Launching your business website is just the beginning of starting your own venture. Depending on what type of business you run and where, you may need to get a business license. While the processes vary by site, state or country, you should begin your journey with understanding what a business license is and why it’s important. In this article, we’ll answer those questions, plus go over the available types and how to get one in a few key states.
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What is a business license?
A business license is a legal document issued by a government agency that grants businesses permission to operate in their respective geography. The term can refer to many different business licenses and permits. To obtain a business license, you may need to register your business and comply with local government codes and industry regulations.
Why do I need a business license?
While the business license application process depends on your industry and location, the benefits are universal: Licensing your business provides accountability and transparency, letting customers, employees and stakeholders know they can trust you.
Business-owners will need the right license or permit to operate for the following reasons:
Service-based businesses: Ranging from lawyers and medical consultants to restaurants and hair salons, many service businesses require state or federally regulated professional licenses.
Brick-and-mortar businesses: If you need to renovate or rebuild your business, you might need to apply for fire department, zoning and land use permits.
Retail businesses: Whether you sell online or off, you’ll need a sales tax license to collect the required fees on your transactions.
Furthermore, certain businesses involved in government-supervised activities must register for the proper license or permit, including:
Selling, importing or manufacturing alcohol: You must apply for a federal permit from the Alcohol and Tobacco Tax and Trade Bureau, as well as obtain a local liquor permit from your state. For example, New York has its own liquor authority for businesses dealing with selling and distributing alcohol. There are also special state permits for one-day alcoholic catering and marketing events.
Importing and transporting agriculture: Whether it’s the commercial sale or adoption of an imported live pet, you will need to apply for a permit with the Animal and Plant Health Inspection Service. The same goes with animal products, including prepared foods from countries with livestock diseases. The federal agency also grants plants and plant product permits, such as those for fruits, vegetables, timber, cotton, seeds and cut flowers.
Investment advising: As an investment advisor, you must act in your clients’ best interest and provide them with sound counsel. You must also register with the Securities and Exchange Commission, adopt the agency’s policies and procedures, prepare required reports and file an annual update of your registration form.
Food preparation: The US Food and Drug Administration (FDA) regulates food and food ingredients for commercial sale, including home-based food businesses to food processing and manufacturing facilities. (States and local governments regulate food establishments like grocery stores, food trucks and restaurants). If you’re starting a food business, then you’ll need to understand how you’re subject to FDA rules.
Types of business licenses
Licenses and permits related to business operations vary on a local, state and federal level. In fact, not all businesses will need to register at all three regulatory levels. In some cases, you can get a state business license and forgo the federal business license.
To file for any business license, you might need to register your business first with your Department of Commerce. You may register your business as a DBA, corporation or limited liability company (LLC). Applicants will also need a taxpayer identification number. So, familiarize yourself with how to obtain a business license on each level:
Local (city, county, town): A local license gives you legal authority to conduct business in a specific area. Depending on your profession (consultant, instructor, medical and legal advisors), you might also need a certificate to operate your business in your home city. Local authorities also manage zoning regulations, so you will need to file for a permit with the relevant agency. For instance, the city of New York hosts a database for licenses and building permits needed to start, run or grow a business in any of the boroughs.
State: States with sales tax require a license or permit from any business that sells products or services in the state. Research your own state on the US Small Business Administration page and find out which license or permit is required for your industry.
Federal: Federal agencies regulate certain business activities, like agriculture, firearms and alcoholic beverages. Check your industry against the Small Business Administration checklist for federal licenses and permits.
More business license types
Professional or occupational licenses: Some states require licenses for certain occupations (hairdressers, real estate brokers and mechanics) and professions (doctors, lawyers and accountants). For example, all US states require a lawyer license, while the same number of states require a license to work as a barber, according to the Institute for Justice.
Sales tax licenses: In coordination with state tax agencies, businesses may be required to collect and remit sales tax on sold items. To avoid hefty fines and legal woes, register for a sales tax license. Currently, there are 5 states without sales tax—Alaska, Delaware, Montana, New Hampshire and Oregon, as reported by CNBC.
Home occupation permits: A home occupation permit is required when a business operates in a residence in a residential district and ensures that the business will not negatively impact the community. You can register your home business with your local or state agency.
How much does a business license cost?
Since business licenses vary by government agency and type, business license costs can range dramatically. For example, a business license in Minneapolis can range from $15 to over $10,000.
How to get a business license
While there is not one standard business license, do the appropriate research to determine the steps you need to take to get a license for your business. Here, a breakdown on how to get a business license, with examples of some of the most entrepreneurial states:
01. Form a business entity
Before you get a business license, you need to have a business name and know what type of business you are. Some common small business types include:
Sole proprietorship: While sole proprietors are not obligated to register a business, they may need to apply for a business license or permit depending on their industry and regional government jurisdiction.
General and limited partnerships: When two or more people start a business, they can form a general partnership. In this business type, stakeholders share liabilities and authority within the business and split profits and losses equally. A limited partnership implies that one partners takes on more responsibility than the other, with the limited partner sometimes referred to as a “silent partner.”
Corporation: Incorporating a business allows the company to operate as its own entity and protects the owner's personal assets from business losses.
Limited liability company (LLC): An LLC combines aspects of corporations, sole proprietorships and partnerships. LLC owners have limited liability, meaning they absorb profits and losses for tax reasons, but their personal assets are not liable.
02. Apply for an Employer Identification Number
You may need to show your Employer Identification Number (EIN) on your business license application. This Internal Revenue Service uses this number to identify your business entity. Applying for an EIN is free and can be done online. Check your state government website for what details you’ll need when filing your EIN, such as state number or charter.
03. Choose your business license type
Before applying for a license, you'll need to identify which type you need. Research your options according to your needs (e.g. whether you plan on operating in more than one state, what products or services you offer, your legal business structure, etc.) Inquire at relevant local, state and federal agency to learn what will be required from your business (e.g. notarization or document duplications.)
04. Apply for a business license
Prepare all required documents before applying for a business license. Be aware that you may need to file by email, online, fax or even in person.
How to get a business license in New York
Go to the New York State Business Wizard page to figure out which license or permit you need for a service-based, home-based, retail or online business.
Complete the application for a sales tax permit.
Pay the business license fees (~$50-$150).
How to get a business license in California
Go to the Governor's Office of Business and Economic Development and get initial information on permitting and regulatory requirements. California requires that you:
Register your business structure and file with the California Secretary of State.
File state income tax with the Franchise Tax Board (FTB).
Get a seller’s permit, if applicable.
Pay the license and permit fees (~$50-$100).
How to get a business license in Texas
Register for a Texas sales tax permit. This is mandatory for all businesses.
Pay the license and permit fees (~$15-$100+, depending on the specialized license or operating permit.)
How to get a business license in Florida
Apply for the primary Florida business license, also known as a business tax receipt, via your municipal website. And check you won’t need to apply to other local licenses using OpenMyFloridaBusiness.
Visit the Florida Department of Revenue to register for a seller’s permit (Annual Resale Certificate for Sales Tax in Florida). This is filed for free.
Final business license costs in Florida come up to $50 and $100, excluding the seller’s permit.