Starting a new business is exciting. You're eager to start selling products and making money, but before you can begin operating, you'll need to obtain any necessary licenses.
“Licenses are something everyone wants to get right away,” says Mary Nobles Hancock, an associate attorney with the Birmingham-based law firm Bradley Arant Boldt Cummings. “If you're just starting out or expanding into a new city or region, take the time to research the requirements; otherwise, you may have to put your business on hold until you get things sorted.”
To help you get started on your research, here is an overview of the different license types required in Alabama:
What is a business license?
A business license is a government-issued document that authorizes a business to conduct a certain type of activity in a particular location.
Licensing requirements typically vary depending on the business's activities and location. Some small businesses don't require licenses, others may need federal, state, or local licenses to operate legally, and some may need to obtain a permit, which is a specific type of business license designed to protect public health and safety.
What types of business licenses do I need in Alabama?
Alabama businesses may need federal, state and local licenses to operate legally. Below is an overview of the license and permit requirements that may apply to your business.
Federal License
The federal government regulates certain industries, such as agriculture, mining, and the sale of firearms and alcohol, and companies operating in these industries may be required to obtain a federal business license. A complete list of regulated industries and links to the corresponding federal agencies can be found on the U.S. Small Business Administration website.
State License
Alabama requires all businesses in the state to obtain a privilege license. A privilege license is a general business license applied at the state level, but administration is done by local county governments. Most business owners must also obtain a state sales tax license, and some may need to apply for a specialty license with a statewide regulatory agency. Here's a summary:
- Business Privilege License. In Alabama, all non-exempt businesses are required to obtain a business license from the probate judge or licensing commissioner in the county in which they are located. The Alabama Department of Taxation's Business License Center provides a guide to license requirements and Privilege and Store License Handbook It contains up-to-date information on license types, fees, and relevant sections of state law.
- Sales tax license. Alabama-based businesses that sell or lease certain types of tangible personal property or sell taxable services within the state must obtain a sales tax number and license (sometimes called a sales permit) from the Alabama Department of Revenue (DOR) to collect and remit sales tax to the state.
- Regulatory License. You may also need to obtain a professional or occupational license from a state regulatory agency to engage in certain types of work. For example, to manufacture food or operate a food and beverage establishment, you must obtain a public health license from the Alabama Department of Public Health. The DOR publishes a list of all occupations that require a regulatory license, as well as a list and contact information for regulatory agencies.
Local License
Some businesses may also need to obtain a license from their local government. Here's an overview of the types of licenses you may need:
- County license. Some county governments maintain their own privilege license requirements and may need to obtain multiple privilege licenses to stay in compliance.
- Municipal license. You may also need to obtain a license from the municipality in which you operate. Municipal requirements may include a privilege license or a specialty license. If you operate in a regulated industry, you may need to show proof of a license or certification from a statewide regulatory agency in order to obtain a specialty license at the municipal level.
- Other local licenses. Certain business activities may require other local licenses and permits, such as local building permits or alcohol sales permits.
How to Get a Business License in Alabama
- Register your business
- Obtain an Employer Identification Number (EIN)
- Apply for a Federal License
- Apply for a privilege license
- Apply to regulators
- Apply for a local license
- Register your sales tax number and license
Maintaining necessary licenses can help you avoid costly losses from fines and business interruptions, but figuring out what the requirements are can be difficult, especially at the local level. “Many counties and cities in Alabama have their own business licensing requirements,” says Mary. “Each county or city has different standards for being eligible to do business in that county or city.”
She recommends contacting your local licensing department or small business association to find out what their requirements are. “Your business licensing department can point you in the right direction,” she says. “Also, many cities and states have small business resource groups that can be really helpful.”
To obtain the right license for your business, follow these general steps:
1. Register your business
Whether you need to register your business in Alabama depends on the type of entity you have. If you operate a corporation, limited liability company (LLC), or limited liability partnership (LLP), you're legally required to register with the Alabama Secretary of State. You can apply online by reserving a name and submitting a certificate of formation. If you still need to incorporate your business or reserve a name (or need a copy of either certificate), you can access the necessary forms on the Alabama Secretary of State's website.
If you operate a sole proprietorship or partnership, you are not legally required to register your business with the state, but you can choose to register a trade name (known as a trade name registration or DBA in many states) and do business under a name other than your legal name. You can download a trade name registration form.
2. Obtain an Employer Identification Number (EIN)
If you're an Alabama LLC owner or sole proprietor and don't plan on hiring employees, you don't necessarily need an Employer Identification Number (EIN), but you may want to get one to help separate your personal and business finances. If you operate any other business entity type (or plan on hiring employees), you are legally required to apply for an EIN with the Internal Revenue Service (IRS). You can apply online for free, and the application usually takes just a few minutes to process.
3. Apply for a Federal License
If your business operates in a federally regulated industry, you may need to obtain a federal license. For a list of regulated industries and links to relevant federal agencies, see the U.S. Small Business Administration website. You can visit the agency's website to find specific information and apply for a federal business license.
4. Apply for a privileged license
In Alabama, all non-exempt businesses are required to obtain an Alabama Business Privileges License from the county in which they are located. Use the Alabama Department of Taxation's County Probate Office Directory to find contact information for your local county clerk. You can also contact the Department of Taxation's Privilege and Store License Handbook Information about additional license requirements and types.
5. Submit to regulatory authorities
You may also need to apply for a license to practice certain professions. For example, if you practice cosmetology, you must apply to the Alabama Board of Cosmetology and Barbering. You can also use the Alabama Regulatory Agency Directory to find contact information for the relevant state agency.
6. Apply for a local license
The state of Alabama encourages you to check with all cities, towns, and counties in which you do business to determine their licensing requirements. You can use the Alabama League of Municipalities website and the Alabama Department of Taxation's County Probate Office Directory to find contact information for relevant city and county government officials.
You can also contact city hall officials to inquire about other local licensing requirements, such as permits for certain business activities.
7. Register your sales tax number and license
Businesses that sell taxable products or services in Alabama must apply for a sales tax number and license from the Alabama Department of Taxation. They can apply online through My Alabama Taxes, the state's online business tax registration portal. Here's what you'll need to apply:
- Sole proprietorship: Please submit your legal name, business address, contact information, North American Industry Classification System (NAICS) code, and start date. NAICS codes can be found on the U.S. Census Bureau website or in the Alabama Department of Labor's Codes and Job Titles Guide.
- Corporations, LLCs, and Partnerships: In addition to all of the above information, please also provide your Federal EIN, the date of organization or qualification, entity owner or office information, and entity subtype.
You can also use the portal to file returns, make payments, and manage other business tax obligations, such as paying withholding tax and business privilege tax.
Alabama Business License FAQs
How do I start a business in Alabama?
Here's how to start a business in Alabama.
1. Select the entity type.
2. Name and establish your business.
3. Identify registration and licensing requirements.
4. Register your business with the Alabama Secretary of State (if required).
5. Apply for a Federal EIN (if required).
6. Apply for necessary licenses and permits.
7. Register your tax account with the Alabama Department of Taxation.
8. Maintaining licensing and legal and regulatory compliance.
What is an Alabama Privileges License?
How much does an Alabama business license cost?
The cost of a business license in Alabama varies by jurisdiction and business activity. Contact your local county probate office and city clerk for more information on requirements and fees.
Do I need a business license to be self-employed in Alabama?
Most sole proprietors operating in Alabama are required to obtain a business privilege license from their local county probate office. They may also be required to obtain other licenses, such as a municipal license, privilege license, or business permit.
