Starting your own business? There's a strong chance that you'll need to apply for some type of business license. But that's where things can get tricky. With so many types of business licenses and permits, it's not always easy to understand what kind of license you'll need or how to get one.
Consider this your crash course on the most common types of business licenses. In this guide, we'll share some tips on how to get a business license of your own.
Do I need a business license?
Most businesses will need some type of license or permit to legally operate. A business license allows your business to function in your industry or jurisdiction. A license may be a requirement of the federal or local government.
But a business license benefits your company, as well. The proper licensing can send a strong message to prospective customers (and even employees) that your business is reliable. This can give you a competitive advantage in some sectors, as it showcases that your small business has complied with established regulations.
However, just because your business needs a local or state business license, it doesn't necessarily mean you'll need a federal business license. Below, we've provided a helpful overview of the different types of business licenses that fall into federal, state, and local categories.
Activities that require federal business licenses
Small businesses that operate in specific sectors will have to obtain special licenses from the federal government. If your company performs any of the activities below, you'll need a special federal license to operate:
- Serving alcoholic beverages
- Transporting livestock or farm animals
- Manufacturing or dealing with firearms and explosives
- Shipping or importing products overseas
- Drilling for natural resources
- Broadcasting via radio or television
- Providing services related to transportation and logistics
Keep in mind that these licenses may only be the start for your business. Some of these activities require additional licensure at the state or local level.
Do I need a local business license?
The exact types of licenses and permits you might need vary by industry, but it's always best to start locally and work your way up to state licensing requirements. Here are some of the most common local licenses that small business owners may need to consider:
A local business operating license
This is perhaps the most basic type of business licensing. It gives you the right to operate in a particular location.
You'll usually need the city or local government to issue an operating license when you start a new business. Local governments set the exact requirements, but the best place to start is typically the courthouse or local city hall.
The city zoning department will ensure that your business location is properly zoned for the type of business you're operating. Certain locations may already be zoned for particular business types, which means that you won't have to add an additional permit to your list of start-up requirements.
If you're starting a business in a new building or renovating an old one, you'll likely need a building permit. This permit ensures that your physical location conforms to local and industry regulations regarding safety and other important considerations.
Fire department permits
A fire department permit allows your business to be open to the public. In most counties, this permit will be particularly important for businesses like restaurants, gyms, and retail stores. However, every business owner should check their licensing requirements before opening up the doors to their customers.
Restaurants and gyms will also require specialized health permits to confirm that their business activity does not endanger their clients' health. The exact requirements are determined at the local level, so your business will have to conform to standards set by your local health department and other governmental agencies.
Types of state business licenses
In addition to obtaining your local licenses and permits, your business may also need to apply for the proper state documentation. Here are some of the most common types of state licenses:
State business operating license
Even if you've already obtained a local business operating license, you'll likely still need to apply for a state operating license. Like the local version, the state business operating license will allow your business to operate in your area. This will also allow the state to tax your business.
Certain types of products may also require you to obtain a seller's permit. A seller's permit is commonly used for items such as alcohol, gasoline, firearms, and other regulated products. But for many states, it's not limited to a particular category.
For example, if business owners in California intend to sell or lease tangible personal property that would otherwise be subject to sales tax, the owners are required to obtain a seller's permit.
The IRS doesn't provide you with a license or permit, but many businesses will have to register for an employer identification number (EIN), depending on the business structure. Partnerships, corporations, and businesses that have employees will need to obtain an EIN.
You'll also likely need to file with state-level agencies for taxation. The U.S. Small Business Administration maintains a list of tax permits you need by state that can be helpful if you're confused about what permits you need for your business.
Taxation is usually calculated based on gross receipts, so you may be asked to submit financial records to determine how your business will be taxed.
Certain industries and occupations may have additional licensing requirements. In most cases, you won't even be able to register your business until you have the proper professional license or certification.
What professions are typically subject to these kinds of licensing requirements? Typically, this requirement applies to those in the following professions:
- Insurance agents
Some states have additional requirements for business activities such as farming, dry cleaning, or even owning vending machines.
How to apply for a business license
While our lists above isn't exhaustive, by now, hopefully you have a fuller picture of what kinds of business licensing requirements you'll face for your small business.
You can generally expect to go through a business license application process that includes the following steps:
How to apply for a business license?
- Determine your business licensing needs
What kind of business license do you need? In some cases, the federal government will regulate your specific business activity, so this may be a good place to start.
Suppose your business activity includes regulated products or services (alcohol, gasoline, firearms, etc.). In that case, you should anticipate the need to apply for a license or permit at the federal level, but also at the state, county, or city level.
If you're looking for more specific guidance, the U.S. Small Business Administration provides online resources that can help you determine the local business requirements for your area. This will also help you determine where to go to obtain your business license applications, as well as where to file your permits.
- Assemble the necessary documents
Once you narrow down the specific licenses you'll need, you can begin compiling the documentation to complete your applications. Again, this will vary depending on your area and your unique business activity, but you should generally expect to need the following:
- A description of your company/business activity
- Copies of corporate records
- Proof of state or local status (e.g., a sales tax permit)
- Lists of owners/management structure
There will also be a filing fee that will have to be paid at the time of your application.
Those who are engaged in activities involving architecture and construction may need to provide additional documents, such as:
- Educational credentials
- Professional certifications
- Proof of insurance
- Surety bonds
Some locations may also request that you appoint a registered agent to assist with any potential legal proceedings.
- Register for tax purposes
Next, register your business for taxation. Obtain an employer identification number (EIN) from the IRS and account for any local tax requirements.
For example, the Georgia Department of Revenue requires owners to apply for a State Taxpayer Identification Number (STIN). Individual states may have their own requirements regarding how you become registered for taxes.
You'll apply through your state's Department of Revenue if you meet the following criteria:
- You require state or local endorsements
- You're operating your company under a different name than your own
- You sell a product or service that requires sales tax
- You plan to hire employees within the next 90 days
Some states will require any business to register with the Department of Revenue if the company's gross profits exceed a certain basic threshold. Check with your local Department of Revenue to determine whether your business will be affected by this requirement.
- Submit the business license application
To get a business license, apply through the proper federal, state, or local offices. If you know which licenses and permits you need for your business activity, the process will be smoother. At that point, it's simply a matter of completing the instructions for each application.
Unfortunately, there's no one-size-fits-all approach to the application process. Some applications can be completed online, others will have to be sent by mail, and some will require you to apply in person. The same is true for the amount and payment method of the application fee.
- Receive your business license
The approval process won't necessarily be quick. Be patient. Give yourself the time to complete the application. Know that you may have to wait for your license to be processed. Make the licensing process part of your planning phase, rather than racing to open your business so you can start earning money.
This is especially true if you require a license from multiple agencies or locations. The application submitted to the county might not be processed at the same speed as the one sent to the federal government.
During this process, don't hesitate to contact your local offices to check the status of your application, so that you can clear up any discrepancies that may pop up.
Once you're approved, you may be required to display certain licenses and permits at your business location. You must maintain your license to continue engaging in your core business activity or services.
- Stay current with licensing requirements
It's vital to stay on top of any and all renewal requirements that may apply to your business or industry. If you fail to properly maintain your business license properly, you may be fined or even shut down.
The renewal requirements are generally the same as the application process, though each license may have specific details that require your attention.
Pay close attention to the renewal period and the process. Some licenses will require annual renewal, which means you'll have to make licensing compliance a part of your routine administrative tasks.
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Frequently asked questions
For specific questions related to your area or industry, contact your local government. But here are some common questions we hear from entrepreneurs like you:
Attaching a ballpark figure to your business license isn't easy. Licensure can vary from $50 to $400, depending on your industry, your region, and applicable processing fees. Unfortunately, you can't avoid or reduce these fees without altering your core business activities, so make sure to budget accordingly.
Assuming your home isn't subject to any land use or other restrictions, you can operate a business from your home. You'll need a home occupation permit to set up your home office. Some entrepreneurs may also need to file for land use permits, as well.
You can operate a business in another state. For instance, if you conduct business in New York but serve clients in the New Jersey area, you'll need to register in both New York and New Jersey. Out-of-state businesses, therefore, must comply with the laws and regulations of any state they operate within, which means they may also be subject to taxes from multiple sources.