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When starting a business, it can be difficult to know what steps to take to get up and running and stay compliant with confusing government regulations. Depending on the type and location of your business, you may need to apply for one or more business licenses. Here's everything you need to know to determine which licenses you need and how to obtain a business license in your area.
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What is a business license?
“Business License” is a broad term that refers to any type of license or permit required to operate a business and provide services at your location. Different types of business licenses are issued by federal, state, county, and local government agencies.
The purpose of a business license may be to register your business with the government for tax purposes or to ensure compliance with industry regulations.
Do I need a business license?
Whether you need to obtain any type of license to operate your business depends on where you live (and where your business is based) and the type of products or services you sell.
Most states do not require a general business license (also known as a business operating license) just to do business in that state. However, you may need a business license from the city or county. We may also require licenses from relevant state or federal regulatory authorities to conduct certain business activities, such as agriculture or medicine.
If you run an online business, register your business and obtain the necessary licenses in the state and city where your business is based.you digital nomadconsult a lawyer or accountant about the best way to set up your business.
Types of business licenses
To sell products or services, you may need to obtain one or more of the following types of business licenses in your state:
- Business license: This is what many people mean when they say “business license.” This is a license that allows you to do business in your state or region. Some states require you to obtain a business license from the state, while others require you to obtain a business license from your city or county.
- Seller permission: Most states require this permit if you sell products in person or online. This allows you to collect sales tax from your customers.
- DBA or fictitious name statement: A “doing business as” statement allows you to operate your business under a name that is different from your legally registered trade name. Depending on your state, you may be required to register your DBA at the state or local level.
- Special permission: Many industries require special permits to operate. If you run a brick-and-mortar business, you may need city or county planning, zoning, building, signage, and fire permits.
- Industry license: Special licenses may be required to perform services in industries such as salons, electrical, childcare, medical, and legal. These licenses are obtained through the relevant licensing board in your state.
- Federal license: Some industries, such as alcohol and firearms sales and aviation, are regulated by the U.S. government and require federal licenses or permits. The Small Business Administration lists what types of businesses need federal licenses and where to apply.
How to get a business license
The process for obtaining a business license varies by state, but it is not required for all types of businesses in all states. Follow these steps to determine if you need a license, and if so, apply to your state.
1. Form a business entity
You will need a license to operate in your business name. It is best to establish your business structure and business name before applying for a business license. That way, you won't have to reapply or amend your business license later.
The common legal structure of a small business is:
- Sole proprietorship: A one-owner business is considered a sole proprietorship if you do not file documentation to establish other types of business structures. Sole proprietors are fully responsible for business debts and obligations and report business income as self-employment income on their tax returns. If you are a sole proprietor, your name will be your legal business name, but you can also use your DBA, such as her Joe Jones from DBA Affordable Lawn Care.
- General partnership: A general partnership is similar to a sole proprietorship for tax purposes. For liability purposes, partners divide responsibilities and personal assets are not separated from the business. A general partnership uses the partner's last name as the legal business name and may also have a DBA.
- Limited liability company (LLC): A simple business structure where profits and losses are passed to the owner for tax purposes, but personal assets are protected from business liabilities (such as debts and lawsuits).
- Co., Ltd: Similar to LLCs, corporations protect personal assets from business liability. Corporations tend to have a more fixed operating structure and may be better than LLCs for attracting outside investors.
- Non-profit corporation: Corporations are organized similarly to corporations, except that profits cannot be distributed to the owners. Some nonprofit organizations receive tax-exempt status.
If you form an LLC, corporation, or nonprofit corporation, you will establish a business name when you file formation documents with your state. Depending on the state you live in, you may be able to obtain his DBA from the state, or you may need to apply for his DBA from your local government.
2. Apply for an Employer Tax Identification Number (TIN)
Depending on how your state handles business licenses, you may need to include your federal TIN on your business license application.
Self-employed businesses without employees can use a Social Security number in place of a TIN, but all other businesses require a Federal Employer Identification Number or FEIN.
you can Obtain an EIN online through the IRS. The process is easy and you will receive your number immediately.
3. Determine the licenses you need
The type of business license you need depends on federal, state, and local requirements and the type of business you run.
You can check the required licenses and permissions by:
- Your state's Secretary of State's office, Department of Revenue, or similar agency that issues business licenses.
- Resources available through local small business agency.
- Work with your business attorney to determine and submit the necessary licenses and documentation.
4. Apply for a business license
In some cases, you may need to apply for licenses or permits from state, county, or local government agencies. Examples include a sales tax permit from the state, a health permit from the health department, and a planning permit from the city.
Look for resources at your state or local SBA office that have all the information you need in one place so you don't have to spend hours researching all the relevant agencies. A step-by-step guide for your state will walk you through the process and may include links to the required applications on various websites.
In most states and many territories, you can obtain a general business license online through the appropriate agency's website. For industry-specific licenses, the application process can be more complex.
You probably won't have to wait long to get your business operating license or sales tax permit approved. Other types of licenses and permits may require longer and more complex review processes.
5. Renew your business license
Consult an attorney or look at the fine print on your business license or permit to find out how often you have to pay application or renewal fees. For example, you may need to renew it every year or every five years.
FAQ
How much does a business license cost?
Business license fees vary widely by state and industry. Depending on where you operate your business and the type of license you need, you could potentially pay anywhere from $50 to $200. Many businesses can operate without a business license, so you may not have to pay any fees.
Are LLCs and business licenses the same thing?
no. An LLC (Limited Liability Company) is a business entity that determines how your business is structured for legal and tax purposes. A business license is a permit that allows you to operate a business in your state or region. A business license can also refer to a specialized license or permit that allows a business to perform certain services or operate in a certain location.
Can I do business without registering?
Instead of forming a business entity like an LLC or corporation, you can operate your business as a sole proprietorship (just you) or a partnership (you and one or more partners). However, if you are a sole proprietorship or partnership, you may need to register a DBA and obtain a business license from a government agency. Click here to learn more about the differences between sole proprietorships and LLCs.
What types of business licenses are available?
The term “business license” can sometimes refer to a general license to operate, but is often used to refer to several different types of permits. The most common business license types are:
- Business sales license (also known as business license)
- Sales tax license that allows businesses to sell goods and services
- Liquor sales license. Required when selling or distributing alcoholic beverages.
- Professional licenses such as accounting, massage therapy, plumbing, law, etc.
Do I need an EIN to run my business?
It is not necessary to have an employee ID number or EIN to operate your business. However, if you want to open a business bank account or hire employees, you will need to obtain one. Learn more about the legal requirements for starting a small business.
