A common mistake new business owners make at the time they are starting their businesses is to not investigate and obtain all the necessary licenses and permits. It is a rare occurrence when a business does not require some form of state or local business license. Learning what types of licenses and permits your particular business requires does not have to be a daunting task, but first you should understand the different types: federal, state and local.
Federal licenses are typically only required for businesses that are regulated by a federal agency. Examples of federal agencies that supervise types of businesses include the Securities and Exchange Commission, which regulates companies providing financial advice, and the Bureau of Alcohol, Tobacco and Firearms. Federal permits are granted by the appropriate agencies.
There are different types of state licenses. There are those necessary for occupations and trades that require a specific amount of certified education and/or training, such as doctors, lawyers, accountants, barbers, real estate agents, etc. Many states have licensing requirements for bars and restaurants. Additionally, most retail businesses will require a sales tax license. State licenses are typically granted by the state agencies regulating your particular type of business or by the state department of taxation.
Local (City and County)
On the local (city and/or county) level, most businesses will require a general business license, which grants the business the authority to operate in a particular city or county. There are often local tax-related licenses. There are also a plethora of different types of permits, which may be necessary based on the location of your business and the type of business you operate. Permits are those that state you are in compliance with local ordinances that govern things such as the appearance of the community and safety to consumers. Examples of local permits that might be necessary include health department permits (if your business is involved with food preparation), sign permits (that govern the appearance and/or location of the business sign), fire department permits (that govern public safety of your location), etc.
If you plan to operate a home-based business, you will need to check on the zoning requirements. Some cities prohibit certain business activities in residential areas. If this is the case for your location, you may be able to petition the appropriate agency for a variance, which is an exception, allowing your business to be operated from your home. Check with your city or county zoning office on the zoning ordinances for your particular neighborhood and business.
A Few Extras
There are a few other items, which are not business licenses per se, but are often required or may be beneficial, including:
- A federal tax identification number – This number, which is also called an employer identification number or EIN is basically a social security number for your business. The EIN is obtained from the Internal Revenue Service (IRS), and is required on all federal tax returns you file for your business.
- A state tax identification number - Certain states require businesses to have state tax identification number in addition to the EIN.
- DBA – A doing business as (DBA) filing, which is also sometimes called an assumed name or fictitious name filing, allows a business to operate under a name other than the official name. For sole proprietorships and general partnerships, the name of the business is the same as the owner’s name. For example, if John Smith has a consulting business that he operates as a sole proprietorship, the company name is John Smith; however, he could file a DBA to have the business known as Smith’s Consulting. Corporations, limited liability companies (LLCs) and other state-formed business entities can also file DBAs to transact business using a name other than the name included on their state formation documents.
To learn which business licenses may be necessary for your particular business, you can contact the appropriate state and local agencies to inquire about requirements and application procedures. There are also services that can research business license requirements for you and provide you with the necessary forms and application instructions.
As a new business owner, you’ll want to ensure your business is starting on the right foot by complying with all the laws and ordinances governing your type of business and location.