Do I Need a Business License for My Company?

If you are about to launch a start-up, you have no doubt asked yourself, “Do I need a business license?”

No matter what type of business you own—whether it’s in a physical storefront or based online—and regardless if it’s a small or large company, you are going to need to obtain and maintain a business license (possibly more than one).

Understanding business licenses can be difficult. This article seeks to answer some of the most common questions business owners have about when, why, and how to get a business license.

What is a business license?

• A business license is a mandatory approval or permit issued by a government agency that authorizes a business to operate within a specific jurisdiction. This license is often an additional requirement beyond the registration of a business at the state level. Whether a business is required to have a specific license depends on such factors as the nature of the business, the types of products it sells and the local government regulations in location of the business.

What is the point of a business license?

• Business licenses hold businesses accountable for their actions and behavior as well as protect the health and safety of the public.
• Professional licenses indicate the level of expertise a particular professional possesses.
• Sales tax licenses are required for the sale of taxable goods.
• The government uses licenses to track revenue for tax purposes.

Who needs a business license?

• Almost every company with an income stream will be required to have some type of business license, permit or registration in order to operate legally, in full compliance with government regulations.
• Some licenses are required of all businesses operating within a jurisdiction. These include:
  • Basic Business Licenses
  • Payroll Tax Registration (if there are employees)
  • Sales Tax Registration (if it sells tangible goods or performs taxable service)
• Many licenses are industry specific. Commonly licensed industries include:
  • Healthcare: Pharmacy, Wholesale Drug Distributors, DME, etc.
  • Debt – Collection Agency, Debt Buyers, Debt Settlement, etc.
  • Insurance
  • Construction – roofing, electric, plumbing, home improvement, etc.
  • Charities
  • Tobacco – wholesale and retail
  • Telemarketing
  • Retail sales
  • Security – Guards, Agencies, Alarm Companies, etc.
  • Energy Broker
  • Engineering

Where can I get a business license?

• Business licenses are issued by all levels of government and, depending on what type of goods you plan to sell, you may need to obtain a business license on federal, state and/or local levels.
• Certain businesses are required to obtain a federal business license, such as the sale of alcohol or firearms.
• State business licenses differ from state to state, so be sure to find out what your state requirements may be.

How do I get a business license?

• First, determine where your business will be operating—which state, county and city.
• You can find your state and city regulations on the SBA website.
• Make sure you have your company’s Federal Tax ID Number (EIN).
• Every type of business has a specific business code, so know your code when you apply for a business license.
• Check to see if, in addition to a business license, you may need a permit, as certain types of businesses need both.
• Be sure to pay the filing fee, which can range from $50 to $400 or more.
• You may need to get fingerprinted, depending on the type of business and the state.

What happens if I do not obtain a business license?

• Your business could be liable for significant damages and/or penalties.
• Neither you nor your company will be protected by local, state or federal ordinances.
• You will likely have to pay a fine.
• Your business may be temporarily or permanently shut down.
• Your company’s reputation may be tarnished.
• You could be held personally liable.

What happens after I have my business license?

• Many business licenses require annual or biannual renewal.
• Businesses should rely on their own internal compliance personnel in order to stay on top of business license renewals. Although most licensing jurisdictions do send renewal notices, companies should not rely on these reminders.

Keep in mind that it is not just new businesses that have to think about business licenses. Existing businesses must be mindful as well. Many situations could cause your company to fall out of compliance. The following are circumstances in which the requirements of your existing business license could change, and your company could need to update its business license:

• Your company began transacting business in another city, county or state
• Your company hired a new employee
• Your company began selling a new product or service
• You opened an additional business location
• You closed a business location

Business license compliance is an important aspect of owning a company, but it doesn’t have to be stressful or tedious. However, some governmental agencies are easier to deal with and more efficient than others.

Next: Business License or LLC First?