What is a Business License? Business License Definition

What is a business license?

Within the United States, a business license is a legal document that grants a business permission to operate. It is issued by a government agency. Generally, one business will have to secure multiple licenses, across government agencies and jurisdictions, to legally open their doors. It is a not to be missed step for anyone starting a business or planning a business website.

For example, a small business like a flower shop will need to get a business license from their city or county governmental body to confirm they can operate as a business in the location they have requested. And because they’re a retail establishment, they will also need their State Department of Revenue to issue a sales tax license.

Then there are state and federal business licenses that are specific to certain professions. Individuals working in state-regulated trades, like building contracting or cosmetology, must apply for a state license. The same goes for businesses operating in industries subject to federal regulation, such as agriculture or radio and television broadcasting.

The purpose of a business license

Governmental bodies require business licenses to maintain oversight over business operations within their jurisdictions. During the application process, a local, state, or federal government agency will review the safety and zoning considerations of the business at hand.

For example, health professionals like nurses and psychologists must generally earn state accreditation to be permitted to practice. That’s an effort state governments make to protect public safety, by ensuring only qualified individuals are caring for citizens’ physical and mental health.

The zoning departments of local or state governments will also usually review a business license application. They check to ensure that the proposed business is in accordance with the activities designated for that geographic area. That means a proposal for a late night concert venue in the heart of a residential neighborhood, most likely won’t be approved. However, a coffee shop in that same location might get the green light.

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How to apply for a business license

Begin by figuring out which licenses you will need to apply for on behalf of your business. Until then, many small business owners will choose to operate as a DBA. To do so, head to your state, county, and city websites to explore their criteria and application processes. Also consult the U.S. Small Business Administration (SBA) website to check if your business falls into the category of a federally-regulated business activity, and what the requisite permits might be.

Note that some jurisdictions or departments might have a fee associated with the license they offer. This is another consideration to take into account when preparing for the business licensing process.

You can also read our guide to registering your business.