Starting a business? You’re on an exciting journey to launching your dream. There’s a lot to accomplish before you can go live, and one important task is obtaining a business license. Most businesses must be licensed to operate legally, so it’s important to understand what’s required of your business.
There are different types of business licenses that you may need depending on your industry and location. Researching this information can be confusing, so we created this crash course to help you get started. In this article, we’ll cover what a business license is, how to know when a license is required, and how to get a license if you need one.
What is a Business License?
Let’s start with a business license definition: Business licenses1 are permits issued by government agencies that allow individuals or companies to legally conduct business within their geographical jurisdiction.
Think of a business license as an essential tool for your business. It shows that you are compliant with regulations and that your business is safe for the public. Your industry, business activity, and physical location determine which licenses you’ll need. (Yes, you may need more than one license.)
So how long can you operate a business without a license? Let’s just say that putting your business license at the end of your to-do list isn’t a good idea. As a small business owner, you don’t want to start a business without the proper licensing. Operating without a business license can have serious consequences including fines, lawsuits, and even forced closure.2
Do I Need a Business License?
Almost every small business needs to obtain a local, county, state, or federal business license to legally operate. That said, your business is unique, so let’s cover a couple of common questions:
Does a sole proprietor need a business license? Most likely, yes. No business owner is exempt from rules and regulations, so a sole proprietor may need to obtain at least one business license or permit.
Is an LLC a business license? No, they are two different things. An LLC is a type of business entity, whereas a business license allows you to operate legally. When it comes to a business license vs. LLC , you don’t need a business license to form an LLC, but you will most likely need a business license for your LLC.
Government agencies at the local, state, and federal levels issue many different types of business licenses. We’re going to break it down for you here so you can better determine what types of business licenses and permits apply to you.3
1. Federal business license.
Do you make or sell products that are regulated by the federal government? While many federal licenses apply only to larger companies, you should understand your industry’s federal requirements. If any of your business activities are listed in the SBA’s portal for applying for licenses,4 contact the appropriate federal agency for more information.
2. State business license.
This license grants you the right to operate your business within your state. It also helps the state government track your business so they can tax you accordingly. We’ll explain how to get a state business license in the next section of this article and how to renew a business license.
3. Local business license.
Depending on the nature of your business, you may also need a local license. Check with your city or country office or your local Department of Commerce to see if you need one or more of these licenses or permits:
- Operating licenses
- Building permits
- Zoning and land use permits
- Health licenses and permits
- Signage licenses
- Sales tax certificate
- Home occupation permit
4. Professional license.
If you’re an accountant, electrician, plumber, real estate agent, or other professional, you may be required to obtain a professional license. These licenses prove that you have the knowledge and experience for the job. Check with your professional association to ensure that you have the license you need to start a business in your state.
How Do I Get a Business License?
As you may have guessed, each state has different requirements for how to get a business license. The process differs for each state, too. The good news is that our State Business License hub walks you through the details and processes of every state.
Here are a few more questions you may have before you get started:
How much does a business license cost? License fees vary depending on your location and your specific profession, but it could cost anywhere from $100-$500.5 Your state and county will have more information about your specific requirements and costs.
What is my business license number? A business license number allows you to legally operate. This number can be found on your business license. Take note that this number is different from your business’s federal tax ID number, as known as your EIN.
Be aware that some licenses and permits expire after a set period of time, so you should know how to renew a business license. Many business licensing authorities will send you a notice if your license is due for renewal, but it’s always best to keep track of your renewal dates. As you can imagine, it’s easier to renew a business license than to apply for a new one. Plus, failure to renew could result in fees and penalties.
Do I Need Business Insurance to Get a Business License?
In many cases, yes. While the requirements for business licenses vary from location to location, you may need to get business insurance before obtaining a license. This is especially true if you have employees and need workers’ compensation insurance. Or, if you work in an environment with a high level of risk and liability. For example, a construction business may be required to show proof of general liability insurance.
Starting a new business is a big financial commitment, so it’s important to minimize your potential for loss. Whether you are required to have insurance or not, the right insurance coverage can protect your business from unforeseen events such as injuries, accidents, or lawsuits.
Ready to get insured? Our free quote comparison tool is a great way to compare policies from the country’s top insurance providers, including how much they cost and what kind of coverage they offer.
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License to Operate
Getting a business license is crucial for your company’s success. Sure, it might require some effort, but once you check this task off your list, you’ll be open for business.
References:
- Learn more at USchamber.com.
- Learn more at Wolterskluwer.com.
- Learn more at Chase.com.
- Learn more at SBA.gov/business-guide/launch-your-business/apply-licenses-permits.
- Learn more at Upcounsel.com.