Do You Have to Register a Small Business?

Registration makes your business a distinct legal entity, which helps limit your personal liability and allows you to collect taxes. The process varies depending on the structure and location of your business. Some states require businesses to register before they start operating, while others only need you to obtain licenses or permits before beginning operations. Check with state and industry-specific resources for detailed requirements.


The legal definition of a small business varies by country and by industry. In the United States, for example, businesses must adhere to size standards established by the U.S. Small Business Administration in order to be classified as a small business and qualify for government contracts. Depending on the industry, size standards may refer to the number of employees or annual sales (turnover) or a combination of both. Failing to register as a small business in the state where your company conducts business can lead to fines, penalties and back taxes. If you are not registered in the state where you are doing business, you could also be prevented from suing a client or partner who claims that you committed a breach of contract.


Depending on your business structure and where you operate, there may be various state-level registration requirements. If you plan to sell products or services, many states have sales tax registration requirements; some also require local permits. In addition, some states have industry-specific size standards for small businesses that want to compete for government contracts. Entrepreneurs should also get an Employer Identification Number (EIN), which is similar to a Social Security number for a company. The EIN is used to open a bank account and for filing taxes. For more

Finally, entrepreneurs should register trademarks if they have one or more unique words, symbols, or phrases that distinguish their goods and services from those of competitors. Trademarks can be protected through state and federal law, but they’re usually registered with the Patent and Trademark Office for nationwide protection. Finally, small business owners should create detailed accounting records to comply with tax laws and keep track of their registrations. FreshBooks’ online bookkeeping software is free to try and makes it easy for small businesses to keep records organized.


Depending on your business structure and where you do business, you may need to register for state or local taxes. This can include income tax, sales tax and payroll taxes. Generally, you must also register for a federal Employer Identification Number (EIN) with the IRS if you have employees. This EIN is distinct from your personal social security number.

You must set up a separate bank account for your business, which can help keep your personal assets from being at risk in the event of a lawsuit. In addition, keeping your personal finances and business finances separated helps you stay in compliance with the liability protections gained through registration. Separating your finances also enables you to choose a shorter tax year for your company, if applicable.


Most small businesses need a variety of licenses or permits from the local, state and federal governments. The exact type of license required will depend on where the business is located, what it sells and who its employees are. For example, a restaurant may need a license to serve alcohol while a home accounting business might only require a permit. Federal government agencies also have their own licensing requirements, including a permit to engage in certain regulated activities like selling firearms or driving an oversized vehicle across a state line.

The definition of a small business varies by country, but the term usually refers to firms with fewer than 100 employees. Methods used to classify small businesses include employee number, sales (turnover), value of assets and net profit. Many small firms are sole proprietorships, but they can be any legal entity, such as partnerships and corporations. Some states have online licensing wizards to help businesses determine what state licensing they need.