Whether you are starting a retail store, service business or running a business out of your home, you may be wondering whether you need a business license. In this article we will cover when a business needs licensing, common permits and registrations that a business may need and links for more detailed state information.
What is a business license?
Broadly defined, a business license is formal approval from a governmental agency for a business to legally operate in a certain jurisdiction. Some states require businesses to get a general state license while other states may only require a license from the city. While there are a few states that have a general license, it is more common for a business to need a city business license.
The problem with the term business license is that it is often used when describing the several other registrations a business may need such as sales tax permits, resale certificates, and occupational permits. It’s not uncommon for a business to need several licenses and permits to operate as depending on the type of business, federal, state and local licensing may be necessary. There are several factors such as location, type of business and what the business sells or does that go into whether a business needs licensing.
Every state and city is going to have different requirements, but below are some common business registrations:
- Occupancy Permits – Zoning approval is often required to operate your businesses out of a commercial business location. In some municipalities, businesses operating out of personal residences will need to register for a home occupation permit.
- Occupational / Professional Licensing – While not a business license, some occupations or professions will need licensing before being offering their service. In some locations there may be both a state and local requirement. Some states have a centralized agency overseeing professional licensing, while other states have individual boards. Some of the more common types of businesses that need occupational licensing include:
- Businesses selling alcohol
- Interior Designers
- Massage Therapists
- Sales Tax Permits – Most states require businesses selling products and certain services to register for a sales tax permit.
- Resale Certificate – Businesses are able to obtain a resale certificate in order to not pay sales tax on inventory purchases.
- Employer Identification Number – Corporations, LLCs, Partnerships or Sole Proprietorships with employees will need to register for an EIN with the Internal Revenue Service.
- Payroll Tax Registration – Businesses with employees will need to register before hiring.
- Unemployment and Workers’ Compensation Registration – Another requirement for a company with employees.
- Name Registration – Sole proprietorships and partnerships are often required to register for a Doing Business As name registration. Similar names include DBA, Assumed Name, Trade Name, or Fictitious Name.
Do I need a business license to sell online?
Online businesses are treated the same as any other business. If your online business operates within your home and the city requires a license for home-based businesses, a license will be required. Likewise, if an online business operating out of the home requires zoning approval, registration is required.
How to register for a business license
When starting a business, it’s important to do your research well in advance and know what licenses are required for your business. Obtaining all of the licenses and permits may be time consuming and in some cases are approved sequentially. Without proper planning, you may not be able to open when you want because of delays in the application process.
Click on your state below to get more information on licenses and permits. Even with detailed research, it’s recommended the business owners check with their local City Hall, County Clerk, Chamber of Commerce and/or Economic Developer to make sure all business licenses are covered. Additionally, there are companies that specialize in business license research like IncFile or CorpNet that can ensure you have all the proper federal, state and local licenses.
Do I need a license to operate a business out of my home?
Depending on the location and type of business, there are potentially several types of license that may be needed.