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When you start a small business, you will need to make a number of critical decisions. What will you sell? What will your business be called? Will you operate primarily online, or in a brick-and-mortar space? No matter the answer to these questions, most small businesses in the US need licenses or permits from various government agencies. Knowing what kind(s) of business license(s) you need can be complicated. This article will walk you through the steps needed to license your small business.
What is a business license?
A business license is a permit issued by a government agency authorizing an individual or organization to do business within the agency’s jurisdiction. A jurisdiction might be geographic (a country, a state, a county, or city) or professional (specific to certain fields of business, or selling certain products or services).
Do you need a business license?
Licenses serve a variety of purposes. Some benefit government agencies, others benefit the businesses themselves, and others benefit the consuming public. Licensing allows governments to track businesses for tax and regulatory purposes. Licenses also benefit businesses and consumers by ensuring standards for product and service safety and quality. Consumers can trust that if a business is licensed, government regulators have assessed its products or services and deemed them safe. Likewise, businesses can rely on licensing to demonstrate to consumers that their products or services meet safety and quality standards. For example, the federal Food and Drug Administration (FDA) requires that all US businesses selling food products obtain FDA certification, ensuring compliance with basic federal food safety regulations.
Types of business licenses
There are a variety of business licenses required depending on where your small business operates, as well as the type of products or services you market.
Federal business licenses
You will need a federal business license if the activities of your business are regulated by a federal agency. Such activities include:
- Agriculture: Regulated by the US Department of Agriculture
- Production of alcoholic beverages and distilled spirits: Regulated by the US Alcohol and Tobacco Tax and Trade Bureau
- Aviation: Regulated by the Federal Aviation Administration
- Firearms: Regulated by the US Bureau of Alcohol, Tobacco, Firearms, and Explosives
- Radio and television broadcasting: Regulated by the Federal Communications Commission
- Transportation and logistics: Regulated by the US Department of Transportation
State business licenses
Licenses and permits required at the state level will depend on where your business is based, where your business operates, and what your business does. States usually regulate a wider range of activities than the federal government, including construction, restaurants and nightlife, and retail. To determine what’s required in the states where you operate, you’ll typically want to consult the website of the local Secretary of State’s office. Generally speaking, however, common state-level business licenses include:
- General state business license. This type of license is usually needed for the state to track businesses and levy taxes. Most states have an office specifically dedicated to issuing this type of license, if required. The federal Small Business Administration (SBA) maintains an office locator tool to find out where you can get one.
- Seller’s permit. This type of license, commonly known as a seller’s permit, is typically required where your business sells a product or service that ordinarily would be subject to retail sales tax. Even many ecommerce businesses must obtain a seller’s permits for sales tax registration.
- Occupational license. This type of license is needed for certain regulated business activities. These fields might include highly specialized occupations, such as accounting, plumbing, electrical work, vehicle repair, medicine or health services, real estate brokers, cosmetology, and private investigation.
Local business licenses
In addition to the state and federal licenses, licensing for your small business may be required by your county and city governments too. Some common licenses required by local agencies include:
- General local business license. County or city authorities, as with state governments, may require that you obtain a local business license to set up shop. You can also use the SBA’s small resource search tool to determine local requirements in your business location.
- Zoning and land use permits. It’s likely you are opening your small business in an area that has already been properly zoned for the activities you’re engaging in. However, if that’s not the case, you may need to apply for a special permit, known as a variance or conditional-use permit, to operate in an atypical area.
- Building permit. If you plan to build or renovate a physical space for your business, you will need to obtain the appropriate construction permits. Consult a licensed contractor versed in local government regulations who can point you in the right direction.
- Fire department permit. Again, if you aim to maintain physical retail, warehousing, or office space, you may need a permit from the fire department stipulating the number of people you can safely accommodate in the space at one time.
- Health license. If you plan to operate an establishment subject to local health rules, such as a café or a fitness center, you may need to have the premises inspected. Once you pass a health inspection, you’ll receive an approved license from the local health authority allowing you to operate your business.
- Signage license. Some cities and counties have restrictions on what kind of signage you can place on your shop or office. You will not only have to comply with specifications on sign size, location, visibility, and lighting, but you will also need to have a license indicating compliance and approval on file.
Professional business licenses
A variety of specialized professions are subject to licensing at the federal, state, or local levels. These are usually fields with a high bar of competence expected of their practitioners, and they can include law, accounting, medicine, construction, engineering, mining and resource extraction, child care, and food manufacturing and packaging. Certain licenses are also required to sell restricted goods such as alcohol, legal drugs, weapons, pets and exotic animals, vehicles, and heavy machinery.
Home-based business licenses
If you opt to operate your small business out of your home, you still may need to comply with certain business licensing rules. Almost all home-based businesses require a home occupation permit to legally operate. Consult the SBA’s list of state-by-state rules to find out if one is needed where you live. You may also need to look into state and local property use and zoning permit rules, as discussed above, and possibly obtain a permit depending on where you operate and what activities you’re engaged in.
How to get a business license
An effective way to find out what business licenses you may need and how to apply for them is to start from the local level and work your way up.
- City/county: Consult your local government authorities, such as a mayor’s office or county supervisors’ board, to determine what’s needed at the city or county level.
- State: Contact your state’s Secretary of State office, which will likely have instructions for how to apply for appropriate licenses both online and by mail.
- Federal: If your business is engaged in activities subject to federal regulation, such as a wine or beer maker, you will want to consult the website of the appropriate federal regulatory agency to find out what you need to compile a license application.
The SBA maintains the most thorough database of state and local licensing requirements and a variety of search tools for finding out what you need.
Business license FAQ
What can happen if you operate without a business license?
If you are a business owner operating without the required business licenses, you may be subject to fines until you comply. If you fail to get the appropriate licenses, authorities could shut down the business or bring criminal charges, depending on the severity of the violation.
Who is exempt from needing a business license?
Some sole proprietors who engage in contract services work may not be required to obtain most business licenses. Examples of occupations that may be exempt include freelance writers, graphic designers, and some gig-economy workers.
Do you need a business license to sell online?
Yes. At the very least, your online business will need a seller’s permit if you operate in an area that is subject to sales-tax licensing (usually states, counties, or cities). Likewise, if you sell products or services subject to federal, state, or local regulations, you will need to comply with the appropriate licensing requirements, even if your business is conducted entirely online.