The Hustler's Digest StaffAre you living in a state which requires a business license to operate your business in the area? Here is a complete guide for you to get the license for your business.
For starting a business, you need to have one or more types of license to operate your business under the jurisdiction of the government laws which permits you to sell your goods and services. Not all types of business need a business license and it largely depends on where you live and where your business is based. But it is crucial to have full knowledge about getting the business license instead of risking your work to heavy fines for not having the required permit.
The business licenses and permits are required to keep consumers safe and operations transparent. The U.S. Small Business Administration regulations include that virtually every small business needs some sort of license or permit from state officials, but the requirements and fees are different with different types of business, where it’s located, and which government regulations apply.
If you plan to operate a business and don’t know enough about how to get a business license and what are the requirements to apply to get one, this article will help you figure out what a business license is and understand what are the different types so that you could know exactly which type of permit or license do you need for your business and what documents do you need to start applying.
What is a business license?
A business license is a government-issued license that grants your business permission to operate within your city, state, and industry. In other words, a business license is a legal issuance that gives your company or business legal jurisdiction to operate in a certain area.
Small businesses are legally required to acquire a business license in order to get a permit before selling their goods and services. Business licenses benefit the counties in order to impose zoning restrictions, collect revenue, and regulate which companies operate within their jurisdiction.
However, a business license can be beneficial to your small business too. James Gilmer, compliance Specialist at Harbor Compliance states that “becoming licensed allows business owners to provide their customers, stakeholders, and employees with the confidence that their business is well run and their goods and services are trustworthy.
He further says that “licensing in certain areas and sectors can give you a competitive advantage where licensed businesses can demonstrate proof of license at the negotiation table or RFP process”. Every country imposes different business license requirements, failing compliance can result in a variety of penalties such as late fees, fines, penalties, and denial to operate.
You need to check what legal requirements are needed in your country for the license and what licenses or permits are needed to establish a business. Kelly DuFord Williams, founder and managing partner of Slate Law Group says that “Filing requirements change depending on the type of business, and business-like restaurants and daycare facilities require an additional business license”.
He further says “it is paramount that anyone interested in starting a business understands what licenses they are required to carry before inception. Furthermore, it is advised to seek counsel to ensure proper adherence to local rules”.
The term “business license” is wide-ranging and can refer to different kinds of licenses and permits. So, it may refer to something like a local business operating license, which allows you to conduct business within your town, or it also could refer to a seller’s license which grants you permission to sell a particular product in your area.
Types of business licenses
In case you plan to develop a business and wonder if you need a business license for that, then you are on the right line of thinking. However, business licenses vary widely across different cities, states, and industries, so pinpointing which exact business license you need might be challenging.
Below is the list of some most common types of business licenses, but it is advisable that you should consult your local council to identify which business license is applicable to your business specifically.
Business operating licenses
Business operating licenses are state and city-issued licenses that grant you legal permission to operate your business in the sphere of the city and state. The state and city level licenses have different requirements and regulations, so you may need to apply separately for each jurisdiction.
Planning and zoning permits
Each municipality sets regulations for which business types can operate and where, so you need to verify that the city you are operating within is zoned for your specific type of business. In case it is not, you will need to apply for the “zoning variance” and prove that your business will not significantly disrupt the community.
DBA (doing business as) license or permit
If you plan to operate the name of your business from the one which is legally registered to a new one, you may be obliged to get a DBA name, which is also known as trade name, assumed name, or fictitious name. DBA requirements vary from state to state, you need to check from your local council when you plan to apply.
Building and home occupation permits
The building verifies that the building you operate is up to code, which is a necessary component in applying for business insurance. Similarly, a home permit grants you permission to conduct your business out of your home.
Deborah Sweeney, CEO of MyCorporation states that “if you run or operate your business from home, you must obtain a home occupation permit. This ensures that your neighborhood is zoned for home business activity. This implies that business conducted from your home does not add additional traffic or noise to the community”.
Tax regulations
An essential part of running a business is the assurance that you meet all the required tax regulations, and a small business owner needs to acquire multiple licenses for tax purposes. For instance, nearly every business needs to acquire an Employer Identification Number (EIN), which enables you to hire employees and collect payroll taxes. Businesses that sell goods are often required to obtain a seller’s permit also known as a sales tax license or permit.
Fire department permits
A fire inspection and safety permit verify that you are running your business keeping in view that your business won’t violate any fire codes and it operates safely. It is especially important for the companies which operate with flammable materials. Some jurisdictions require every business to have a fire department permit before operating, whereas others simply require recurring inspection. You need to check the requirements with your local government.
Health licenses and permits
Depending on your locations and industry, you may need to receive certain health permits to operate your business. For instance, businesses in the food and beverage industry will need to be assessed in order to verify if they are meeting the health code standards. Unless you are among the few exempt organizations, you will also have to comply with the safety regulations like those from the Occupational Safety and Health Administration.
Sign permits
Putting a business before obtaining the proper sign permits can lead you to some hefty fines, so it is needed that you acquire a sign permit before launching your business. Many local governments regulate business sign requirements such as how big it is and where it’s located. To avoid wasting money on a sign that is not up to code, consult your local government to see if there are some specific requirements to obtain a sign permit.
Environmental licenses
Companies established in certain areas are required to acquire one of many government-issued environment licenses. These licenses typically protect the environment such as water and air quality. For instance, most of the companies in California do businesses that produce water waste such as outdoor cleaning companies, car wash, etc. to complete an urban runoff section of their business license, projecting their possible water runoff that can cause pollution in waterways.
Industry-specific licenses
Besides the standard business licenses that most of the companies need, some businesses likely need licenses specific to their business industry. Some common industries that require specific licenses and permits include architecture, child care, beauty salons, and spas, construction, electrical, cleaning and janitorial, engineering, food and alcohol, healthcare, general contracting, pest control, landscaping, insurance, plumbing, temporary events, and tobacco.
Angelique Rewers, CEO of The Corporate Agent, says that “Another thing a business might need is a surety bond. Surety bonds are financial guarantee agreements that ensure a company’s compliance with state regulations and contractual obligations. This something that certain types of companies such as those in the construction industry need”.
He further says about getting a license that “businesses established in federally located agencies often require to fill out-licensing forms with agencies like the Federal Maritime Commission, U.S Fish and Wildlife Services, or U.S Department of Transportation”. Since licensing varies from state to city, and industry, you need to consult your local government body to guide you according to your needs and requirements.
How much does a business license cost?
The cost of the business license is not static and it very much depends on multiple factors such as your location, license type, processing fee, and recurring fee. On average, a business license can cost around $50 and add some hundred dollars for renewal fees. However, some states have general business license requirements such as the cost of a business license in Nevada can be $500 per year, in addition to the fees to file an annual list of officers and directors.
For an industry-specific and local license, fees can range from anywhere from a few dollars, to a few thousand dollars either one time or on an ongoing basis. For budgeting purposes, the business owner should do their homework and contact the relevant agencies as part of the planning rather than suffering a sticker shock when applying in a reaction on very short notice.
As an example, if you plan to get a business license in Alaska, you would need to pay $50 for your one to two years license, and when it expires, you need to pay some $50 to renew it. On another hand, if you require a business license for three years to open a child care center in New Jersey, the cost will range from $110 to $250, depending on the size of your center. Once your license expires, you will pay the same amount of fee to renew it.
How to get a business license?
For applying for a business license, there are three options:
- File for a license on your own
- Contact a third-party filing service to help you prepare your business license application
- Consult an experienced attorney who can help you file a business license
In case you want to file a business license application on your own, you can follow the below general guidelines. Depending on which business license you need and where you live, the process for getting a business license varies, and it is always recommended to hire a legal advisor to seek help in applying for the license.
1. Form your business entity
The local government authority issues a business license in the name of your business. It’s best to establish a business structure before initiating your procedure for applying for the license. In this setting, you won’t be required to reapply or amend your business later. Here are some ideas for common legal structures for small businesses:
● Sole proprietorship
A business that has one owner is called sole proprietorship if you don’t file paperwork to establish any other kind of business structure. Sole proprietors are alone responsible for all kinds of debts and obligations, and they report business income as self-employment income on their tax returns. If you are a sole proprietor, your own name may be the official name of your business, though you may choose to use a dba, such as Michael Jones, dba Affordable Lawn Care.
● Limited Liability Company (LLC)
LLC is a simple business structure where profits and losses are passed through to owners for tax purposes, but personal assets are protected from business liabilities such as debts and lawsuits.
● General partnership
Like sole proprietors, general partnerships work for tax purposes. For liability factors, partners divide up liability, and personal assets are not separated from the business. General partnerships use the last name of partners as their official business name, and they may also have dba.
● Corporation and nonprofit corporation
Similar to LLC, a corporation protects personal assets from business liabilities. Corporations tend to have a more fixed operating structure and in cases more effective than LLCs for attracting outside investors. Nonprofit corporations on the other hand are legal entities organized similar to a corporation, except profits can’t be distributed to owners. Some nonprofits also receive tax-exempt status.
If you plan to establish an LLC, corporation, or nonprofit corporation, you’d be required to establish a name for your company when you file formation paperwork with your state. Depending on which state you live in, you may be able to get a DBA from the state, or you may be required to file your DBA with your local government.
2. Determine which business license you need
Do some homework and research which type of business license is applicable for your business at federal, state, and local levels, and contact the relevant agencies in the locations where you plan to operate. It can be a time-consuming activity as many government agencies lack proper guiding websites or phone services, but it is important to avoid the consequences of running an unlicensed business. Obtain an EIN number from the IRS before acquiring the license.
3. Compile all necessary documents
Before applying for the license, have a thorough knowledge of which type of documents are required to submit. Although it depends that the documents you need would vary according to the license type, the work you will be doing, and any specific regulations enforced by the applicable government agency. In most cases, you need the following documents for applying:
- A description of the business, its planned activities, and physical premises
- Proof of state or local tax status such as sales tax permit
- Copies of corporate records such as articles of incorporation or corporate bylaws
- Lists of ownership and management
- A filing fee to the government, which can range from a few dollars for a local permit to several hundred or thousand for state-level licenses to operate
Businesses in a specific industry such as construction or architecture may also have to provide the following details while applying:
- Proof of insurance
- Surety bonds
- Audited financial statements or proof of operating capital
- Educational or professional qualifications of owners and key staff
4. Apply for the business license
Once you know what type of business license you apply for, here is the time to proceed to apply by filling out the form and submitting your application. Every application is not the same, you need to follow the specific instructions for your application process.
“Preparing applications and accompanying documents is one small piece of the process, ” says Gilmer. Every government agency has a unique process of filing applications, which can be by mail, in person, mail, fax, or online. Sometimes forms must be filed by multiple parties or notarized, and original forms must be submitted”.
5. Receive your business license
Many business licenses are found and submitted online. In common cases, sometimes you immediately get approval or wait to hear back from the licensing agency about your approval status, which indicates that you completed the application.
Gilmer says that “Business owners should be prepared to contact government agencies after submitting license materials to ensure materials and improve deficiencies. Given the overall time it takes to become licensed, business owners should make researching and obtaining licenses and permits part of the planning process, rather than wait until a project or development opportunity surfaces, it could be too late.
Keep in mind that just because you need a license doesn’t mean it’s available. Many industries only issue a limited number of licenses within a specific city or state which means you should hope for being on a waiting list for say, companies wanting to serve alcohol or dispose of certain types of waste.
In another case, you may witness that certain licenses such as in the pesticide world, require several years of hands-on experience before you can actually get your license yourself. It means that you may have to hire a full-time manager or operator of the business that already has the license you need.
6. Keep up with license renewal requirements
As your request is approved and you receive a business license, you’ll be granted legal permission to conduct the corresponding business. However, as you receive the license, it’s not the last step in your process, because many licenses require renewal. So make note of any renewal requirements to avoid accidentally letting your license expire.
“The stakes are very high when it comes to getting all of your licenses and permits in place. If you miss even one item, your business can be fined, or worse, it could be shut down until you get everything sorted out. And while you are working through the paperwork, you’re not only losing sales, but you are also carrying all of your expenses including the rent, utilities, salaries, insurance, and more.
How long does it take to get a business license?
Depending on a variety of factors from your license type and location, the time duration to get the license ranges from a few days to a few weeks. For instance, if you are applying for a local operating license for your retail store, it is very likely that it will take a shorter time than the one who applies for a federal or state liquor license.
Your industry also determines how long you should expect to wait for your license. According to U.S Small Business Administration, businesses in construction, vending, dry cleaning, farming, and restaurant industries often face certain state regulations with extending business license requirements and approval time frames. The SBA warns business owners that issued licenses are not permanent and may have an expiration date for renewal.
In some cases, federal agencies may also have to approve the business licenses, in case the industry is overseen by the national government. These industries include firearms, tobacco, agriculture, transportation, fishing, mining, and aviation.
While it is not sure how long it will exactly take to get a business license, there are a few things you can apply to expedite the process. To start, if your state or city offers online applications, apply for your business license online. This will be faster than mailing or filing in person which will take a longer period of time. Also, you should ensure that you follow all directions correctly and completely and submit all required documents in order to avoid any errors afterward.
Where to get a business license?
The process for filing a business license varies by license or permit, but you can generally acquire the information for obtaining a business license from county, state, or federal websites. In several jurisdictions, you can look for your Department of Business and Professional Regulation (DBPR) at the local level which is also known as the State License Bureau.
Applying for a business license can be a tiring and lengthy process as very few agencies have set up central agencies that oversee licensing. So, usually, business owners start by contacting the city, county, and state governments from where they plan to operate or hire an attorney, or company to assist with the process.
If you think that there is a chance that the type of business you plan to start is also regulated at the federal level, have surety to check out the information about federal business licenses listed by agencies on the Small Business Administration website.
Besides that, here is a list of business licensing resources by a state to get business owners across the country going in the right direction:
● Your local SBDC or town clerk
Many of the business licenses or permits that you need are city-level permits, so consulting them in the first place would be the right choice. Your city clerk would have a list of licenses you might need, and this is the best way to make sure you have covered all your bases.
● CityApplication.com
The website issues the contact info at the city level for business licenses or permitting information. You can visit the website in order to gain information about what permits they are allowing.
● SBA.com
Not confusing with Small Business Administration, Small Business Advice posts information on starting and running a business, including business permitting and licensing specifics by state. You’ll find more information about some states than the others. You can study your own state and gather relevant information.
● SBA.gov
The Small Business Administration posts information on permits for federal licenses in different industries, but little on state licensing. If you are looking to acquire more knowledge on industries, you can visit their website.
How to get a business license in Washington state?
Getting a local license is relatively easy. You can visit your city or county’s website that explains the licensing requirements and collect the required documents. There are many localities that let you apply for a business license using the State of Washington Business Licensing Services. Others allow you to apply online through the FileLocal website or you may download an application and email it to the relevant party.
You should prepare the following information when you start applying:
- Social Security Number or Federal Employment Identification Number
- A description of your business activities
- The number of employees and your annual expected sales
- Your business address and contact information
- Your legal business name and any assumed name or “doing business as (dba)”
- Your business start date
- Each business owner’s contact number
- Your business sales tax number, if any
As you submit your application, you will receive your certificate or license with a business license number within a few weeks’ time via mail. Once you receive it, you may be required to post it at your place of business. As business licenses are not permanent, you may need to renew your license after expiration and that may involve an additional renewal fee. Usually, the renewal is required every one to three years, so you can mark your calendar.
FAQs about getting a business license
● How much does a business license cost?
The business license fee is not static and varies widely across states and industries. Depending on where you live, what kind of business license do you need, and where it operates, the fee for the business license would range from $50 to $200. Many businesses do not need a business license so in that case, you won’t need to pay a fee in that regard.
● Are an LLC and a business license the same thing?
No. An LLC (Limited Liability Company) is a business entity that determines how your business is structured for tax and legal purposes, while a business license works like a permit that allows your business to operate according to the law in your state or locality. A business license may also refer to specialized licenses and permits that allow your business to perform certain services or operate in a certain location.
● Can you run an online business without a license?
The laws of the state regulate your business, where it’s registered, and the municipality or county where it’s physically located even if all of your operations occur online. Whether you require a license or permit depends on the state or locality. If you conduct your business online or in person, most states require you to have a seller’s permit or sales tax license.
● Can you run a business without registering it?
In case you want to develop a sole proprietorship (just you) or general partnership (you and one or more partners) instead of forming a business entity like an LLC or corporation, you are allowed to do that. However, sole proprietorship and partnerships may still need to register dbas and business licenses from government agencies.
● Can you sell on Amazon or eBay without a business license?
Whether you need a business license for your eCommerce widely depends on the state and locality where your business is based. Online businesses follow the same licensing requirements as brick-and-mortar businesses which vary by state, municipality, and county.
Conclusion
As you plan to develop your business, you need to take care of some prerequisites that will ensure the smooth working of your business. Getting a business license is one such requirement if the kind of business you do needs to be registered or licensed by the law of your municipality or state. Whether you need a license to run your business largely depends on where you live, where your business is located, and what kind of goods or services you sell.
A business license is a permit required to operate your business and provide your services in a certain location. There are multiple types of business licenses that are issued by a state, federal, county, and municipal agencies. The main objective of the business license is to register your business with the government for tax purposes or to ensure you follow industry regulations. You need to check in your area and follow the required rules in order to get a permit.
