New business owners often conflate three separate registration layers, and confusing them causes real problems — a bank that rejects your account application, a city that fines you for operating without a license, or a state that dissolves your entity for failing to register as a foreign business. Each layer is administered by a different government body, with its own requirements and its own timeline.
The federal layer is your Employer Identification Number (EIN) — a nine-digit number issued by the IRS that functions like a Social Security number for your business. It's required to open a business bank account, hire employees, and file federal tax returns. Applying directly through the IRS is free and typically takes minutes online (or up to four weeks by mail or fax). An EIN does not create your legal entity — it identifies it to the IRS after the entity already exists.
The state layer is entity formation itself: filing Articles of Organization (LLC) or Articles of Incorporation (corporation) with your state's Secretary of State, which is what actually creates the legal entity and typically triggers the state filing fee. If you operate in a state other than where you formed, you'll usually also need to register there as a "foreign" entity — a separate filing most new owners don't anticipate.
What is the difference between an EIN and state registration?
- Federal layer
- The EIN — a nine-digit IRS number. Free, issued in minutes online.
- State layer
- Entity formation with the Secretary of State. This is what actually creates the legal entity.
- Local layer
- City or county business licenses and any industry-specific permits.
- Common mistake
- Assuming an EIN creates the entity. It only identifies an entity that already exists.
- Foreign qualification
- Operating in a state other than the one you formed in usually requires a separate registration there.
What order should you register a business in?
- Form the entity with the Secretary of State — this must come first.
- Apply for the EIN directly with the IRS once the entity exists (it is free).
- Open the business bank account using the filed Articles and the EIN.
- Register locally for any city or county business license.
- Foreign-qualify in any additional state where you actively do business.
What the full article covers
- City and county licensing, seller's permits, and industry-specific requirements
- A decision framework for which registrations apply to your business type
- Ordering: which layer to complete first and why
The full article walks through the local layer — city and county business licenses, seller's permits, and industry-specific licensing — plus a decision framework for figuring out exactly which registrations apply to your specific business type and location.
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