Are you following the rules of your state or city when operating your business? If you don’t have a business license, it’s possible that you’re not. While the type of license you need for your company varies by where you live and what you offer, these basic tips can make your process of getting a business license easier. Get ready to learn everything you need to know about how to get a business license.
What is a business license?
Generally, a license is permission from a governing entity that allows you to do something. Whether it’s a driver’s license or a license to fish, the laws for your area determine how you get permission to do these activities.
Running a business is just another one of these activities, and some states and cities require you to have permission to sell your products or services.
There are also federal regulations pertaining to licensure. Some industries are highly regulated and have to show continued documentation of their compliance for safety or security reasons. If your business is regulated by federal agencies, you may be required to meet additional standards to get a business license.
Knowing if you need to get a federal license will help you plan the process for how to obtain a business license for your business.
Business licenses are not required by every industry and in every state or municipality. There are some places in the U.S. where a business license isn’t necessary. Unfortunately, assuming these laws don’t apply to you can be very costly.
Operating without a required business license can result in expensive fines, taxes, and/or legal action. Look into applicable licensing before you start any new business.
Why you need a business license
Like any other license, you need in life, getting a business license is about being compliant with the law in your area. There are many reasons why a city or state may require a license, but among them, these are the most common:
- Allows the state to more easily tax your business
- Helps establish your company as a legitimate, professional business
- Shows that you adhere to state or federal licensure related to your industry (insurance, health, or real estate, for example)
- Can serve as documentation of your status in an employee classification dispute
While the state or federal governments use business licenses for a whole host of reasons, your biggest concern is keeping your business legal. Operating without a business license in an area that requires it is an illegal activity.
The consequences may be significant; you don’t want to have your business shut down!
How to apply for a business license
There is no specific way to apply for a business license that is the same for all companies in all states. Your path is unique to where you live and what you sell, but the following steps are fairly standard across the board:
- Find out what the laws are in your area.
- Learn about any federal mandates for your industry.
- Obtain and complete the license application, and gather any necessary supporting documents.
- Pay any applicable fees.
- Wait for your license before doing any formal business.
- Renew the license as dictated by your state and local laws.
How to research the laws for your business
Federal license
Where can you begin in your fact-finding mission? Visit the Small Business Administration (SBA) website for up-to-date information on what federal laws and types of business licenses and permits may apply to you.
Industries that may have licensure requirements include agriculture, tobacco, firearms, aviation, mining, transportation, and nuclear energy. The SBA site can direct you to the federal agency responsible for licensing—like the Department of Agriculture for anyone wanting to start an organic vineyard. Check with these offices before continuing your search.
State business license
Next, check to see which state laws apply to your business and how to get a business license in your state.
More industries are regulated at the state level, and a license may be required for everything from running a daycare to selling cars to running a farmers market.
Since a business license may be just one of the permissions you need to get, it’s best to check directly with your state office and let them know what business you are running. They can alert you to additional permits or licenses, such as health and safety permits or zoning laws that may apply.
Running a daycare out of your home, for example, may not only be subject to business licensing but also oversight that your smoke alarms are working and that you’re running a business where customer on-street parking is allowed. No matter your business, the state licensing office is your best bet for accurate information.
City and county business license
What if you live in a large city? While a rural town with a population of 1,500 people may not have its own business licensing rules, don’t discount that it could happen. Many cities and counties require that you obtain a business license from your local licensing agency.
More often, the larger cities are the ones with their own tax offices that are also involved with business regulation. Cities like Los Angeles or New York City not only have a licensing office, but they can also point you in the direction of resources for how to handle the local rules, including training or consulting help.
It’s possible to have to acquire three types of licenses: federal, state, and local. If your business operates across state lines, be prepared for even more licensing.
How much does a business license cost?
Unfortunately, there’s no way to know exactly how much a business license will cost. That’s because you could need licenses from various government agencies and multiple types of licenses. Plus, business license costs vary by state, city, and county.
For example, a one-person writing business in a rural area may pay just $25–$50 for a local business license, while a highly regulated LLC in an urban area could be looking at up to $1,000 per year.
Business licenses usually need to be renewed every one to three years. For businesses that plan on being around awhile, it’s worth looking into multi-year licensing discounts. Some states make it cheaper to prepay for a few years at a time.
Is an LLC a business license?
A limited liability company (LLC) is a legal entity that’s separate from its owner for liability purposes. Forming one requires that you file paperwork with your state revenue or secretary’s office.
There are many perks to forming an LLC, but simply becoming one doesn’t mean you’re legally allowed to do business in your city or state. Depending on your business and occupation, you may have to pass extra licensing or permitting requirements, which usually come with extra fees.
An easy way to remember the business license vs. LLC comparison is to think of a business license as permission to sell goods or services where you live. The LLC is a type of business structure that formalizes your company and protects you from some forms of liability. But an LLC doesn’t explicitly grant you permission to do business.
A business license isn’t specific to an LLC, and other business entities that may need a business license are:
Another distinction is that you only form one LLC for your company in the state where you live or do business. You may, however, have several business permits, especially if you do business in several states or cities.
A food truck is an example of a type of business that may form an LLC for liability benefits. After the company has formed, it will have to look into each of the states or cities in which it plans on selling food to see if it needs an additional business license to operate in those places.
In the case of the food truck, there could be a lot of paperwork! An LLC, business license for each state, plus parking permits and food safety permits can really add up. Some companies easily navigate the various permitting processing, while others choose to outsource those that they can—such as the LLC application.
If you’ve already formed an LLC, business license paperwork may take less time. You’ve already done the legwork of establishing an address and a business purpose, two things that state offices often ask for when you first set up your LLC.
Even with the best business idea in mind, your success depends on not making any significant missteps. Researching and obtaining the right business license for your endeavor is key to moving forward in a legal manner and giving your company the very best start.
Linsey Knerl is a Midwest-based author, public speaker, and member of the ASJA. She has a passion for helping small business owners do more with their resources via the latest tech and finance solutions.