What is a business license
A business license is permission from your city, county, state, or the federal government for your business to operate.
Whether you’re an ecommerce business, sell through a brick-and-mortar storefront, or offer your products or services both ways, you’ll need a license or permit to operate. In fact, sometimes you’ll need more than one.
Issued by cities or counties, states, and, for businesses in select industries (such as import/export businesses), the federal government, these government documents assure consumers that your business is safe for the public.
Having a business license for many industries when starting a business is not optional—it’s required. Failing to complete this important step when you’re starting a business can leave you open to fines and other penalties. Here’s what you need to know about getting your required business licenses or permits.
Types of business licenses
There are many different business licenses and permits, both those that are general to a broad set of businesses and those that are specific to the type of work you do. Health permits, for example, are required of business owners who sell food and drink. Lawyers, doctors, and architects must have professional licenses. Based on your business activity, you may need more than one business license or permit.
For example, if you plan to open a bookshop, you will likely need a general retail business license along with a seller’s permit and/or a sales tax permit. However, if you also plan to host events in your bookshop where you sell food and alcohol, you may need to obtain additional licenses, such as a liquor license, a food handler’s license, a health permit, and a live events license.
Types of business licenses include:
- State and local operating licenses. These are licenses that give you the OK to operate your business in a particular city or state. Not every state requires a state-specific license. Instead, you would need a local license, which comes from the local city or town government where your business operates.
- “Doing business as” license or permit. If your business is set up as a sole proprietorship or a partnership, your legal name will automatically be considered the name of your business. If you want your business to operate under a different name, you can get a doing business as (DBA) license.
- Specialty licenses. Certain types of businesses need different permits and licenses. If your state collects sales tax, you’ll need a seller’s permit. If your business will sell alcohol, you’ll need a liquor license. You might need a professional license if you’re a service provider like a lawyer, plumber, child care provider, hair stylist or accountant.
- Federal licenses. If you work in an industry regulated by the federal government, such as businesses that import or export goods across international borders, you will need a specific license or permit from the feds, as well.
How do I get a business license?
Before you get licensed, you’ll first need to take a few steps to form your business entity, as having an EIN is a prerequisite for getting a business license. Here’s how:
- Pick your business structure—sole proprietorship or limited liability company (LLC), for example—and complete the necessary steps to establish it.
- File for your employer identification number (EIN). This is your business’ federal tax ID. Unless you’re a sole proprietor, working with your Social Security number instead, you’ll need your EIN to complete any paperwork for your licenses or permits.
- Do your research. To find out what type of business license or permits you need, check with your local secretary of state office, department of revenue, or department of consumer affairs. You want the local government and state licensing agencies that register businesses where you live. A local Small Business Development Center, run by the US Small Business Administration, is a great resource.
- Apply with the appropriate government agencies for your license(s). You may be able to submit your requests online; in other instances—if you’re opening a brick-and-mortar shop and need a zoning permit, for example—you may have to collect specific forms in person.
Business licenses FAQ
How much will a business license cost?
Fees for business licenses or permits vary, depending on where you live and the type of business you operate. A California seller’s permit, for example, is free. But in Connecticut, a sales and use tax permit will run you $100.
Factor those expenditures into your startup budget—skipping out on getting licensed can come with expensive fines. To use Connecticut again as an example, sellers who do business there without a sales and use tax permit can be slapped with a $250 fee for every day they operate without proper documentation.
Where does getting a license fit into the incorporation process?
Right out of the gate, before you pursue your licenses and/or permits, you’ve got to establish your business structure. If you incorporate as an LLC or a corporation, you need to file those documents first to register your business with your secretary of state. Then you’ll get your EIN—and then you can work on securing your licenses or permits.
How long will the process take?
This is totally contingent on the nature of your business and the licenses or permits you’re asking for. In some cases, licenses can be applied for online and take as little as a day to come through. In others, such as heavily regulated industries like health care, it can take weeks or even months. Factor these timelines into your startup plan.
OK, I’ve got all of my business licenses. What happens next?Congrats! Now you can start selling your products or services. Just remember that, in most cases, you’ll need to renew your licenses or permits on a regular basis. That could mean every year or every other year. Keep track of your documents’ expiration dates, and make sure you renew them in a timely way to avoid incurring penalties. Happy selling!