure and ownership changes usually do, such as a sole proprietor incorporating or forming a partnership.

How much does registering with the state cost?

It varies by state and structure, but the SBA says the total cost is less than $300 in most cases. Watch for follow-up filings too: some states require initial reports within 30 to 90 days of registration.