One of the most common questions I get from aspiring business owners is: Do I need to get a business license? The short answer is yes. But it’s not as simple as one piece of paper.
Nearly every small business needs a combination of government-issued permits or registrations to conduct business. (Here’s a helpful list from the U.S. Small Business Administration.) When you file and pay the associated fees, your startup can then legally operate at the federal, state or county level.
Generally speaking, your industry and your location will determine your business’s licensing requirements. It would be a bit difficult for me to list out every license and permit necessary for your specific small business. What I can do, however, is share a few of the most common business licenses and their benefits:
- Employer Identification Number (EIN)
- General Business Operation License
- Zoning and Property Use Permit
- Occupational License
- Home Occupation Permit
- Seller’s Permit
- Sales Tax License
Employer Identification Number (EIN)
An employer identification number is a federal tax ID. Once you incorporate or form an LLC for your business, you will receive a unique nine-digit number from the IRS. This is your EIN. An employer identification number identifies the business as a distinct tax entity and allows the IRS to track its business activities, such as collecting payroll taxes.
You might wonder why an EIN is included in this list since it isn’t a traditional business license. Having this federal tax ID is a requirement to fulfill certain small business needs. For example, let’s say you plan to hire employees or open a business bank account. Your business is required to have an EIN to perform these actions and stay in compliance. (Pro tip: Third party filing services, including my company, can assist you in filing a tax ID application.)
General Business Operation License
A general business operation license allows businesses to legally operate in a specific location.
This license is ideal for companies that plan to open a brick-and-mortar storefront, have a physical location, or identify as an ecommerce business. Obtaining a general business operation license allows the state to track your business activities.
Zoning and Property Use Permit
Having a general business operation license allows your business to legally operate in a specific location. However, it’s equally as important that this location has been zoned for the business.
If you plan to operate your business in a specific location, you’ll need to obtain a zoning and property use permit. This permit ensures that the business location and its parking area meets local zoning codes.
Some entrepreneurs work in fields that require licenses to practice their profession. Think real estate agents, doctors, and lawyers. If your profession falls into a specific line of work, you may need to obtain an occupational license.
An occupational license is essentially verification of your training, testing, and education in a chosen profession. Requirements for occupational licensing are established by state legislatures and may vary from state to state. If you need help determining if you’ll need an occupational license, you may look up this information in the National Occupational Licensing Database provided by the National Conference of State Legislatures.
Home Occupation Permit
We’ve talked about necessary licenses and permits for conducting business outside the home. What happens if you wish to do business from home? You will still need to obtain a business license for that — specifically, a home occupation permit.
Home occupation permits do more than allow business owners to legally operate business from home. Filing for this permit means that your neighborhood is in an area that has been properly zoned for home business activity. For example, business owners are required to provide information when filing stating that their business does not add additional noise or traffic to its community.
Businesses that plan to sell products or services online must obtain a seller’s permit.
A seller’s permit allows businesses to legally sell products online. Almost every state requires businesses to obtain this permit, whether the products or offerings are tangible or intangible in nature.
Sales Tax License
If you sell taxable products or services, there’s a good change you might live in an area that charges sales tax. Applying for a sales tax license is a requirement for businesses that sell taxable items or operate in regions that sales tax.
Remember that sales tax laws do vary from state to state. Not having this license may result in expensive penalties or fines for your small business. It’s always a good idea to check in with the local Secretary of State to determine if your business is eligible to apply for a sales tax license.
What Else Should I Know About Business Licenses?
Except for EINs, most business licenses have expiration dates. Most cities, counties, and states will require renewals for business licenses and permits.
Typically, a renewal reminder is mailed to the business and business owners pay the associated renewal fee. If you don’t renew the license or permit in a timely manner, you’ll need to pay late fees and your business may even fall into bad standing with its state of incorporation.
Stay on top of renewal deadlines. When in doubt, reach out to your local Secretary of State with any additional questions or comments about licensing requirements.