Yes, a felon can start a business. No federal statute bars someone with a felony conviction from forming a company, and state formation paperwork — the Articles of Organization for an LLC or Articles of Incorporation for a corporation — does not ask about criminal history.1U.S. Small Business Administration. Register Your Business The harder questions come later: whether your industry requires a license, how you plan to fund the business, whether you want to raise money from investors, and whether you need bonding or government contracts. Each of those has its own rules, and a felony affects some of them and not others.
Registering the Business Itself
Filing with a Secretary of State’s office is a paperwork exercise. You submit a business name, a registered agent, and basic organizational details, pay a fee that typically runs somewhere between $35 and $500, and the entity exists. Sole proprietorships require even less, usually just a local business license or a fictitious name filing.
Getting an Employer Identification Number from the IRS is the same story. The EIN application asks nothing about criminal history, and a felony conviction does not affect eligibility. If your business is a corporation or partnership, has employees, or files certain tax returns, you will need one.
So the baseline answer to the question is a clean yes. Everything that follows is about the specific paths that can narrow after a conviction.
Industries Where a Felony Is a Real Obstacle
A few industries are effectively closed, or close to it, for people with certain felony convictions.
Firearms. Federal law makes it illegal for anyone convicted of a crime punishable by more than one year of imprisonment to possess, ship, or receive firearms or ammunition.2Office of the Law Revision Counsel. 18 U.S. Code 922 – Unlawful Acts Running a firearms business without being able to touch the inventory is not workable. A presidential pardon or a successful rights-restoration proceeding is generally needed to change that.
Banking. Section 19 of the Federal Deposit Insurance Act prohibits anyone convicted of a crime involving dishonesty, breach of trust, or money laundering from owning, controlling, or participating in the affairs of an FDIC-insured bank without prior written consent from the FDIC. Board seats and significant ownership stakes are included.3FDIC. Prohibition Under Section 19 of the Federal Deposit Insurance Act
Cannabis. States, not the federal government, license cannabis businesses. Many disqualify applicants with violent felonies or certain drug felonies from getting a dispensary or cultivation license. Some states run social equity programs that relax those rules, and convictions that have been expunged or sealed typically do not need to be disclosed.
Beyond those three, states commonly restrict licensing in healthcare, childcare, real estate, and financial services based on the type of conviction. Those restrictions vary too much to summarize, so a call to the specific licensing board before you invest in a business plan is worth the time.
Professional and Occupational Licensing
If your business needs a professional or occupational license — construction, real estate, healthcare, insurance, cosmetology, and many others — the licensing board will look at your record as part of what most call a “good moral character” review.
Boards weigh a handful of factors: how serious the offense was, how much time has passed, whether the conviction relates to the profession, and what you have done since. A decades-old drug possession charge carries less weight for a real estate license than a recent fraud conviction does for an accounting license. Expect to hand over official court records showing the nature of the conviction and proof of sentence completion, with case numbers and dates. Missing documents are a common cause of delay.
Nearly every professional application requires fingerprinting for a federal and state background check. That check verifies what you disclosed. The gap between the disclosure and the report is often more damaging than the conviction itself, because a board can deny for lack of candor even when the underlying offense would not have been disqualifying. Disclose everything the application asks about.
After you submit, some boards schedule an interview to discuss the conviction. If a board denies your application, it must issue a written notice with reasons and give you a window — often 15 to 30 days — to request an administrative hearing.
Certificates of Rehabilitation
Many states issue formal documents recognizing rehabilitation, under names like Certificate of Relief from Disabilities, Certificate of Good Conduct, or Certificate of Second Chance. In some states, they create a legal presumption of rehabilitation that a licensing board must weigh. Getting one before you apply can shift how the board views the file.
Funding the Business
Capital is where a felony most often changes the practical picture, even when the law does not close a door.
SBA Loans
The Small Business Administration’s 7(a), 504, and Microloan programs used to require detailed criminal history disclosures and could disqualify applicants who were on probation or parole.4U.S. Small Business Administration. Loans A 2024 rule change stripped most of that away. Under the current rules, the SBA disqualifies a business from its loan programs only if an associate is currently incarcerated, serving a sentence of imprisonment, or under indictment for a felony or a crime involving financial misconduct or a false statement.5eCFR. 13 CFR Part 120 – Business Loans Being on probation or parole no longer makes you ineligible on its own, and the revised SBA Form 1919 replaces the old questionnaire with a single question about current incarceration or indictment.6Federal Register. Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guaranty Program
Community Lenders and Alternatives
Community Development Financial Institutions are mission-driven lenders serving underserved communities, and some offer loan products aimed specifically at entrepreneurs with criminal records. Underwriting tends to be more flexible than at a commercial bank, though rates can be higher. Nonprofit microloans, crowdfunding, and peer-to-peer lending are other options that do not carry blanket criminal-history restrictions the way some traditional lenders do.
Raising Money From Investors
If your plan involves selling equity to outside investors, securities law adds a specific layer.
Rule 506 of Regulation D lets companies raise capital through private offerings without registering with the SEC. It also contains “bad actor” disqualification provisions. If a covered person — meaning any owner holding 20% or more of voting equity, any director, or any executive officer — has a relevant criminal conviction within the past ten years, the company loses the exemption entirely.7U.S. Securities and Exchange Commission. Disqualification of Felons and Other Bad Actors From Rule 506 Offerings and Related Disclosure Requirements The disqualifying convictions are those tied to securities transactions, false SEC filings, or the business of an underwriter, broker, dealer, or investment adviser. Not every felony triggers it. Convictions from before the rule took effect in 2013 do not automatically disqualify the offering but must be disclosed to investors.8Federal Register. Disqualification of Felons and Other Bad Actors From Rule 506 Offerings
Partners and Co-Owners
In a partnership or multi-member LLC, you owe your co-owners a fiduciary duty of loyalty and care. That duty generally requires disclosing personal history that could affect the business’s ability to get insurance, bonding, bank accounts, or licenses. Commercial insurance underwriting often asks about the criminal history of company officers, and a felony that surfaces later can void coverage. Failure to disclose can also produce breach-of-contract claims or forced dissolution. Putting the disclosure in writing, ideally inside the partnership or operating agreement, protects you against later accusations of concealment.
Banking, Bonding, and Insurance
Banks are required to verify customer identity through a Customer Identification Program, which screens against terrorist watch lists but does not itself bar accounts based on felony convictions.9eCFR. 31 CFR 1020.220 – Customer Identification Program Requirements for Banks Individual banks set their own policies, though, and can decline. Payment processors and merchant account providers run their own checks and often treat fraud-related convictions as high risk. If one institution turns you away, credit unions, community banks, and CDFIs tend to be more flexible.
Businesses in construction and government contracting frequently need surety bonds. The SBA’s Surety Bond Guarantee Program dropped its blanket ban on applicants with prior felony convictions and now only bars those currently incarcerated or under indictment for a felony.6Federal Register. Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guaranty Program Private surety companies still apply their own underwriting standards and can weigh a felony conviction heavily.
Government Contracting
Federal contracting is governed by the Federal Acquisition Regulation. Under FAR Subpart 9.4, a contracting agency can initiate suspension or debarment proceedings against a business whose owner has been convicted of fraud, embezzlement, bribery, tax evasion, or similar offenses connected to government contracts.10Acquisition.GOV. FAR Part 9 – Contractor Qualifications Debarment generally lasts up to three years, extendable to five for drug-free workplace violations. A debarred business appears in the System for Award Management, and no federal agency can award it new contracts while it is listed.
Disadvantaged Business Enterprise certification, which opens the door to certain transportation-related contracts, can also be revoked if a business owner is involved in fraud or conduct showing a serious lack of business integrity.11eCFR. 49 CFR Part 26 – Participation by Disadvantaged Business Enterprises in Department of Transportation Financial Assistance Programs
Clearing the Record to Remove Barriers
Expungement, sealing, or a pardon can eliminate many of the obstacles above. Once a conviction is expunged or sealed, you generally do not need to disclose it on license applications, loan forms, or business filings.
About half the states have at least one statutory provision for automatic record clearing, and roughly a dozen have enacted “Clean Slate” laws that automate the process for eligible offenses after a waiting period. Eligibility rules vary, but the common requirements are a set number of years since sentence completion, no new convictions, and an original offense that was not violent or sexual. Some states clear misdemeanors automatically but require a petition for felonies.
Where automatic clearing does not apply, most states allow a petition to a court. The process involves filing, a modest fee that is sometimes waivable, and often a hearing. A successful expungement can open access to professional licenses, SBA financing, and insurance that would otherwise be difficult.
Staying Compliant Once You Open
Compliance obligations continue after the doors open. Most states require licensees to report any new arrest or conviction to the licensing board within a set window, commonly 30 days. Failure to self-report can trigger discipline — fines, suspension, or revocation — even when the new offense would not otherwise have affected the license.
SBA-backed loans and federal contracts come with their own continuing disclosure obligations. An indictment while an SBA loan is outstanding may need to be reported to the lender and the SBA. A new conviction for fraud or a related offense can trigger suspension or debarment proceedings that reach the whole company, not just you.10Acquisition.GOV. FAR Part 9 – Contractor Qualifications Keep dated copies of every disclosure you make — to boards, lenders, insurers, and partners — because that paper trail is what protects you if anyone later argues you were not forthcoming.