If you wonder "do I need a business license to start" when forming a business, then you are doing it right. Complying with the proper laws and licensing requirements will help you start on the right foot and run smoothly.
Some entrepreneurs have been in business for years without getting the proper licenses. Don't be that business owner!
With this article, you'll learn what federal, state, and local business licenses and permits you may need and how to get them to avoid the consequences of not having the proper documentation.
What Is a Business License?
A business license is a required (mandatory) approval, certificate, or permit that allows or authorizes a business to operate within a specific jurisdiction.
In other words, government agencies can fine or shut down a business that operates without a license or with an expired one. There is usually a fee associated with the process.
A license is distinct from the papers filed with a secretary of state that establishes the business itself.
It's not the Articles of Incorporation (the document that states the type of business you have
) nor any other operating document.
Generally, every company with an income stream will be required to have a business license or permit to demonstrate the legal operation and compliance with government regulations.
Business License Purpose
There are two primary purposes for business licenses or permits.
- The first is to track revenue for federal or state taxes.
- The second is to show a certain level of expertise to the public.
For example, doctors, lawyers, cosmetologists, and the like must all have professional licenses and are often on display to the public.
This shows that the business is accountable for its actions and takes appropriate measures to protect public health and safety.
There are a few key reasons for getting a business license:
- Show that your business is legitimate and operating legally
- Help you get other licenses and permits that your business may require
- Help you open a business bank account
- Give your customers and clients confidence in doing business with you
- Protect your business from liability
- Avoid fines and penalties for operating without a license
- Give you the ability to bid on government contracts
- Get a liquor license, if applicable
- Work in certain professions or industries
Is getting a business license the same as registering my business?
No, it's not. Obtaining your business license or licenses and registering your business are entirely different things, and most probably, you'll have to take care of both before opening your business to comply with the law.
Registering your business refers to obtaining a DBA ("Doing Business As
") or, in other words, registering with the state or local government the name your business will use.
A DBA is, therefore, a fictitious name that allows you to do business with a name different from yours.
Also, this way, the government and the IRS can keep track of your business. To register a DBA, you must file with your Secretary of State. You can also file online using LegalZoom
How Do I Know If I Need a Business License?
Each business is different. Depending on the location, it can often be difficult for a newly incorporated company to know which business licenses are necessary, the requirements, and how you can obtain one.
This is especially true for home-based businesses or online businesses, where the company culture may be more relaxed and family-owned and operated.
Your state government will likely require you to hold a home occupation permit.
For many traditional office-type jobs, like consulting or freelancing, that may be all that is necessary.
But additional licensing requirements may apply for more involved companies that deal with the public by providing food, a service that requires physical touch, or nursing care.
Also, it is important to understand that government requirements change, and it's regrettably easy to fall out of compliance if a company has been operating the same way for some time.
When do you need a business license?
It's generally a good idea to reevaluate your license requirements when:
Remember that many business licenses require annual or biannual renewal.
- Your company begins transacting business in another city, county, or state.
- You hire a new employee or executive.
- The company starts to produce a new product or offer a new service.
- You purchase another physical storefront, or if you close a location.
You should develop your corporate system to stay on top of deadlines and remind the person in charge of upcoming deadlines.
What happens if I do not obtain a business license?
If you do not obtain a permit, you could face serious consequences for both the owner and the business.
- You may be fined or even jailed for operating without a general business license depending on your state and local laws.
- Your clients won't sue you because you are not legally registered as a business, even if they had injured on your property or by your products.
- Furthermore, banks may refuse to work with you, meaning you will have difficulty accessing the financing you need to grow your business.
Also, failing to obtain a business license can severely limit your ability to operate successfully in the United States.
How to Get your Business Licenses
Getting the proper business licenses and permits is a process that basically involves three steps:
Check with the Federal Government
The Small Business Administration provides a list of industries regulated by federal agencies
to see if your industry needs federal licenses.
Only a few do (aviation, mining and drilling, radio or TV broadcasting, and interstate agriculture).
Also, any establishment serving or selling alcohol requires a license from the Federal Government.
Check with the State Government
Almost all types of businesses require permits or licenses issued by the state: retail stores, restaurants, car dealerships, construction businesses
, health services, etc.
Some of these permits and licenses are for tax purposes, while the goal of others is to safeguard the safety and health of consumers.
To learn the exact licenses you may need depending on your business and the state where you operate, go to your state's main government website and search for "business license."
Check with the City and County governments
If you live in a larger or highly-populated city or county, you also need licenses or permits administered by city or county governments.
If the state government (step 2) can't tell you the specific permissions your city or county requires, you'll have to search for "business licenses" on your local government website.
Common requirements for a business license
There are some standard requirements for obtaining business licensing:
- Businesses must have a physical address within the country.
- Also, businesses must be properly registered with the state where they operate. This typically requires filing articles of incorporation and paying any required fees.
- As a small business owner, you must obtain the necessary permits or licenses from the appropriate governmental agencies.
These requirements vary depending on the type of business you'll operate.
Where can I get a business license?
There are a couple of different ways that you can go about getting a business license in the United States.
You can contact your local Chamber of Commerce
or visit the website of the Small Business Administration (SBA).
The Chamber of Commerce is a great resource for small business owners, as they can provide you with information on licenses and permits that you may need to operate your business.
They can also put you in touch with local companies that can help you get started.
The Small Business Administration
website is another great resource for business owners.
There, you will find information on licenses and permits, as well as various other resources that can help you get your business up and running.
Discover how much does it cost to start a business
How Much Do Business Licenses Cost?
The cost of permits to start a business license can vary greatly from one state to another.
In some states, the cost is as low as $50; in others, it can be several hundred dollars.
The type of business you are starting will also affect the cost of the license.
For example, a license for a home-based business will generally be less expensive than a license for a brick-and-mortar business.
To get an accurate estimate of your business license cost, contact your local Chamber of Commerce or Business License office.
They will be able to give you specific pricing information based on the type of business you are starting and your location.
What is the main difference between a license and a permit?
The main difference between a business license and a permit is that you'll require to operate your business legally.
In contrast, you'll require a permit for specific activities that would otherwise be illegal.
A business license is "a general license issued by the government that allows you to operate your business."
A permit, on the other hand, "grants you permission to do something that would otherwise be illegal, such as build a new energy-efficient home or dig a ditch across city property."
Types of Business Licenses
When opening a business as a new entrepreneur, you often wonder, "do I need a business license? Overall, means what do I need to start?
To help you in this path, here are the most common different types of business licenses and permits:
General Business License
Identifies where and what jurisdiction covers a business and ensures that the proper taxing authorities collect revenue.
Professional or Occupational License
Each state has its own requirements for certain services.
Health Department Permit
For anyone producing sauces, baked goods, or other food products that might need to undergo inspection.
Home Occupation Permit
These generally permit signage, noise, or other environmental conditions that might impact a neighbor's use and enjoyment of their adjacent property.
Sales Tax License or Registration
If you sell a product (online or brick-and-mortar), your business may need to collect sales tax from customers.
Withholding Tax Registration
In some states, you'll require it if you are the only employee.
Fire Department Permits
If your business involves using any flammable liquids or will be outdoors, you may need a Fire Department Permit to ensure that you will prevent any fires or harm to the public.
You'll need zoning permits before you build or use an existing building for your business.
In some cases, you may need to present in front of your city's planning commission before building.
Bear in mind that this list doesn't end here: many other general business licenses depend on the types of business you want to operate.
Business Licenses Per Industry
Each activity and industry require particular licenses to be able to operate within the US. The list is long, and the specifications vary per state.
Here's a selection, with information by Licenselogix
This is a heavily regulated industry across the country. Each authority has unique licensing laws and application requirements.
You can obtain an electrical contractor license, a master electrician, a licensed electrician, or an apprentice electrician license.
Some states require a general contractor's license to work legally.
In others, you only need to register with the State Board of Contractors or the local Department of Labor. The license may depend on the value of the work you will do it or the type of project.
Refers to contractors licensed as experts in a particular field, such as plumbing, carpentry, or painters.
According to the Construction Specifications Institute, construction work falls into 16 specialties, although California recognizes 44 different types.
As with general contractors, you'll require a state and local license.
Each state, city, and locality has special laws and licenses related to this activity.
Cosmetology and beauty salons
Improperly performed salon services can cause injury to clients.
Hence, every state requests salon and cosmetology licenses to protect consumers through safe practices.
Depending on your state laws, you will likely need either a service contractor's license, a cleaning business
license, or both. Learn here more about this particular business
They often require complex and detailed licenses, as they are subject to rigorous inspections and law enforcement.
Some of the needed licenses are food safety and handling license, construction license, alcohol license, and music license.
Companies in the transportation industry require a lot of paperwork to comply with all regulations and records.
Federal requirements may include a US Department of Transportation ("USDOT") number, operating authority, and/or a hazardous materials registry.
Other requirements vary depending on the type of traveling —intrastate or interstate—the type of cargo and the vehicle's gross vehicle weight rating ("GVWR").
Noncompliance can lead to exposure to legal liability (i.e., being sued), an audit, government-issued penalties, and can deter investors or opportunities for future growth. Neither state nor local ordinances will protect you from wrongdoing by your customers or employees. And depending on the state, you might be personally liable.
Differences between a federal business license, state business licenses, and local licenses
There are three main types of business licenses: federal, state, and local.
- The federal government issues federal business licenses. You'll require one for businesses that operate across state lines or internationally.
- The state government issues the state business licenses, typically required for businesses within a single state.
- Local governments issue local business licenses, which you will require if you have businesses within a specific city or county.
The requirements for each license type vary depending on the type of business and the location(s) where it operates.
Businesses that require a federal business license include those that deal in interstate commerce, import/export businesses, and businesses with employees who work in more than one state.
Examples of businesses that might require a state business license include retail stores, restaurants, and manufacturers.
Local business licenses are typically required for businesses that operate in a specific city or county, such as businesses that offer services such as plumbing or landscaping.
Licenses and Permits by State
In this section, we'll tell you which permits are needed to start a business
you need in some of the most popular states.
Remember that the requirements can vary greatly from city to city (within the same state).
Or, if you have different locations in several cities, you will have to follow the law for each city, and not just the one where you first opened your first business
Licenses and Permits in California
You'll need a general license (some cities call it a Business Tax Certificate). You will also need a Seller's Permit if you sell or rent merchandise.
Find here the professions that need specific licenses: CalGold Business Permit Assistance
Licenses and Permits in Florida
The state of Florida does not require a general license, but your city may.
You'll need a Sales Tax Permit if you sell products or certain services.
Also, you will need specific licenses depending on your profession or business line.
You can find more information in the Division of Information Services.
Licenses and Permits in New York
The state does not require a general license, but your city may.
Depending on your industry, there will be extra requirements that you must follow.
Find here the 38 professions that require a local business license: Licensing Services
Licenses and Permits in Texas
Fortunately, Texas will not ask you to get a general license. But you will have to register with the county clerk's office or the Secretary of State.
However, depending on your industry, you may need other licenses and permits.
Find here all the documents you need and how to get them: Texas Business Licenses and Permits
With Permits and Licenses, You're Ready for Success!
Making sure you have all the permits and licenses you need is crucial to having a successful business.
And a successful business will allow you to generate more profits and create generational wealth.
But an operating license and permits are not the only things you need to have; you also need to be in good standing.
How to get a certificate of good standing
How to become a licensed business owner?
To become a licensed business owner, you need to complete the necessary steps in your state or local government. This will vary depending on your location, but generally, you'll need to register your business with the state, get a tax ID number, and register for workers' compensation insurance. You may also need to get a special license or permit to operate your business.
Is my business license still valid?
It depends on your state.
Some states have a grace period after the expiration of a business license, during which the license is still considered valid.
Other states consider a business license to be invalid immediately upon expiration.
Can you get a business license online?
Yes, you can get a business license online. You can go to your local government's website and look for an online application.
The application will likely ask for information about the business owner, the type of business, and the address of the business.
Be prepared to provide supporting documentation such as articles of incorporation, proof of occupancy, or other licenses you require for your type of business.
Do you have to renew your licensing and permits?
Different businesses have different requirements for renewing their licenses and permits. However, most businesses will generally need to renew their licenses and permits every year.
Additionally, some companies may need to renew their licenses and permits more frequently if they are located in high-traffic areas or subject to inspections from regulatory agencies.