When you’re passionate about starting a new business, it’s easy to ignore the need for licenses and permits. Getting licenses and permits is, of course, as much fun as going to the dentist. But failure to do so – and to do it in the first place – is one of the most common mistakes entrepreneurs make.
Below are some of the most common licenses and permits home-based small business owners might need and where to find more information.
What Is a Business License?
A business license is issued by the relevant government agencies to authorize business operations of commercial entities in a specific location, occupational field, or for various trading purposes. These certifications are only granted if the company currently under assessment has been deemed safe and up to operational standards to interact with the public and other entities. Although some states don’t have a general license, most of them require licenses of a more specialized nature.
Basic Types of Business Licenses
Even if your state doesn’t have a general business license requirement—and some states are too quick to advertise this by way of attracting foreign businesses—it’s highly likely your company will still need to get licensed on state and municipal levels or possibly obtain federal permits.
As it stands, it’s practically impossible to run a commercial entity without acquiring some form of permit or license. What makes it difficult for owners to navigate these guidelines is the fact that there is no standardized list of licenses across all states. Regional guidelines are intrinsic to their jurisdiction, whether it’s statewide regulations or something enforced by local boards.
To give you a better understanding of the most common license types, let’s sort them into categories based on the scope of their legal application.
Local licenses and permits
What you need to understand about local regulations is that your company will almost certainly be expected to obtain a license for basic business operation. The need for this type of certification applies to every entity that plans to operate in a city or county.
For example, if you only have permits to do business in your city of registration but want to expand to nearby towns, it qualifies as working outside the limits of your municipality and may require additional licensing. You can find more information, as well as useful search tools on the SBA website.
Other common license types on this level include:
1) Building permits: These apply to entities that plan to construct new structures or renovate old buildings in their municipality. Doing any construction work without the explicit permission of the local government is illegal.
2) Zoning and land use: Every business has to be zoned for the specific type of activity it plans to do. If your company’s property (office, manufacturing facility, store, etc.) already fits your business type, you won’t need to make any changes.
But if your site isn’t zoned for your business type, you will be required to clear it with the city planning commission by obtaining a variance used for disregarding zoning regulations (partially or completely).
Alternatively, you can get a conditional-use permit, which makes an exception for your company to operate in an area that isn’t technically zoned for your business type. These kinds of permits are easier to acquire if your business isn’t disruptive to the neighbourhood’s infrastructure and way of life.
3) Health department: If your business directly deals with the prep and sale of food and beverages, you will definitely need to obtain permits from the health department in order to serve any of it. Operating any type of restaurant, cafe, coffee shop, bakery is illegal without your city’s health department permits. The types of permits also vary based on the nature of your entity, so you’ll have to clear it up with your local agencies.
4) Fire department: This form of licensing usually applies to venues that utilize flammable materials and plan to host large numbers of people such as concert halls, clubs, bars, etc. Again, the regulations differ based on the nature of your enterprise. In some cases, a permit may be required even prior to officially opening your venue, while other businesses might only need to pass regular inspections.
5) Environmental: Although these are mostly employed on state and federal levels, local governments have been increasingly more meticulous about applying stricter environmental regulations. It typically concerns the manufacture and retail of specific products, water and air quality control, garbage collection, recycling policies, and similar issues.
6) Signage: Some jurisdictions, especially towns with heritage design, may employ stricter rules to the types of signs that businesses are allowed to display on the exterior of the property they occupy. The rules could regulate almost any aspect of a sign like its placement, size, illumination level, etc.
State Licenses and Permits
Licensing rules tend to vary greatly depending on the state, so there is no universal list that can be immutably applied to all jurisdictions. Before you could commence any business operations, be sure to consult relevant state agencies about licensing and specific permits that may apply to your entity. Still, you can get a rough idea of what to expect from your state by learning about the most common types of licenses that appear nationwide.
1) General operating license
Not all states have mandatory business operating license regulations, but quite a number of them do enforce this rule on domestic and foreign for-profits to keep track of their activities. If your state doesn’t have a dedicated business licensing agency, you should check with the SBA to learn more about how to obtain it.
2) Seller’s permits
If you run a retail business or any other enterprise whose main goal is to provide goods and services, you might be asked to acquire a seller’s permit. Most of the time, it’s substantiated by what exactly your company intends to sell. For example, tobacco, alcohol, fuel, and firearms typically need special licensing. Each state is different, however, so their lists of licensable products may diverge in contents.
3) Professional licensing
If an entity is run by or employs qualified professionals with the purpose to provide a service directly related to that occupation, such a company will likely have to obtain one or more occupational licenses to work legally. Some of the most common industries that require licensing are:
- Legal services;
- Private security;
- Real estate;
- Tax and insurance.
These lists are actually incredibly vast, and even a fairly “normal” occupation may actually need licensing.
4) Tax-related permits
The sale of nearly all types of products and services require tax registration and sales tax license. However, the state usually imposes additional tax permits such as withholding and SUTA taxes.
Federal Licenses and Permits
Apart from obtaining local permits and following state regulations, you must also meet federal requirements.
1) Federal tax ID
Although this ID, also called an EIN, is technically not mandatory for all companies, it’s indispensable for everyone who plans to sell goods and services, pay taxes, hire employees, and open business bank accounts.
2) Regulated industries
In addition to occupational state licenses, your business might need to get federal permits to work in specific industries. Each of these licenses must be obtained from the industry’s regulating agency rather than a single government body:
- Agriculture: For transportation of animal products and live animals, as well as other biologics to other states. Issued by the U.S. Department of Agriculture;
- Aviation: For commercial and cargo air transportation, permission to operate, maintain, and repair aircraft. Issued by Federal Aviation Administration;
- Broadcasting: For transmitting radio and TV programs, including satellite, wire, and cable broadcasts. Issued by Federal Communications Commission;
- Commercial fisheries: Issued by National Oceanic and Atmospheric Administration Fisheries Service;
- Distribution or manufacture of alcohol, tobacco, firearms, explosives, or ammunition: Issued by U.S. Bureau of Alcohol, Tobacco, and Firearms;
- Drug manufacturing: U.S. Food and Drug Administration;
- Fish and wildlife: For transporting wildlife and products derived from it. Issued by U.S. Fish and Wildlife Service;
- Investment advisory services: Issued by Securities & Exchange Commission;
- Maritime transportation: For transporting passengers and cargo by ocean or sea. Issued by Federal Maritime Commission;
- Meat processing: For preparing and selling meat-based products. Issued by U.S. Food and Drug Administration;
- Mining and drilling: For extracting oil, natural gas, geological materials and minerals on federal lands. Issued by Bureau of Safety and Environmental Enforcement;
- Nuclear energy: For producing, distributing, or disposing of nuclear energy and materials, as well as fuel cycling. Issued by U.S. Nuclear Regulatory Commission;
- Transportation: For operating trucks and other oversize vehicles. Issued by state agencies via the Department of Transportation.