Starting a new business is exciting, but you should be careful not to rush into your launch without proper licensing. You’ll need several types of business licenses and permits to legally conduct business within your jurisdiction, and forgoing proper licensure comes with serious consequences. While licensing requirements may vary by business type and location, you can familiarize yourself with the basics below.
Why are business licenses required?
Government entities typically require businesses to obtain licenses so it can:
- Identify businesses and hold them accountable
- Preserve the public’s health and safety and protect consumers from fraud
- Track companies’ finances and tax them appropriately
For these reasons, obtaining businesses licenses is a crucial requirement before you acquire your first customer.
Who issues business licenses?
Federal, state, and local governments all issue different kinds of licenses. Your business may need licenses from some or all of these organizations. Additionally, non-government professional organizations issue certain state licenses that you might need to obtain before you open your doors.
What are the consequences of not being licensed?
Improperly licensing your new business can have drastic consequences. First, you may be prevented from launching or continuing to operate your business until the proper documentation is filed. Without these licenses, you may also be penalized financially -- fines that accrue interest, and some for which you may be personally liable. Businesses that are dramatically out of compliance may have legal action taken against them, and in the most dramatic cases, your business may be forced to shut its doors, quite literally, by local authorities.
How long are business licenses valid?
The length of validity for a business license varies by both the type of license and the agency issuing them. In many cases, business licenses and permits are valid until January 1 of the next calendar year, though some may remain valid for 365 days after you first obtain them. Speak with the relevant authorities to determine how long your business license lasts.
How much are business license fees?
As with license validity, the fees needed to obtain a business license vary by agency and location. In general, business license fees cost hundreds of dollars or even thousands of dollars in certain industries, though some may be as inexpensive as $50.
How to get a business license
To apply for a business license, contact your local Department of Business and Professional Regulation (DBPR). If your municipality has no DBPR, contact your local labor office and ask how you must go about obtaining your necessary licenses.
Once you know the agency with which you must apply, you must submit several documents. The requirements vary by license type but often include:
- A basic business, operations, and locations description
- Articles of incorporation or organization, corporate bylaws, or other corporate records
- Proof of tax status
- Business ownership and management details
If you successfully apply and receive a business license, you must renew it every year or at the frequency specified by the licensing authority. You may also want to speak with a trusted business lawyer about other recurring licensing requirements, such as ongoing training or continued education.
Seven common types of business licenses, permits, and paperwork
Among the types of business licenses you must obtain for your company include:
1. Business license
The most fundamental of all the types of business licenses, a basic business license verifies that your desired worksite is zoned for your business type. You will apply for this license with your municipal government, and in some locations, you may need to file an additional application with your county government.
If you apply for a business license and find out that your desired worksite isn’t zoned for your business type, don’t call it quits. You can apply with your local government for a variance that permits your business to operate there. If you can prove your operations won’t disturb the neighborhood’s usual character, you’ll likely be approved.
2. Filing DBA or assumed name paperwork
In some locations, you may need to supplement your business license with a doing-business-as (DBA) license. This filing allows your business to have an operating name different from its legal name. For example, if you run a bakery called Donuts and More but the legal name of your business is The Donut Shop Restaurant LLC, you may need to declare the name under which you conduct business. This requirement varies by state.
3. Federal business license
Several business types, including radio or TV station, transportation, and logistics, require additional federal business licenses. To determine your needs, check the detailed list of federal licensing requirements and processes maintained by the U.S. Small Business Administration (SBA).
4. State business license
Often, state business licenses pertain to establishing professional qualifications. That’s part of why doctors, insurance agents, real estate brokers, and other professionals often display their state certificates in their offices – these licenses both confer trustworthiness and are required to display publicly. Your state labor department should be able to provide you with a list of occupations that require state licensing.
Additionally, certain states require companies that sell firearms, gasoline, liquor, or lottery tickets to obtain sales licensing. You can contact your state labor department to find out whether these licenses apply to your business.
5. Sales tax license
A sales tax license enables your business to collect sales tax from customers and remit it to the government. Your sales tax obligations will vary based on your location, but in all likelihood, you will be required to collect and remit sales tax. Contact your local commerce department or taxation authority to learn about your sales tax licensing and collection requirements.
6. Safety permits
There are three types of safety permits you may need to obtain, depending on your products and services:
- Health department permit. If your company sells food of any sort, you’ll need this permit.
- Fire department permit. If your company works with flammable materials, you’ll need this permit. You’ll also need this permit if your business is a space open to the public or prone to close congregation, such as a restaurant or nightclub.
- Air and water pollution control permit. If your company works in construction (or requires the construction of new buildings to commence operations), you’ll need this permit. You’ll also need this permit if your operations involve burning materials, discharging waste into waterways and sewers, or working with items that create aerosols or gases.
7. Sign permits
No matter your products and services, you must obtain sign permits in certain locations if you plan to install lighting or signage outside your building. Check with your municipal authority to determine whether you must apply for sign permits.
How to determine which of these licenses your business needs
Now that you’re aware of all the types of permits your company might need, you might be wondering how to determine which of these licenses you need to obtain. The answer is simpler than you might think: If any of the activities described under each of the license types apply to your company, then you need it. You can also assume that, in all circumstances, you need a business license and sales tax license. And if you remain unsure whether certain licenses apply to your company, contact the relevant government authority or a trustworthy business lawyer.
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