Updated July 6, 2020:

“Can I start a business without registering it?” is a question you may ask if you want to avoid the cost and hassle that come with forming a new business. In most cases, a business owner is required to complete a number of procedures in order to operate his or her business legally in a certain state, including filing with the appropriate state agency and applying for a business license or permit. However, it is possible to operate an unregistered business, but you have to face certain restrictions and risks.

What is an Unregistered Business?

If you start a company without registering it, you will be regarded as a sole trader, even if you do not intend to be one. Basically, an unregistered business is a sole proprietorship, a legal structure that requires you to use your Social Security Number (SSN) in place of an Employer Identification Number (EIN) and your legal name as the name of your company. You are allowed to operate a sole proprietorship without registering, but you are required to register with your local government to collect and file state taxes.

There is nothing wrong with running an unregistered business as long as your business is legal and meets all licensing and tax requirements. In most states, businesses are required to register or obtain a business license before they can operate legally, but this procedure is different from organizing or incorporating a company.

Unless your business is registered as a limited liability company or corporation, which offers protection against personal liability, you may be held liable for any loss or damage that is related to your business. For example, if someone suffers from food poisoning after consuming a food product, he or she can sue for damages and go after the business owner's personal assets.

Possible Consequences of Starting a Business Without a License

Forced to Close

When a business is caught operating without the appropriate license, it may be forced to close down. After it is closed, one of the following three things may happen:

  • You may be able to start operating your business again after you obtain the necessary license.
  • Your business may have to undergo probation for a certain amount of time before it can open for business again.
  • Your application for a business license may be rejected by the local government.

Fines and Fees

It is illegal to run a business without a license, but the extent of the legal infraction varies depending on the location, industry, and licensing requirements. For instance, a home-based bookkeeper working without the necessary license or permit is regarded as a minor offense compared to an over-the-road trucking company operating without a license. The bookkeeper may only face local fines and fees, and possibly, back taxes, while the trucking company may face fines, fees, and charges from local, state, and federal authorities.

Possibility of Lawsuits

If you operate an unregistered business, you will be personally liable for your business. If someone files a lawsuit against your business, he or she is suing you. By not setting up a limited company, you will assume personal liability for any debt incurred by your business. This means that if you form a limited company, all business debts will be attached to the company, not you.

Also, if you conduct business without the appropriate license, a customer can sue you in a small claims court if he or she is dissatisfied with one of your products, using fraud as the reason for the lawsuit. In actuality, conducting business without a license is regarded as a fraudulent act. In the event that the customer wins the lawsuit and you are found liable, you will be responsible for the amount he or she paid for the product and possibly, damages in relation to the fraudulent activity.

Loss of Reputation

If your business is caught operating without the required license, it can cause your customers to doubt your ability to do business in a competent or ethical manner. They may come to the conclusion that your business may not follow customer directives since it has failed to follow the necessary procedures to operate legally.

If you need a clearer or more detailed answer to the question “Can I start a business without registering it?,” you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.