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How To Start A Business In Rhode Island

How To Start A Business In Rhode Island

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How To Start A Business In Rhode Island

How To Start A Business In Rhode Island

Starting a small business is a journey full of rewards, but it also comes with its share of challenges, especially when trying to figure out what the first step should be. To help you navigate through the process of starting a business in Rhode Island, we’ve put together a guide to steer you clear of the usual hurdles and set you on a clear path to success.

Steps To Start A Business In Rhode Island

Step 1: Choose a Business Idea

The first step in launching a business in Rhode Island is figuring out what your business will do. You might already have an idea, or you might still be thinking it over. Either way, we offer a collection of business ideas where you can find detailed information about different industries, current trends, startup costs, helpful tips, and much more.

Step 2: Write a Business Plan

Once you’ve settled on a business idea, the next important step is to write a business plan. Think of this plan as a map that outlines your goals and shows you the way forward at every stage of starting and growing your business. It’s also a tool to figure out how much money you’ll need to start your business and to check if your business idea can really work. While writing a business plan is usually only thought of when seeking funding, this step is highly recommended for turning your vision into a reality.

Related: How to write a business plan

Step 3: Find the Money

With the business plan out of the way, you will have a pretty good understanding of how much it is going to cost to start the business. This brings us to the next step, which is making sure you have access to the funds. Even with the best business idea, without the money, it may be hard to launch your business.

An overview of the most common funding options in Rhode Island include:

  • Conventional bank loans: Traditional banks offer various loan products for small businesses, such as term loans, lines of credit, and equipment financing. To obtain a bank loan, you typically need a personal investment of between 15% and 25%, a strong credit history, collateral, and a solid business plan. Interest rates and terms can vary depending on the bank and your creditworthiness.
  • SBA loan guarantees: The Small Business Administration (SBA) offers loan guarantee programs to help small businesses secure financing through participating lenders. The SBA 7(a) loan program is the most popular program, providing loans for working capital, equipment, and real estate. The SBA doesn’t lend directly to businesses. Instead, they guarantee a portion of the loan, reducing the risk for lenders.
  • Microloan programs: Microloans are small loans designed for entrepreneurs who may not qualify for traditional financing. In Rhode Island, organizations like the Center for Women & Enterprise, Rhode Island Capital Access Program, and the Community Investment Corporation offer microloan programs with lower interest rates and more flexible terms than conventional loans.
  • Investors: There are various types of investors, including angel investors, venture capitalists, and private equity firms, that may be interested in funding your business in exchange for equity. You typically need a strong business plan, a scalable business model, and a compelling growth strategy to attract investors.

Related: Understanding the different types of business funding

Step 4: Select a Business Structure

With a solid idea and funding in place, it’s time to make the business official and create the business structure (also called a business entity). A business structure refers to how a business will be legally organized, operated, and taxed. Understanding from the different types of business structures is important as each one will have an impact on your personal liability, tax obligations, and business operations.

In Rhode Island, there are four common types of business entities, each with its unique characteristics, pros, and cons:

Sole proprietorship: This is the simplest of the four to start and run, and is where an individual operates the business without any legal distinction between the owner and the business. The owner has full control over the business but also bears all legal and financial responsibilities.


  • Easy and inexpensive to set up
  • Complete control over business decisions
  • Minimal regulatory requirements


  • Unlimited personal liability for business debts and obligations
  • Limited in raising capital

Related: How to start a sole proprietorship in Rhode Island

General partnership: This structure is similar to a sole proprietor and involves two or more individuals conducting business together, sharing both profits and liabilities. The partners usually share in the management of the business and are personally liable for its debts.


  • Relatively easy to establish
  • Shared management and financial responsibility
  • More resources and expertise available to run the business


  • Unlimited personal liability for each partner
  • Potential conflicts between partners
  • Limited access to capital

Corporation: A corporation is a separate legal entity from its owners (shareholders), providing limited liability protection. Corporations are more complex and subject to more administrative requirements than other business structures.


  • Limited liability for shareholders
  • Additional source of funding by issuing stocks
  • Transferable ownership and perpetual existence


  • More expensive and time-consuming to set up
  • Potential for double taxation (corporate and personal income tax)
  • Increased administrative requirements and paperwork

Related: How to form a Rhode Island corporation

Limited Liability Company (LLC): An LLC combines the limited liability protection of a corporation with the tax flexibility and simplicity of a sole proprietorship or partnership, which makes them a popular business entity among small business owners.


  • Limited liability for members (owners)
  • Tax flexibility (can choose to be taxed as a sole proprietorship, partnership, C corporation, or S corporation)
  • Fewer formalities and regulations compared to corporations


  • More complex and expensive to establish than a sole proprietorship or partnership

In conclusion, it’s important to understand the unique characteristics of each type of business structure and carefully weigh the pros and cons before making a decision.

Related: How to form an LLC in Rhode Island

Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.

Some popular formation services include:

IncFile - Great service and free registered agent the first year.

Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!

ZenBusiness - Easy to use and free registered agent for 1 year!

Step 5: Register the Business

To begin operating your business in Rhode Island, there are various state and federal licenses and registrations you will need to obtain. Each business will have different licensing requirements based on what the business does and where they operate in Rhode Island. Here’s a list of the main ones you may need:

Business licenses: While there isn’t a general state business license, many cities and towns in Rhode Island require businesses to obtain local licenses before they can operate.

Employer Identification Number: An EIN, also known as a Federal Tax Identification Number, is required by the Internal Revenue Service (IRS) for partnerships, corporations, multi-member LLCs, or any business with employees. You can apply for an EIN online through the IRS website at no cost.

Sales tax permit: Businesses making retail sales and providing certain services will need to register for a sales tax permit with the Rhode Island Division of Taxation by filing the Business Application Form (BAR).

Business name: As a sole proprietorship or general partnership in Rhode Island and doing business under the owner’s full first and last name, there is no need to register for a business name. If the business will operate under a fictitious business name or DBA (Doing Business As), a Trade Name Certificate will need to be filed with the Town or City Clerk’s office where the business will be located.

Professional licensing: Depending on the nature of your business, you may need specific licenses and permits to operate legally in Rhode Island. Some occupations, such as accountants, landscapers, and auto body repair require licensing in Rhode Island.

Related: What business licenses and permits are needed in Rhode Island?

Step 6: Open a Business Bank Account

Opening a separate bank account for your business is the next step to discuss. Having a dedicated business bank account makes it easier to manage your income and expenses, as your business transactions are separate from your personal ones.

Most banks offer business checking, but be sure to look at the details and costs.

Step 7: Hire Employees

Hiring your very first employee is an exciting step, but as a new employer it’s important to understand which agencies to register. This includes the Rhode Island Division of Taxation, where you’ll handle state tax withholding. Then there’s the Rhode Island Department of Labor and Training for unemployment insurance. You’ll also need to register with the federal Internal Revenue Service (IRS) for federal taxes.

Related: Steps to hiring your first employee in Rhode Island

Step 8: Obtain Business Insurance

Starting a small business in Rhode Island carries will carry risks that may warrant purchasing buisness insurance. Here are some common types of insurance policies that small business owners should consider:

  • General liability insurance: This coverage protects your business from financial losses resulting from third-party claims, such as bodily injury, property damage, and personal injury. General liability insurance is a common type of insurance as it offers broad protection against common risks.
  • Property insurance: Property insurance covers your business’s physical assets, such as buildings, equipment, and inventory, in case of damage or loss due to events like fires, theft, or natural disasters.
  • Workers’ compensation insurance: In Rhode Island, most businesses with employees are required to carry workers’ compensation insurance. This coverage provides medical benefits and wage replacement for employees who suffer work-related injuries or illnesses.
  • Commercial auto insurance: If your business owns or operates vehicles, commercial auto insurance is necessary to cover potential damages and liabilities resulting from accidents. This coverage typically includes both property damage and bodily injury protection.

Related: Types of insurance your business may need

Step 9: Track Income & Expenses

Setting up an accounting system is the next step to cover when preparing to start a business. Whether you choose to use simple tools like pen and paper, a spreadsheet, accounting software, or even hire a bookkeeper, it’s important to have a method for tracking your income and expenses.

Accurate bookkeeping isn’t just about following tax laws, but having clear financial records help manage your business’s finances.

Related: Setting up accounting for a business

This material is property of StartingYourBusiness.com

Common questions when starting a business in Rhode Island

What are the steps to starting an LLC in Rhode Island?

There are three main steps to starting an LLC in Rhode Island. These include:

1. Making sure the LLC name is available
2. Appointing a Rhode Island Registered Agent
3. Filing the Articles of Organization

How much does it cost to start an LLC in Rhode Island?

The filing fee to submit the Articles of Organization with the Rhode Island Secretary of State and start an LLC is $150.

Does a sole proprietor need a business license in Rhode Island?

In Rhode Island, whether a sole proprietor needs a business license depends on the type of business and its location, not the business structure.

Different cities and towns have their own requirements. Generally, most businesses will need some form of license or permit to operate legally. This can include a general business license, as well as specific permits related to the services or products offered.

Rhode Island Small Business Resources

There are 105,320 small businesses in Rhode Island, which is 98.9% of all businesses in the state,1 and 51.2% of Rhode Island employees work for small businesses.2 Because of the economic impact of small businesses, the state of Rhode Island has invested in several small business programs to help Rhode Island businesses start and grow. Some of these resources include:

  • Center for Women & Enterprise: Committed to increasing women’s economic empowerment through entrepreneurship, CWE offers resources and support specifically tailored to women business owners.
  • Innovation Studio: Dedicated to making innovation accessible to all, Innovation Studio supports aspiring entrepreneurs and business owners through a network of innovation centers and programs for small businesses and startups.
  • Rhode Island Black Business Association: This organization offers a range of programs and services to help small businesses grow, build sustainable wealth, and create job opportunities that positively impact their communities.
  • Rhode Island Commerce Corporation: Offering business assistance, funding access, and help with cutting through bureaucratic red tape, this organization supports companies of all sizes in Rhode Island.
  • Rhode Island SCORE: A resource that provides mentoring and support to both new and established businesses, helping them navigate the challenges of entrepreneurship.
  • Rhode Island Small Business Development Center: This center aims to train, educate, and support entrepreneurs, catering to both new (pre-venture) and established small businesses, with a focus on practical, effective guidance.


  1. Small Business Administration ↩︎
  2. Census Bureau ↩︎

How To Start A Business In Rhode Island

How To Start A Business In Rhode Island

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