When you’re establishing a company, it may be challenging to figure out which steps to take to get up and running—and remain compliant with perplexing government rules. Depending on the sort of company you operate, and your location, you may need to apply for one or more business licenses. Here’s all you need to know to find out which licenses you need and how to acquire a business license in your region.
What Is a Business License?
“Company license” is a wide phrase that refers to any form of license or permission necessary to conduct your business and supply your services in your area. Various sorts of business licenses are granted by federal, state, county, and municipal entities.
A business license’s goal may be to register your firm with the government for tax reasons or to guarantee you obey industry laws.
Do You Need a Business License?
Whether you’re needed to seek any form of license to operate your company depends on where you live (and where your firm is headquartered) and what kind of products and services you offer.
Most states don’t need a general business license—a.k.a. company operating license—just to conduct business in that state. However, you may still require a business license from your city or county. You may also require a license from a suitable state or federal regulatory body to execute specific commercial operations, including agriculture or medicine.
If you operate an internet company, you register the business and secure appropriate permits in the state and city where you base the business. If you’re a digital nomad, check with your lawyer and accountant about the best approach to set up your company.
Types of Business Licenses
To offer your products or services, you may be needed to receive one or more of these kinds of business licenses in your state:
- Business operating license. This is what many people mean when they say “business license.” This is a license that permits you to operate a business in your state or area. In certain places, you must seek a business license from the state, while in others you’ll need a business license from your city or county.
- Seller’s permission. If you sell things in person or online, most states need this permission, which enables you to collect sales tax from consumers.
- DBA or false name assertion. A “doing business as” declaration enables you to conduct the company under a name distinct from your legally registered business name. You may need to register a DBA at the municipal or state level, depending on your state.
- Special permissions. Many industries need specific licences to function. If you operate a brick-and-mortar company, you’ll undoubtedly require permits for planning, zoning, construction, signage and fire in your city or county.
- Industry licenses. You can require a particular license to execute your services in businesses like salons, electrical, childcare, medical and law. You receive these licenses via the applicable licensing authority in your state.
- Federal licenses. Select industries, such as alcohol and gun sales and aviation are controlled by the U.S. government and need a federal license or permission. The Small Business Administration specifies which sorts of enterprises need federal licenses and where to apply.
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How To Get a Business License
The procedure to acquire a business license varies by state—and it’s not necessary for every state for every sort of company. Follow these steps to establish if you need a license and to apply with your state if you do.
1. Form Your Business Entity
A business license with your company name is required. It’s advisable to develop a company structure and business name before you apply for a business license. That way you don’t have to renew or update your business license later.
Common legal arrangements for small firms include:
- Sole proprietorship. A one-owner company is deemed a sole proprietorship if you don’t submit papers to create any other form of business structure. Sole owners are solely liable for business debts and responsibilities, and they report business revenue as self-employment income on their tax returns. If you’re a lone owner, your name is the official name of your firm, however, you may opt to use a dba, such as Joe Jones, dba Affordable Lawn Care.
- General Partnership. A general partnership is identical to a single proprietorship for tax purposes. For liability reasons, partners divvy up responsibility, and personal assets aren’t separated from the firm. General partnerships employ the partners’ last names as their formal business name, and they may also have a dba.
- Limited liability business (LLC) (LLC). A basic corporate form where earnings and losses are passed through to owners for tax reasons, but personal assets are safeguarded from business responsibilities (such as debts or litigation) (like debts or lawsuits).
- Corporations tend to have a more set operational structure and may be better than LLCs for recruiting outside investment.
- Nonprofit corporation. A legal organization is established similarly to a corporation, however, earnings can’t be given to owners. Some NGOs get tax-exempt status.
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If you create an LLC, corporation, or nonprofit corporation, you’ll establish a name for your firm when you submit formation documents with your state. Depending on your state, you may be able to receive a DBA from the state, or you may need to submit your DBA with your local government.
2. Apply for an Employer Tax Identification Number
Depending on how your state handles business licenses, you may need to provide your federal tax ID number on your business license application.
Sole proprietors who don’t have workers may use their Social Security Numbers instead of a tax ID number, but all other firms require a federal employment ID number or FEIN.
You may acquire an EIN via the IRS online. The procedure is straightforward and you’ll obtain your number immediately away.
3. Determine Which License(s) You Need
Which sorts of business licenses you need depends on federal, state, and municipal laws and what kind of company you operate.
You may find out the licenses and permissions you need through:
- Your state’s Secretary of State office, Department of Revenue or comparable entity that grants business licenses.
- Resources are available via your local Small Business Administration office.
- Working with a company lawyer to decide and submit the relevant licenses and documentation.
4. Apply for a Business License
You may have to file for licenses and permissions with state, county, and municipal agencies—for example, a sales tax permit from the state, health permits via a department of health, and planning permits through the city.
Look for resources from your state or your local SBA office that aggregate all the information you need in one place, so you don’t have to spend hours investigating every relevant organization. Step-by-step tutorials in your state might coach you through the procedure and give links to essential applications on different websites.
In most states and many cities, you may receive a general business license online via the relevant agency’s website. Industry-specific licenses may have a more rigorous application procedure.
You generally won’t have to wait long for a company operating license or a sales tax permit to be authorized. Other sorts of licenses and permits may have a lengthier and more comprehensive approval procedure.
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5. Renew Your Business License
Talk with your lawyer or pay attention to the small print on your company license and permits to find out how frequently you have to apply or pay to renew them. You may have to renew yearly or every five years, for example.
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