7 Steps to Open a Small Business in 2026

Step 1: Entity Selection

The first of the steps to open a small business is choosing your legal structure. In the U.S., there are four common types of business entities:

• Sole proprietorship: Owned by a single person with no legal distinction between the owner and the business, leading to unlimited personal liability.

• Partnership: Owned by two or more people sharing profits and management. It could be either a general partnership with unlimited liability or a limited partnership with some liability protection.

• Limited Liability Company (LLC): A flexible structure that combines the liability protection of a corporation with the pass-through taxation of a partnership, protecting personal assets.

• Corporation (C-Corp/S-Corp): A legally separate entity from its owners, known as shareholders, that offers the strong protection against personal liability but requires compliance with more complex regulations.

Your business structure has a direct impact on your personal liability and tax obligations. While becoming a sole proprietor is incredibly simple, as soon as you hire employees or freelancers, or decide you want more separation between your business and personal lives, you’ll need to file Form 8832 with the IRS. Today, most small business owners choose between a Limited Liability Company (LLC) and an S-Corporation.

Limited Liability Company (LLC)

An LLC is a popular choice for new entrepreneurs because it creates a corporate veil between your personal assets and your business liabilities. If your business is sued, your home and personal savings are generally protected. LLCs are simple to set up, offer flexible management, and permit pass-through taxation, which means you won’t be taxed twice on both business and personal income. However, you generally must pay self-employment taxes on profits unless you elect to file taxes as a Corporation.

S-Corporation (S-Corp)

An S-Corp is not a separate entity type but a tax designation. You can form an LLC and then ask the IRS to tax it as an S-Corp. This way, you can split your income between a reasonable salary and dividends, eliminating the need to pay self-employment taxes. However, you must meet more rigorous record-keeping and payroll requirements.

Whatever you choose, identifying the right entity for your business is one of the most critical steps to open a small business for long-term tax efficiency.

Step 2: Register with the Secretary of State

When you know your desired business entity, it’s time to make it official. You do this by filing Articles of Organization (for an LLC) or Articles of Incorporation (for a Corporation) with the Secretary of State in the state where you plan to operate.

In your articles, you will need to:

• Choose a name: Your business name must be unique in your state. Before you apply, use the state’s .gov website to search for available names.

• Appoint a registered agent: This is a person or service that receives legal documents on your behalf. It could be yourself, but it’s often a business attorney.

• Pay the filing fee: Fees vary by state.

This step formally establishes your business. It’s a milestone among the steps to open a small business.

Step 3: EIN Acquisition

Sole proprietors can use their personal Social Security Numbers as a tax identifier. However, most businesses opt to apply for an Employer Identification Number (EIN).

The IRS issues this nine-digit number for free. You will need an EIN to:

• Hire employees.

• Open a business bank account.

• File business tax returns.

• Apply for business licenses.

You can apply for an EIN online through the IRS website. Generally, the process is very quick. Once you receive your EIN, save the digital confirmation letter in your records. You’ll need to reference it again in later steps to open a small business.

Step 4: Create an Operating Agreement or Bylaws

Many founders skip this stage because it isn't always a legal requirement. Nonetheless, just like a business plan, internal documentation is a very valuable reference for new businesses. An Operating Agreement (for LLCs) or Bylaws (for Corporations) outlines how the business is run.

Having this internal documentation helps define what happens if partners disagree to outline a path to conflict resolution. It lays out the rules for what happens if an owner decides to leave the company. It explains how growth will be handled, especially when it comes to the process of adding new owners through equity investment or seeking business credit. Essentially, it’s a source of truth that you can always return to as the business evolves.

Even if you’re a solo founder, having an Operating Agreement is one of the vital steps to open a small business. It reinforces your limited liability status by showing you treat the business as a separate entity.

Step 5: Secure Local Business Licenses and Permits

Your state registration makes you a legal entity, but your city or county determines if you can actually do business. This is where many entrepreneurs get stuck. Depending on your industry, you may need multiple permits.

• General business license: Most cities require a basic permit to operate within city limits.

• Zoning permits: If you are running a business out of your home or a physical storefront, you must comply with local zoning laws.

• Professional licenses: Doctors, contractors, and barbers need specific state certifications.

• Health permits: Essential for any business handling food or drink.

Researching local requirements is one of the most tedious steps to open a small business, but it prevents your business from being shut down by local authorities.

Step 6: Register for State and Local Taxes

Federal taxes are handled via your EIN. But local and state taxes vary significantly depending on your location and business model. It’s your responsibility to determine your tax obligations. A CPA not only helps from a tax perspective but also provides support for your business finances.

Completing your tax registrations is one of the final administrative steps to open a small business. These may include sales tax permits for selling physical goods, unemployment insurance and workers’ comp for employees, or franchise taxes for operating within a given state. Handling this correctly ensures you don't face massive back taxes and penalties at the end of your first year.

Step 7: Open an Account at a Business Bank

The final of our steps to open a small business is the most important for financial health: separating your personal and business finances. This is a crucial step to protect your personal assets and show a clear difference between you and your business.

Some things to look for in a business bank account include:

• Monthly fees: Many online-only banks offer free accounts for small businesses.

• Integrations: Your bank account should connect easily with accounting software or point-of-sale (POS) software.

• Merchant services: If you plan to accept credit cards, look for a bank that offers integrated payment processing.

To open the account, you’ll typically need your Articles of Organization and your EIN. When your account is open, use it for all of your business transactions. That will make bookkeeping much easier and protect your limited liability status.

You may also like: Steps to Prepare for Your First Time Business Loan Application

Summary Checklist for Launch:

Here’s a quick recap of steps on opening your own business:

1. Entity Selection: Choose LLC or S-Corp.

2. State Registration: File with the Secretary of State.

3. EIN Acquisition: Get your tax ID from the IRS.

4. Internal Documents: Draft an Operating Agreement.

5. Local Permits: Secure your city and county licenses.

6. Tax Registration: Sign up for sales and payroll taxes.

7. Business Banking: Open a dedicated account.

Final Thoughts

Turning a long-brewing business idea into a reality is an exciting journey. But you have to do it the right way. By completing these seven steps to open a small business, you’re giving yourself the best chance at success. Remember, you’re not just starting a job; you’re building an asset. Stay organized, keep your documents in a digital vault, and always consult with a tax professional as you grow.