What Is a Business License?
“Business license” is a broad term that refers to any kind of license or permit required to operate your business and provide your services in your location. Various types of business licenses are issued by federal, state, county and municipal agencies.
A business license’s purpose may be to register your business with the government for tax purposes or to ensure you follow industry regulations.
Do You Need a Business License?
Whether you’re required to get any type of license to run your business depends on where you live (and where your business is based) and what kind of goods and services you sell.
Most states don’t actually require a general business license—a.k.a. business operating license—just to do business in that state. However, you may still need a business license from your city or county. You , may also need a license from a relevant state or federal regulatory agency to perform certain business activities, like agriculture or medicine.
If you run an online business, you register the business and obtain required licenses in the state and city where you base the business. If you’re a digital nomad, speak with your lawyer and accountant about the best way to set up your business.
Types of Business Licenses
To sell your goods or services, you may be required to get one or more of these types of business licenses in your state:
- Business operating license. This is what many people mean when they say “business license.” This is a license that lets you do business in your state or locality. In some states, you must obtain a business license from the state, but in others you’ll need a business license from your city or county.
- Seller’s permit. If you sell goods in person or online, most states require this permit, which lets you collect sales tax from customers.
- DBA or fictitious name statement. A “doing business as” statement lets you operate the business under a name different from your legally registered business name. Depending on your state, you may need to register a DBA with your state or at the local level.
- Special permits. Many industries require special permits to operate. If you run a brick-and-mortar business, you’ll probably need permits for planning, zoning, building, signs and fire in your city or county.
- Industry licenses. You might need a special license to perform your services in industries like salons, electrical, childcare, medicine and law. You obtain these licenses through the relevant licensing board in your state.
- Federal licenses. Select industries,such as alcohol and firearms sales and aviation are regulated by the U.S. government and require a federal license or permit. The Small Business Administration lists which types of businesses require federal licenses and where to apply.
How To Get a Business License
The process to get a business license varies by state—and it’s not required in every state for every type of business. Follow these steps to determine whether you need a license and to apply with your state if you do.
1. Form Your Business Entity
You’ll need a business license in the name of your business. It’s best to establish a business structure and business name before you apply for a business license. That way you don’t have to reapply or amend your business license later.
Common legal structures for small businesses include:
- Sole proprietorship. A one-owner business is considered a sole proprietorship if you don’t file paperwork to establish any other kind of business structure. Sole proprietors are fully responsible for business debts and obligations, and they report business income as self-employment income on their tax returns. If you’re a sole proprietor, you own name is the official name of your business, though you may choose to use a dba, such as Joe Jones, dba Affordable Lawn Care.
- General Partnership. A general partnership is similar to a sole proprietorship for tax purposes. For liability purposes, partners divvy up liability, and personal assets aren’t separated from the business. General partnerships use the partners’ last names as their official business name, and they may also have a dba.
- Limited liability company (LLC). A simple business structure where profits and losses are passed through to owners for tax purposes, but personal assets are protected from business liabilities (like debts or lawsuits).
- Corporation. Like an LLC, a corporation protects personal assets from business liabilities. Corporations tend to have a more fixed operating structure and may be better than LLCs for attracting outside investors.
- Nonprofit corporation. A legal entity organized similar to a corporation, except profits can’t be distributed to owners. Some nonprofits receive tax-exempt status.
If you establish an LLC, corporation or nonprofit corporation, you’ll establish a name for your company when you file formation paperwork with your state. Depending on your state, you may be able to get a DBA from the state, or you may need to file your DBA with your local government.
2. Apply for an Employer Tax Identification Number
Depending on how your state processes business licenses, you may need to include your federal tax ID number on your business license application.
Sole proprietors who don’t have employees can use their Social Security Numbers instead of a tax ID number, but all other businesses need a federal employer ID number or FEIN.
You can obtain an EIN through the IRS online. The process is simple and you’ll receive your number right away.
3. Determine Which License(s) You Need
Which types of business licenses you need depends on federal, state and local requirements and what kind of business you run.
You can find out which licenses and permits you need through:
- Your state’s Secretary of State office, Department of Revenue or similar agency that issues business licenses.
- Resources available through your local Small Business Administration office.
- Working with a business lawyer to determine and file the necessary licenses and paperwork.
4. Apply for a Business License
You may have to file for licenses and permits with state, county and municipal agencies—for example, a sales tax permit from the state, health permits through a department of health, and planning permits through the city.
Look for resources from your state or your local SBA office that gather all the information you need in one place, so you don’t have to spend hours researching every relevant agency. Step-by-step guides in your state could walk you through the process and include links to necessary applications on various websites.
In most states and many localities, you can get a general business license online through the proper agency’s website. Industry-specific licenses may have a more complicated application process.
You likely won’t have to wait long for a business operating license or a sales tax permit to be approved. Other types of licenses and permits may have a longer and more involved review process.
5. Renew Your Business License
Talk with your lawyer or pay attention to the fine print on your business license and permits to figure out how often you have to apply or pay to renew them. You may have to renew annually or every five years, for example.