Once you’ve figured out that you want to start your own company, it’s time to learn how to start a business. There are many steps involved, from writing a business plan to branding and marketing decisions. But one of the steps you ought to take is getting a business license.
While not strictly required in some states or depending on the business you’re in, registering your business with your state and local authorities offers benefits to both you and your community. To help you figure out how to get a business license, we've outlined the different types of licenses and permits for businesses, along with the requirements and processes you can expect.
What is a business license?
A general business license grants you government approval to operate. Business licenses can be issued at the federal, state or local level to ensure your business is correctly registered for tax purposes. Beyond tax collection, licenses are also necessary from a safety and security standpoint since they lay out established industry practices you must follow to comply with regulations.
Who needs a business license?
If you've started a business, you probably need a license. You may also need additional certifications and permits, depending on your industry. Whether you run an online business or work out of your home, you must comply with the same license and permit requirements as you would if you had a physical storefront.
Business license requirements vary depending on what you do and where your business is located. Permits and fees vary by city and state. To find out what you’ll need to do to get licensed, going to your city and state websites is a good place to start. You may be able to confirm what licenses and permits you’ll need to legally operate. But again, the process can be complicated and you may need to get on the phone with someone “official” to get your questions answered.
Some businesses need both federal and state-level licenses and permits to operate. Certain activities are regulated at the federal level and mandate federal licenses or permits. Here are a few industries that require federal licensing:
- Agriculture: U.S. Department of Agriculture
- Alcoholic beverages: Alcohol and Tobacco Tax and Trade Bureau and Local Alcohol Beverage Control Board
- Aviation: Federal Aviation Administration
- Firearms, ammunition and explosives: Bureau of Alcohol, Tobacco, Firearms and Explosives
- Fish and wildlife: U.S. Fish and Wildlife Service
- Commercial fisheries: National Oceanic and Atmospheric Administration Fisheries Service
- Maritime transportation: Federal Maritime Commission
- Mining and drilling: Bureau of Safety and Environmental Enforcement
- Nuclear energy: U.S. Nuclear Regulatory Commission
- Radio and television broadcasting: Federal Communications Commission
- Transportation and logistics: U.S. Department of Transportation
If your business falls into one of these industries, you'll need to reach out to the relevant federal agency to find out how to obtain the license or permit required to operate.
States tend to regulate a much broader range of activities than the federal government, and you will likely need additional approvals at the state or local level. If you're selling goods or services and your state requires that you collect tax, you must get a sales tax license (some states call this a seller's permit). If you're preparing, handling or distributing food or running a business that involves bodily contact (like nail salons and spas), you will probably need a health permit. Other state-level approvals you may need before applying for a business license include environmental, sign, fire, sales tax, health, zoning or building permits.
Certain professions require occupational licenses, which are separate from business licenses. Some examples include medicine, law, accounting, construction, cosmetology, architecture, engineering, plumbing, electrical work, real estate, sales and investigative or security services. Your state should be able to provide you with a complete list so that you can ensure you comply.
Remember that your city or state may require a business license for activities you might not realize, such as renting out property. In Washington, D.C., for example, the city requires landlords to obtain a basic business license, which includes having the rental property inspected and certified. In contrast, though they are right next door to Washington, D.C., Virginia and Maryland do not have this requirement. Be sure to familiarize yourself with local requirements before you begin operating your business or renting out property.
How does someone obtain a license for their business?
Before applying for a license, you'll need to look up your state and local business license requirements online or stop by the government office responsible for them to learn more. Then you’ll have to ensure that you’re operating in compliance with those requirements.
Once you understand the application process and requirements, you must file the appropriate tax forms, pay the associated fees and then file your application. Here's an overview of what to expect at each of these steps in your application journey.
Figure out which type of license you need based on your type of business
Most states require at least a business operating license before you can start to do business legally in that state. Others, however, may require you to register your business entities in a particular way to comply with state regulations. Depending on how your business is organized, you may need to complete additional paperwork to codify these arrangements.
As you create your business's structure and business plan, it's often a good idea to establish a separate business phone number to keep business and personal communication streams distinct. Likewise, you should consider opening a business checking account to separate your personal and business earnings and expenditures. Good business accounting software can help with this task.
Below are three types of licenses and organizational requirements that you might encounter as you go about registering your business.
Business operating license
A business operating license is what most people mean when they say "business license." This is the endorsement you need at the state or local level to undertake your business and can include any licenses, permits or certifications required to sell goods or provide services.
DBA is a statement that declares you are "doing business as" a name other than your legally registered personal or business name. It’s also called a "fictitious name” or a “trade name." If you're a sole proprietor or running a business as a partnership, you can file a DBA. If you don’t file a DBA, the name of your business defaults to your name or your partner’s.
Let’s say your last name is “Burns” and you want to open a bagel shop. “Burns Bagels” isn’t the most attractive name for a bagel store. With a DBA, you can name your business “Authentic Bagels” or “Bountiful Bagels” instead.
DBAs are useful when you want to expand your business or product line and don't want to register new businesses each time you make a change. If you’ve registered your business as “Authentic Bagel” and want to open a cookie store, you can register your cookie store as “DBA Chips and Chunks” without applying for an all-new business license. Using a DBA can simplify preparing your taxes. You must claim the income you make from your DBA but you can do so under the same tax identification number or Employee Identification Number (EIN) you use for the rest of your business.
A limited liability corporation (LLC) is a business structure that creates a new legal entity to shield business owners from being personally responsible for debts or liabilities incurred by the business. This gives you tax protections usually only available to corporations. But registering an LLC is simpler than registering as a corporation. Some states, such as California, require you to form a business as an LLC before registering for an LLC business license, even if you are the sole proprietor of that business. Check your state and local requirements to see if you need to create an LLC before you can apply for a business license.
Look up what your business requires based on your business location
You can check with the Secretary of State's office, your local business bureau or a financial advisor to find out which oversees business registration in your state and to learn your state or locality's requirements and procedures. Keep in mind that if you have an office in more than one city, you may need a license for each one.
Ensure you're complying with tax regulations
While some states allow you to use your social security for small businesses, others will require you to get an Employer Identification Number, a federal tax identification number used to identify a business entity. If your state requires this, you can apply online to get one from the IRS. Even if you're not required to get an Employer Identification Number, you might want to do so to keep your business and personal taxes separate.
If you have employees, you may need to register with your state's labor agency, which would provide unemployment and workers' compensation to your employees if needed. Some states may require you to register with these agencies even if you're the only employee, so proactively check the requirements to avoid issues down the line.
Pay any business licensing fees
So how much is a business license? While some places may exempt very small businesses from fees, generally speaking, you can expect to pay something when applying for a business license. Business license fees can be as little as $15 and as much as several hundred dollars, depending on your state and local requirements. Fees may be assessed as flat fees (a single set fee per application) or based on your projected gross revenue.
File your business license
Now that you know you're following the right organization and tax requirements and have paid the required fees, it's time to file. Many states and localities now allow you to complete business license applications online, which is a huge timesaver. Others may still require you to lodge a paper application in person. Make sure you understand the requirements so your application gets processed correctly.
When you fill out the application for your business license, be prepared to provide a host of basic information on your business. The information required varies by state and location but usually includes:
- Your Social Security Number or Federal Employment Identification Number (your tax ID)
- Your business sales tax number (if applicable)
- A description of your business activities
- Your legal name, as well as any other name you're doing business under (DBA)
- The date you started your business
- Your business address and contact information
- Contact information for each of your business's owners
- How many employees you have and expected annual sales
- Your industry code under the North American Industrial Classification System
- Proof that you have obtained any required professional or commercial certifications for your business type
Whether you file in person or online, keep copies of your submission and required documents so you can easily refer to them should questions arise about your application. Having these copies will also make renewal a snap and lighten your load when applying for future permits or small business loans.
What is the wait time for business license applications?
Though processing times differ by state and locale, and some may be able to approve in one business day, you can generally expect it to take at least a few weeks to receive your business license. When you submit your application, it's a good idea to ask your state or locality for their estimate on processing time. Remember that, if your business requires additional certifications and permits, you will likely need to obtain these before applying for a business license. Lay out all the steps and requirements on a timeline before you apply so you know how long it will take you to check them off and you can plan accordingly.
Once you receive your business license, read all of the documentation that comes with it to familiarize yourself with the display and renewal requirements. Many states and localities require you to display your license in your place of business prominently. Mark your calendar to start the renewal process well before your business license expires. Your future self will thank you!
Get the right business license for your small business
Now that you know what to expect, the sometimes-convoluted process of getting a business license should be a bit more straightforward. If you hit a snag, reach out to your state or locality for guidance on how to proceed. Many have robust websites and informative printed material in their offices and staff members available to help you navigate the business license application process. Your local chamber of commerce is also a great resource to guide you and can be especially helpful since its members have been through the process and can offer tips and tricks to ensure you get the right license for your small business.