No matter the size, structure, or age of your small business, it’s likely that you need a business license. If you plan to have a brick-and-mortar location—or if you want to sell products of any kind—this becomes especially true.
With the advent of the internet and the rise of the gig economy, though, our concept of business has shifted tremendously in the 21st century. If you’re a self-employed freelancer or you sell some stuff through eBay, are you operating a business? Does a YouTuber or a work-from-home graphic artist need to get a business license? The requirements vary vastly based on local laws. But no matter what business you’re in, there’s a solid chance that you need a business license.
Different types of industries require licenses from various agencies, too. Companies dealing with agriculture, nuclear energy, fishing, shipping, or mining, for example, need to register with specific state and federal agencies.
Before you open your doors, sell your first item, or accept your first freelance job, you should research business license requirements on the federal, state, county, and city levels. Keep in mind your company’s structure, number of employees, and industry. When it comes to these regulations, it’s far better to spend too much time researching than run afoul of the law.
Generally, you need a federal business license of some sort if a federal agency regulates your industry. Some of these seem obvious—firearms dealers need a license from the Bureau of Alcohol, Tobacco, Firearms, and Explosives, and if your business ships cargo overseas, you’ll need a license from the Federal Maritime Commission.
The United States Small Business Administration (SBA) provides industry-specific federal licensing requirements.
Most business licensing occurs on the state, county, and city levels. Some states and cities have very stringent licensing rules, while others are more relaxed. Oftentimes, business license requirements are linked to whether the state charges income and sales taxes, but this is not a hard-and-fast rule.
“States tend to regulate a broader range of activities than the federal government,” the SBA states. “For example, business activities that are commonly regulated locally include auctions, construction, dry cleaning, farming, plumbing, restaurants, retail, and vending machines.”
It’s important to pay attention to licensing rules as time goes on and your company expands.
“Some licenses and permits expire after a set period of time,” the SBA continues. “Keep close track of when you need to renew them—it’s often easier to renew than it is to apply for a new one.”
The SBA has guides that indicate which federal and state business license requirements apply to your company. Research requirements on your state and local governments’ websites.
Many companies decide where to open based on local licensing rules. You may want to think about relocating based on these regulations.
The term “business license” itself is misleading because there’s no one business license that every company needs.
If your business opens up a physical location in some cities, you may need to display a paper business license in your window. In many other places, this isn’t needed.
If required by your state or city, you probably need a business license if your business has a physical location, serves food, sells items, or has employees. However, you might need one even if you’re just a freelance worker.
If your business works in industries including agriculture, alcohol, aviation, broadcasting, firearms, fisheries, maritime transportation, mining, nuclear energy, transportation, or wildlife, you probably need to get licenses on the federal, state, and local levels. It’s also worth it to hire a lawyer or consultant to help you navigate these regulations.
Along with licenses to do business, your company might need to acquire various other permits and licenses before you make your first sale or send out your first invoice. A restaurant, for example, has to get a permit from the local health department.
If your state has sales tax and you sell goods, you’ll need to get a sales tax permit from your state’s tax agency. You’ll also need to check local zoning laws for the location of your business and ensure that you have the proper operation and building permits.
You should also obtain a Federal Employer ID Number (EIN) from the Internal Revenue Service, which is free with an online application. You don’t need one if you are structured as a sole proprietor—but it might be advantageous.
The most important step in applying for a business license is research—look into federal, state, and local business license laws based on your company’s industry, structure, and number of employees.
Once you know what licenses and permits you need, gather the appropriate materials (like entity documents or your EIN) and submit the applications. In most cases, all of this can be done online. At this point, you’ll have to pay the necessary fees.
You’ll probably need to wait for approval before you can start doing business. Once you get the go-ahead from the authorities, open your doors.
You’ll likely have to reapply for licenses over time, so pay attention to expiration dates—and you’ll probably need to get new permits if you change locations, hire more employees, or move into a new field.
The cost of a business license ranges from location to location. In some areas, it might even be free. However, you should expect to pay $25 to $75 in fees. In some larger cities, applying for a license might cost $100 or more.
These fees add up, as does the time and energy required to research and apply for business licenses. However, the alternative is breaking the law, which comes with heavy fines. It’s far better to stay within the lines of regulators when your entire business is on the line.