Do I Need a Business License for My Company?
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When you’re preparing to start your small business, there are many exciting tasks to get done: locking down the perfect business idea, choosing a business name, getting the word out, and so on.
In addition to these exciting to-dos, however, there are also the more tedious tasks that need to get done before your opening day—determining your business budget, getting a business ID number, and of course, all of the other necessary paperwork. When it comes to business paperwork, you'll have several important documents to complete, which may lead you to wonder: Do you need a business license?
The answer is more than likely, yes. In fact, filing for a small business license or permit can be one of the most important steps in getting your business set up. However, you may still be wondering what licenses are needed to start a business and how to determine which licenses you need. We're here to help. In this guide, we'll explain the different types of business licenses and permits—including state, local, and federal licenses—and which ones you may need to start your business.
Types of business licenses: The basics
Virtually all small businesses will need some type of license or permit to legally operate. Unfortunately, knowing what type of license you need to operate in your state and in your specific industry isn't so simple. Depending on the kind of small business you run, you may need to obtain local, county, state, or federal small business licenses.
To help you sort through what licenses are required to start a business, let's explore the possibilities for each level of government—local, state, and federal—so you can better determine what types of business licenses and permits may apply to you.
Types of business licenses: Local licenses and permits
With some exceptions, here are the main types of business licenses and permits you'll need to secure with your local or city government to start your business. We should note, you might not need all of these licenses at the end of the day, however, it's worth going through all of these types, just in case.
This way, you can be confident that you have the licenses needed to start a business and legally operate—and you can avoid facing fines or penalties from a missing mandatory license down the line.
This being said, the business licenses and permits on this list may be required by your local, country, or city governments, so you'll want to be sure to check for each type at the appropriate government office.
1. Local business operating license
The most basic type of business license you may need is a local business operating license, which, as the name suggests, essentially grants you the right to operate your business.
Therefore, you might need your local or city government to issue you a local operating license to start and run your business within your town's or city’s limits.
Your city’s business license department will, of course, be specific to your location, so you'll need to locate the office on your own to obtain this type of license. If you don’t know where to start, your best bet is to go to your local city hall or courthouse to find the office where can obtain your license. You also can use the SBA's small business resource search tool to find local business requirements based on your area.
Additionally, if you're starting a business that is technically outside of your closest city limits, you may need to acquire this license from your county government office.
2. Zoning and land use permits
Once you fill out and file your local business license application, the city zoning department usually checks to make sure that your business’s location and area are zoned for your type of business and the parking area around your business meet the local zoning codes.
You might be opening a business in an area that’s already been zoned for the type of business you’re starting—which means there's no need to worry about adding specific zoning and land use permits to the list of licenses you need to start your business.
However, you can’t operate your business in an area if it’s not zoned for your type of business. In this case, you'll need to get a variance or conditional-use permit in order to operate in that area. You’ll need to present your case for business before your city’s planning committee to get the variance. When you present your business for land use permits, you’ll just need to show that operating your business in that area won’t significantly disrupt the character and safety of the neighborhood you plan to operate in.
3. Building permits
If you’re lucky enough to be starting your business in the perfect space, you might not need to worry about licenses and permits for your building.
But if you’re planning on building an entirely new building, renovating an existing one, or installing new utilities or appliances in an existing one, you likely need to obtain building permits from your local government. This ensures that what you’re building or renovating is in line with safety codes and conforms to local government regulations.
The licensed contractor that you’re working with should know the building permits you'll need to secure with your local government to start your business.
4. Fire department permit
Usually issued by your local, county, or city government, a fire department permit enables you to be open to the public. A permit from your fire department is especially necessary if your business uses flammable materials.
Some cities require that you have this type of small business license from the fire department before you open your doors for business. Others just require periodic inspections and certificates of inspection to keep your business open.
Every business owner should check to see if they need a fire department permit. But operations that serve the public—think restaurants, retirement homes, hotels, day-care centers, gym studios, etc.—definitely will need this license to start their business.
5. Health licenses and permits
If you’re starting a restaurant, operating a cafe, or opening a fitness facility—anything that could possibly relate to people’s health, you'll need to pay close attention to any health licenses that are required to start your business.
Most local governments have health permits that small businesses in the area need to operate. The requirements you face for your business, again, will entirely depend on your local government. Therefore, you should work with your local town agency to figure out the health permits you need to operate your business in the area.
6. Signage licenses and permits
You might not have known it, but some cities and counties have restrictions on what your business’s signage can look like. This could refer to various elements of your signage: the size, location, visibility, lighting, and so on.
If your business’s signage isn’t up to your local government’s requirements—and you don't have the necessary licensing and permits—your business could suffer from some serious fines. Therefore, to ensure that your signs are legal, check in with your local government on what types of licenses you need to follow signage codes.
7. Environmental licenses and permits
Environmental small business licenses and permits mostly fall at the state and federal government level, but it’s worth mentioning while we’re listing off your local licensing requirements as well.
Local governments are increasingly looking to protect their population and land’s health by regulating small businesses in the area. Environmental permits might regulate where you can produce and sell, air and water quality levels in your area, and waste removal requirements. Air quality boards are popping up all over the United States, so it’s important to check if you need a specific environmental license or permit with your local government.
Types of business licenses: State licenses and permits
Once you’ve determined what business licenses you need at the local level, the next step is to ask yourself: "Do I need a business license at the state level?" As we mentioned, licenses you need to start a business vary from state-by-state, and not all states require a state-specific license. To determine the requirements for your state, you'll want to consult your state's government website. On the whole, however, here are the state-level licenses that may be required to start a business.
How Much Do You Need?
1. State business operating license
If you’ve already obtained your local business license, then you know the general gist of what a state small business operating license is.
Essentially, this type of license is needed for state tracking purposes. Not only do they grant you the right to operate your business in the state, but they also help the state government track your business entity and revenues so they can issue taxation accordingly.
Most states have offices that are made specifically for issuing state business licenses, but you can also refer to the SBA’s state business license office locator to find out where you can get yours.
2. Seller’s licenses
Additionally, you should also be aware that, depending on your industry, you could need another special business license on top of your general business license that's based on the type of goods you sell.
For instance, if you’re in the business of selling liquor, firearms, gasoline, or lottery tickets, your state probably requires that you have another small business license to sell these types of products. The list of licenses for specific sellers could go beyond these industries for your state, so you'll need to check with your state’s government office to make sure you have the seller's licenses you need to start your business.
3. Tax registration and permits
The IRS doesn’t technically “license” your business—but it does require that certain businesses obtain an employer identification number (EIN), or a federal tax identification number. Businesses need to register for an EIN so that the IRS can identify your business entity and tax you as appropriate.
However, an EIN is not required for all businesses. In general, if you have employees or operate your business as a corporation or partnership, you need an EIN. If you're unsure whether your business needs an EIN, you can consult the IRS guidelines on their website.
Moreover, you also might need to register with local and state government agencies for other tax permits—like your sales tax license, income tax withholding, unemployment insurance tax, and workers' compensation. These tax permits, once again, will depend on the state you operate your business in, so be sure to refer to the tax permits you need for your state.
4. Occupational licenses
In many states, business owners in certain occupations need to secure a specific type of license to operate legally. You'll need this operational license to start your business, as well as have to maintain it with your state to continue to operate throughout the years.
If you're trying to determine: "Do I need a business license specific to my occupation?" you should reach out to your state's government offices. In general, however, you might need an occupational or professional state license if you're in one of the following professions:
Real estate brokers
Private security guards
There are other professions, of course, that may be affected by occupational license requirements—once again, you'll want to check the regulations in your state to ensure that you have the licenses you need to start a business in your profession.
Types of business licenses: Federal licenses and permits
If you're finding that you'll need business licenses at the local and state level, you may be hesitant to ask: "Do I need a business license at the federal level?" Fortunately, not all small businesses have to worry about licenses at the federal level, but some in certain industries do. Therefore, just like at the local and state level, it's important to know which federal licenses you may need to start your business and get them if required—or you could be facing fines and penalties.
Licenses needed to start a business in federally regulated industries
If you’re starting a business in a federally regulated industry—firearms, commercial fishing, aviation, etc.—then you'll need to consult a specific list of business licenses to operate legally in your industry.
Here’s a brief list of industries that will definitely need a special license to start their business.
Agriculture: If your business involves importing or transporting animals, animal products, biotechnology, etc., you need to apply for a permit from the USDA to legally operate.
Alcohol: You need a business license from the federal government along with your state business license if you’re selling alcohol as a part of your business. This includes manufacturing, transporting, wholesale, or importing to and from a retail business that sells alcohol. Visit the Alcohol and Tobacco Tax and Trade Bureau to get a list of exactly what you’ll need.
Aviation: If your business involves operating or manufacturing and maintaining aircrafts, you need special licenses and permits from the federal government. You'll also need different licensing from the Federal Aviation Administration to run your business in the aviation industry.
Firearms, ammunition, and explosives: If you’re in a business that manufactures, deals, and imports firearms, ammunition, or explosives, you need different licensing before you start your business. This licensing all falls under the Gun Control Act, and you can learn what you need to secure from the Bureau of Alcohol, Tobacco, Firearms, and Explosives.
Fish and wildlife: For a business in the wild or commercial fisheries or wildlife industry, you need to obtain certain environmental permits and licenses before you get going. As a good rule of thumb, any business involving wildlife should check in with the U.S. Fish and Wildlife Service to see what exact permits they need.
Maritime transportation: Does your business use cargo shipping overseas? You need to apply for a business license from the Federal Marine Commission.
Mining, drilling, and nuclear energy: If your business is involved in drilling natural gas, oil, or other natural resources, you probably need to have a drilling permit from the government to actually do so. Or, if you’re in the business of nuclear energy, you'll need to apply for a business license with the U.S. Nuclear Regulatory Commission.
Radio and television: If your business broadcasts information over the radio, television, satellite, or cable services in the U.S., check in with the Federal Communications Commission to get the federal business license you need to operate.
Transportation and logistics: This federally regulated business practice might apply to a number of different small business owners, so it’s worth paying attention to. If you operate an oversized vehicle or truck, you need to have a permit for any oversize or overweight vehicles. These are usually issued by your state government even though they fall under federal jurisdiction. You can find the licenses you need for transportation in your state here.
Types of business licenses: Licenses and permits for home-based businesses
So far, we've discussed the possible types of business licenses needed to start your business in a commercial space. If you're a home-based business owner, then, you may still be wondering: "Do I need a business license?" Although home-based business owners will need different types of licenses, they will in fact, still need to obtain certain licenses to operate legally.
What licenses are required to start a business in your home? Here are the basic licenses you may need:
1. Home occupation permit
Almost all home-based small businesses need a Home Occupation Permit to legally operate. Consultants or freelancers might only need a Home Occupation Permit as their small business license.
A Home Occupation Permit essentially just shows that by operating your business out of your home, you aren’t significantly adding traffic, noise, or harmful environmental conditions to your area. The SBA's list of state-by-state small business licenses can help you find and apply for a Home Occupation Permit specific to your state.
2. Property use and zoning permits
Small business owners operating out of their homes should be aware of local zoning ordinances that apply to home-based businesses in their area.
Residential areas can have strict zoning regulations that might even prevent home-based businesses altogether. Don’t worry—it could be possible to get a variance that lets you operate out of your home. Again, check with your local or city government office to know what the rules and regulations are regarding home-based businesses in your area.
3. General business licenses and permits
Ultimately, many home-based businesses have to go through the same process to get the licenses needed to start any kind of business.
Therefore, even if you’re a home-based business owner, you still likely need to have the following if applicable:
General business license
Professional and trade licenses for certain industries
Sales tax permits
Health, safety, and environmental permits
Building and construction permits
Unfortunately, to maintain your home-based business legally, you'll still need these types of business licenses to start and run your operations. Moreover, you should remember that online businesses are not exempt from these regulations either. If you're wondering "Do I need a business license to run an online business?" the answer is, once again, yes—you'll also need to acquire the proper licenses to get started.
The bottom line
Almost all businesses will need one or multiple licenses to start and operate their businesses legally, whether at the local, state, or federal level. As you go through the different types of businesses licenses we've discussed to determine which ones you'll need, don't forget you can always consult the SBA or your local government agency for assistance with the licenses required to start a business.
If you've figured out which licenses are required for your business and are now asking when do you need a business license—the answer is more than likely as soon as possible. You'll want to apply for and receive all necessary licenses before you actually start operating or open your doors to the public. Once you've started your business under the appropriate licenses, you'll also want to display your licenses properly, make copies for your records, and keep track of any renewal dates to ensure you're always operating legally—and of course, to avoid possible fines or penalties.
Dealing with the licenses you need probably will not be your favorite part of business ownership, but once you've taken care of this essential step, you can move on to the other, more exciting aspects of launching and growing a successful small business.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.