How to start a recruiting agency in the US: the setup checklist
What a new US recruiting agency sets up before its first placement: structure, state registration, EIN, licensing, EEOC rules and insurance, in order.
By the Recruiting ATS team (How we write)Published 7 min read
Before your first placement, a new recruiting agency in the US needs a legal entity, a state registration, an EIN, an answer to whether your state licenses employment agencies, and a working knowledge of the discrimination rules that already apply to you. Most of it is paperwork with a clear owner and a clear form. The licensing question is the one that catches people out, so it sits near the top of the list below, not at the end.
This is general information, not legal or tax advice. Rules vary by state and they change, so treat this as the list of questions to bring to an accountant or attorney where you'll operate. Every link goes to the government agency that issues the thing, and we checked each one in October 2026.
Decide two things before you file anything
Where the agency is based. Registration, state taxes and licensing are state business. The SBA's registration guide says you're generally doing business in a state if you have a physical presence there, often meet clients in person there, earn a significant portion of your revenue there or have employees working there. Example: you work from home in New Jersey and most of your clients are in Manhattan. Ask early whether that means registering in both states, because the answer changes your costs and your paperwork.
Who owns it. A solo founder, two partners splitting equity, or an owner who lives outside the US are three different setups. If any owner lives abroad, there are extra IRS filings. A single-member LLC owned by a foreign person, for example, has to file Form 5472 with a pro forma corporate return. Raise that before you form the company, not after.
Choose a structure
The SBA's page on choosing a business structure covers the options: sole proprietorship, partnership, LLC, and corporations, including C and S corps. For an agency, the practical question is liability. Think of a fee dispute with a client, or a candidate who says you mishandled their information. As a sole proprietor, the SBA notes, you can be held personally liable for the business's debts and obligations. An LLC, it says, protects you from personal liability in most instances.
For a one- or two-person agency, we'd start the conversation with an LLC and let your accountant talk you out of it if your numbers say otherwise. The usual reason to change course is tax, not liability. S corp status, for example, is a separate filing with the IRS, not something your state registration gives you.
The setup checklist, in order
| # | Step | What it is | Who issues it | Official page (checked October 2026) |
|---|---|---|---|---|
| 1 | Choose a business structure | Sole proprietorship, partnership, LLC or corporation | You decide; the state records it when you register | SBA: Choose a business structure |
| 2 | Check whether you need a license | Some states and cities license employment agencies | State labor or licensing department, sometimes the city | SBA: Apply for licenses and permits |
| 3 | Register with your state | Articles of organization (LLC) or incorporation, with a registered agent in that state | Secretary of State or the state's business agency | SBA: Register your business |
| 4 | Get an EIN | Your federal tax ID for taxes, banking and invoices | IRS | IRS: Get an employer identification number |
| 5 | Register for state taxes | A state tax ID if the business owes state taxes | Your state's tax agency | SBA: Get federal and state tax ID numbers |
| 6 | Check beneficial ownership reporting | Federal report on who owns and controls the company | FinCEN | FinCEN: Beneficial ownership information |
| 7 | Get insurance | Coverage required once you have employees, plus liability cover | Private insurers; requirements set by law | SBA: Get business insurance |
| 8 | Learn the discrimination rules for agencies | Federal laws that cover employment agencies | EEOC | EEOC: Coverage of employment agencies |
Two notes on the order. The IRS says to form your entity with the state before you apply for an EIN, or the application may be delayed, so step 3 comes before step 4. And once you have the EIN, open a bank account in the business's name and keep every fee out of your personal account from the first invoice.
Does your state license recruiting agencies?
Some states and cities license employment agencies, and their definitions don't always match how you think about your business. New York is a useful example because it has two layers.
Outside New York City, the New York State Department of Labor says an employment agency needs a license before it does business in the state, and describes an employment agency as any entity that charges a fee for placing a candidate with a third-party employer. It adds that there are exceptions, without listing them on that page.
Inside the city, the Department of Consumer and Worker Protection issues the license. Its checklist lists an exemption for executive search and employer fee-paid agencies that never charge applicants any fee and place only commercial, clerical, executive, administrative and professional candidates. Those agencies still have to follow the state law's provisions for employer fee-paid agencies.
That last sentence is the part people miss: being exempt from the license doesn't exempt you from the law. In your state, ask three separate questions: does the definition cover what you do, does an exemption apply, and which rules still apply if you're exempt. If the wording is ambiguous, ask the licensing office in writing and keep the reply. The SBA's licensing page makes the general point that states regulate a broader range of activities than the federal government, and that counties and cities can add their own requirements.
The discrimination rules apply from your first job order
This one surprises people who come from in-house recruiting. The EEOC says an agency that regularly refers employees to employers is covered by the laws it enforces no matter how many employees the agency has. A one-person agency is covered.
In practice, you can't accept a job order that specifies a protected characteristic, and you can't sort candidates, jobs or employers into groups by those characteristics and refer from the groups. The EEOC's list includes race, color, religion, sex (including sexual orientation, transgender status and pregnancy), national origin, age 40 and older, disability and genetic information. The agency also may not honor an employer's discriminatory preference, so "the client asked for it" doesn't cover you.
Picture the intake call where the hiring manager says they want "someone young, early thirties, to fit the team." You can't take that job order as stated. What usually works is turning the preference back into a requirement you can screen for:
"I can't screen on age, but I can screen on whatever is behind it. Is it the budget, comfort with your specific stack, or the travel? Tell me which one and I'll build the shortlist around that."
Write the requirements you agreed in your intake notes. If a dispute ever comes up, notes taken on the day are worth more than anyone's memory.
Insurance, ownership reports and the EIN
Insurance. The SBA's insurance guide says the federal government requires every business with employees to carry workers' compensation, unemployment and disability insurance, and that some states require more. Before your first hire, that's the part that's mandatory. Before your first placement, the common voluntary covers are general liability and professional liability, which the SBA describes as covering losses from malpractice, errors and negligence. An agency is paid for advice on who to hire, so professional liability is the one we'd price first.
Beneficial ownership. As of October 2026, FinCEN's page says US companies are exempt from beneficial ownership reporting, under a final rule issued in August 2026. The earlier 2025 rule described on the same page had already narrowed reporting to companies formed under another country's law that register to do business in a US state. If someone offers to file a report for your new US LLC for a fee, read that page first.
The EIN is free. The IRS page says it plainly: "You never have to pay a fee for an EIN." The online application works when the principal place of business is in the US and the responsible party has a Social Security number or ITIN. Otherwise you apply by phone, fax or mail.
What this checklist leaves out
Government paperwork is only part of the setup. Before you send your first CV, you also need a fee model and written terms the client has signed (our guide on how to price a contingency or retained search covers both), and you need clients. If that's the harder part right now, start with how to win your first five clients.
Once the entity exists, set up the place where your searches will live before the first one starts; moving out of a spreadsheet later is the job nobody gets around to. Recruiting ATS costs $20 per seat per month, billed monthly with no annual contract, and the 7-day trial doesn't ask for a credit card. The details are on the pricing page.