How to Start a Business the Right Way: Entity, EIN & Setup

Starting a business the right way comes down to a short, ordered checklist: choose the right entity, register it with your state, get an EIN from the IRS, open a business bank account, and set up bookkeeping from day one. Done in that order, you protect your personal assets, avoid tax headaches later, and start with a clean foundation. Most of the expensive mistakes new owners make are not dramatic. They are simply skipped steps.

Step 1: Choose the right entity

Your entity choice affects your liability protection, your taxes, and your paperwork. The common options for small businesses:

• Sole proprietorship: the default if you do nothing. Simplest, but no liability protection, your personal assets are exposed.
• LLC: the most popular choice for small businesses. Gives you liability protection with flexible, simple taxation. Good for most owners.
• Corporation: more structure and formality, usually relevant for businesses seeking outside investment.

For the large majority of small businesses, an LLC is the practical answer. Importantly, an LLC can later elect to be taxed as an S-Corp once it is profitable enough, which is a separate tax decision covered in our S-Corp vs. LLC guide. Our business formation and entity setup service helps you choose and file correctly.

Step 2: Register with your state

You form an LLC or corporation at the state level by filing articles of organization (or incorporation) and paying a filing fee. You will also name a registered agent, a person or service that receives legal documents for the business. This is also when you confirm your business name is available and reserve it.

Step 3: Get an EIN from the IRS

An Employer Identification Number is your business’s tax ID. It is free, you get it directly from the IRS, and you will need it to open a bank account, hire employees, and file business taxes. Be cautious of sites that charge a fee to “get” your EIN, the IRS issues it at no cost.

Step 4: Open a business bank account

This is not optional, and it is more important than it sounds. A dedicated business account keeps your personal and business money separate, which is what makes your bookkeeping clean and your deductions provable, and it helps preserve the liability protection your LLC is supposed to give you. Commingling funds is one of the fastest ways to undermine the entity you just paid to form.

Step 5: Set up bookkeeping from day one

Start your records on the day you start the business, not when taxes are due. Clean books from the beginning save money, prevent missed deductions, and make every future decision easier. Our small business bookkeeping guide walks through doing this right, and our monthly bookkeeping service can handle it for you.

Do not overlook these

• Licenses and permits: depending on your industry and location, you may need local, state, or federal licenses.
• Sales tax registration: if you sell taxable products, you may need to register and collect sales tax, including across state lines. See our sales tax nexus guide.
• Estimated taxes: as a business owner, no one withholds taxes for you, so plan for quarterly estimated payments from the start.

Start clean, because fixing it later costs more

Almost every cleanup project we take on, untangling commingled accounts, reconstructing a year of books, fixing an entity that no longer fits, would have been avoided by getting the setup right at the start. The order in this checklist exists for a reason. Spend a little time and a small cost up front, and you avoid much larger bills later.

Frequently asked questions

What is the best business structure for a small business?

For most small businesses, an LLC offers the best balance of liability protection, tax flexibility, and simplicity. It can also elect S-Corp tax treatment later once it is profitable enough. A sole proprietorship is simplest but offers no liability protection.

Do I need an LLC to start a business?

Not legally, you can operate as a sole proprietor, but without an entity your personal assets are exposed to business liabilities. An LLC is inexpensive to form and protects your personal assets, which is why most owners choose it.

How do I get an EIN, and does it cost money?

You get an EIN directly from the IRS at no cost. It is your business tax ID, needed to open a bank account, hire, and file taxes. Avoid third-party sites that charge a fee for it.

Can you set up my business correctly from the start?

Yes. We help with entity choice, registration, EIN, and getting bookkeeping in place so you start clean. Schedule a free intro consultation and see our flat-fee pricing before any work begins.