Standing on the verge of a new business venture, one of the common questions entrepreneurs ask themselves is “Do I need some sort of business license?” And the answer is “Most likely, yes”. While you establish the company to earn a profit, running a business is also about meeting a whole number of government regulations and requirements to stay in compliance with the state. Licensing rules are among the strictest to match, and they are applied to nearly any type of legal entity. If you don’t have a necessary license in place, you’ll expose your firm to the risk of fines and penalties. So, when registering a company, mind checking what licenses and permits you need to lawfully conduct your business. Luckily, obtaining licenses is not that difficult. It’s just important to know what types of licenses are appropriate for your business activity.
What Is a Business License?
A business license is a type of legal document enabling a legal person to operate within a certain territory. As such, licenses could be issued at local, state, and federal levels and are provided by special government agencies and authorities. Depending on the type of activity your company is engaged in and the industry it operates in, it might need several licenses of different types.
Licenses are a sort of government warranty ensuring a company observes local and state rules stipulated for certain activities or in relation to certain aspects and making your company a more credible and trustworthy vendor or service provider in the eyes of customers and partners.
Most licenses are issued for a specific term and require regular renewal. By way of contrast, permits, which are the license subtype, are normally reapproved and prolonged after scheduled audits and inspections held by licensing authority controllers.
Why Are Business Licenses Required?
Business licenses are a type of regulatory tool for a government so that it could:
- Monitor legal entities by groups, industries, and types of activity;
- Authenticate companies and hold them liable for any negligence, misconduct, and non-compliance;
- Maintain a healthy and regulated business environment safe both for the customers and for other market operators;
- Keep an eye on the companies’ incomes and cash flows to impose taxes and track their payments.
Licenses and permits help governmental agencies maintain an organized hierarchy in a business world and easier prevent any unlawful and fraudulent actions.
When it comes to business entities themselves, potential benefits different companies get with licenses include:
- A lower personal liability risk through strict and clear identification of the scope of actiity;
- Better tax control and less scrutiny from the IRS;
- More fundraising opportunities, which is especially important for smaller projects and startups;
- Higher level of trust and loyalty from customers owing to a solid legal framework supported by government guarantees.
Common Types of Business Licenses
The type of business license you’ll need to get for your venture depends on the products and services you provide, the type of your legal structure, and even the employees you hire. Thus, to work within a certain occupation, you might need a professional or occupational license. Besides, while some firms need only more generic federal licenses, others are also required to register for state licenses and some special local permits. Licensing requirements vary by state and locality, yet, there are several common types of licenses your business might be exposed to.
General Operating License
This type of license entitles a company to operate within a certain territory, be it a state, county, or city. Authorities in charge of these licenses are the IRS and the Secretary of State at a state level and local agencies at a local level accordingly. General business licenses are usually to be renewed on a biennial basis.
Sales License or Seller’s Permit
If your firm is engaged in any type of commercial activity and sells goods, products, or services, you’ll have to get a seller’s permit everywhere where you need to pay a sales tax. This special license will let you not only sell goods but also collect sales taxes.
A DBA (Doing Business As) License
It’s the permission that gives companies an opportunity to operate on the market under names different from their legal or registered names. It’s a great choice for unincorporated business forms to create and set up a solid brand and company image on the market. More complex incorporated structures, on the other hand, will be able to expand their activities and launch multiple business lines without changing their legal framework.
Commercial Sign Permits
If you have a brick-and-mortar store, office, shop, cafe, etc., most likely than not, you’ll use some commercial signs on the building to make it recognizable and distinguishable. In most states and counties, you’ll have to get a special license to be able to use commercial signs outside your premises.
Liquor and Tobacco Licenses
To sell or serve alcohol and cigarettes, you’ll need separate licenses for those products for sure. Usually, they are issued at a state level. On top of that, you might need to get a special permit at a federal level too. Distributing liquors and tobacco products without a license exposes your firm to severe penalties and fines. So, mind checking all requirements in this concern in advance.
Zoning rules valid in all municipalities prevent opening bars or nightclubs next to childcare centers, for example. These rules set forth strict requirements for localities to run certain types of businesses. So, you should check if you need such permit for your venture before getting it up to steam.
Many ventures providing services to the public in food, medical care, beauty, or any other service sector potentially impacting human health should obtain specific health permits. Those are normally issued and renewed subject to special inspections held by controlling bodies on a regular basis. Such permits make sure your enterprise is a safe place to visit and work in.
The majority of service-based companies also have to get a professional or occupational license to be able to eligibly provide services related to a certain occupation or professional sphere. To name a few professions that require licensing, these are accountants, electricians, plumbers, physicians, contractors, cosmetologists, lawyers, barbers. The full list is much longer, and you can check it with your local clerk’s office or state department.
Home Occupation Permit
Even operating a home-based business, you’ll need a home occupation permit to run it legally, especially now, when remote work is a growing trend.
Though smaller businesses typically need licenses at state and local levels, some types of activities such as production, raw material processing, or drugs distribution require federal licenses. The same is true for companies operating across the states. So, you can’t go wrong with checking for federal licensing rules as well.
How to Get a Business License
Straight off the reel, depending on the type of your venture, you might need to register for more than one business license. Notably, different types of licenses can be issued by different authorities. Thus, you can start by contacting your city hall to obtain a general operating license. Meanwhile, you can request a full list of licenses in your local clerk’s office or contact your state department for that. Checking for federal licenses also won’t go amiss. To learn about those, you can visit the official website of the Small Business Administration.
Basically, to get a business license, you’ll have to fill in a specific form and submit the documents to the licensing authority along with the registration fee payment. That form usually covers business description and ownership or management data. Besides, most likely than not, you’ll have to attach copies of your formation documents and company bylaws if any, as well as confirm your valid tax status. The approval process might take from a few business days to about two weeks.
When it comes to licensing fees, they vary by the license or permit type and range between $50 to $400. Mind that all licenses are issued for a certain period (from 1 to 5 years) and need to be consistently renewed. A renewal fee is the same as a registration fee.