There are many exciting elements to building your new business. Everything from designing your store to the rush of your first customer purchase.
While researching a business license application may not be the most exciting part of the whole process, it can be essential to growing a brand and making sales.
This article will break down the range of different types of business licenses available, how much an application costs, and what are the benefits of applying. We will also talk about the six simple steps you should take to get your business license.
What Is a Business License and Why Is It Important?
If you are reading this article, you have already made the smart step of researching whether you need a business license as your business starts to grow.
A business license is the set of necessary permits and licenses issued by government agencies that allow a business to trade in a certain authority.
The license is an additional requirement of a business to operate, beyond registering. Not all businesses are required to get a license or permit to start making sales. Some only need to register the company, pay taxes, and get a business bank account for making transactions.
It can be easy to overlook the importance of a business license. Even if your business isn’t required to obtain any permits or licenses, it can be a smart move to get one as they can offer certain benefits. If your business is required to get one, you 100% should avoid any future legal problems.
Types of Business Licenses
Business licenses may sound boring but to avoid the wrath of some even more boring departments wielding endless red tape, you should do your homework. The different types of business licenses you need depends on the type of business you are engaged in and which states you operate in.
Nearly every business will need a license issued at the federal, state or local level. Typically, there are eight different types of business licenses to choose from.
- Business operating license
The classic business license everyone thinks of when the term business license pops up. This is a license that allows you to operate in a specific city or state. Some states require you to apply for a license from the state, in others you will need to apply for a license from the city or county.
- Seller’s permit
If you sell goods in person or online, most states require a permit which allows you to collect sales taxes from customers. Your business is then responsible for sending the taxes you have collected to the state taxing authority.
Seller’s permits are state-specific and let you collect taxes on business activity in that state. If you’re trading in multiple states, you may need more than one. There are five states that don’t require a seller’s permit:
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
- Doing business as (DBA) license or permit
If you operate a business under a name different from the one that you are legally registered as, you may require a license or permit to trade under a DBA name. DBA requirements vary by region and may be known as a trade name, fictitious name or assumed name.
Not every state requires a DBA license or permit, but there are a range of benefits to registering:
- Allows you to transact business and market under a new name
- Stop competitors from using your name
- Accept checks written to your DBA name
- Builds trust with your customers and give your brand more credibility
- Special permits
Many industries require special permits to operate. Sensitive businesses attract intense scrutiny from licensing authorities. These types of licenses and permits could take months to process.
Businesses that operate in regulated markets like dating services, tobacco retailers, antique dealers, carpet cleaning services and car dismantlers have to apply for a special license or permit.
- Industry licenses
A special license can be required to operate a business in brick and mortar industries like salons, electrical, childcare, medicine, and law. These licenses are obtained from the relevant authority in each state.
- Federal licenses
Industries regulated by the federal government require a Federal business license or permit. This special permit is required for most businesses that sell alcohol, firearms, or operate in aviation. The small business administration lists which types of businesses require a federal license and where to apply.
Federal agencies require small businesses to meet certain requirements before they can conduct business and the government agency issues federal business licenses. To be granted a federal business license, your business must first be established as a sole proprietorship, partnership, or LLC.
- Municipal and provincial licenses
The specific type of small business license you require will ultimately depend on your business location and the local regulations for business activities. You may have to apply for specific licenses at the state, city and local levels.
If your industry is regulated by a board, association or commission, you may additionally be required to present this permit or license to the local government. This certification may be required before issuing a business license in a state or county. You’ll need to check the requirements of local governments to see if your small business is affected.
- Employer Identification Number (EIN)
An EIN is a federal tax number issued by the Internal Revenue Service (IRS) that identifies your business as a distinct tax entity. Whilst not technically a license, an EIN is a good idea to avoid business tax-related hassles down the road.
An EIN is also known as a Federal Tax Identification Number and is used to identify a business entity. It can be particularly helpful for overseas entrepreneurs without a United States social security number. With an EIN, you may be able to open a business bank account or apply for a business credit card before obtaining a social security number.
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How to Get a Business License: A Step-By-Step Guide
Whether you need to start the process of obtaining a business license varies from state to state. Have a look at this quick step-by-step guide to determining whether you need any licenses or permits, and the roadmap you can follow.
1. Establish Your Business Structure and Name
Forming a business can involve a range of complex considerations. The structure will impact how you get paid, taxed, and which set of regulations you will need to follow. Common legal structures for small businesses include:
- Sole proprietorship
- Limited Liability Partnership
- Limited Liability Company
- Corporation
- Nonprofit corporation
It is best to define the structure and establish a business name before applying for a business license. Forming your business entity first means you won’t have to amend any applications retrospectively or double the paperwork.
2. Apply for an EIN
A sole proprietor without employees doesn’t need an EIN, but can use their own social security number (SSN) for tax purposes. It is recommended to obtain an EIN as a range of state and local authorities require a business to have one when applying for licenses and permits.
All other businesses will need a Federal EIN. You can obtain an EIN through the . The process is simple and you will receive your EIN immediately. There are four easy ways to get one for free:
- Complete the online applications for an EIN
- Fill out form SS-4 and mail it to the IRS
- Fill out form SS-4 and fax it to the IRS
- Call the IRS to request an EIN (international applicants)
3. Determine Which License You Need
Your business licensing requirements depend on the relevant Federal, State, and local agencies, plus what kind of business activity. You can find which licenses and permits your business requires through:
- Your Secretary of State’s office, Department of Revenue, or similar agency that issues business licenses.
- Resources available through your local Small Business Administration office.
- Working with a business lawyer to determine and file the necessary licenses and paperwork.
Researching which licenses apply to your small business is crucial as the consequences of running an unlicensed business can be costly. You can start by contacting the local authorities in the locations you plan to do business, then work up to the state and federal government authorities.
4. Prepare the Documents
Once you have identified which required licenses and permits apply to your business, the next step is to research which documents you will need to submit and how. Again, these documents will depend on the license or permit type, your business activities and the regulations of the relevant state.
For most business licenses and permits you can expect the following:
- Description of your business structure and business activities.
- Address your business is registered.
- Copies of all crucial company records, such as proof of being a legal entity or in the business register.
- Proof of status for tax purposes, such as a sales tax license, sales tax permit or tax-exempt status.
- Identity of the small business owner.
5. Apply for a Business Licenses
At this step you should know which licenses and permits are applicable to your business, and the business license requirements. Each business license application to the relevant agency is unique for every specific license. Because of these specific filing requirements, it can be very important to follow the instructions carefully to save having to repeat any paperwork.
Preparing the documents and paying the filing fee is only part of the process. For every business license, there are local requirements, for all local licenses and all local governments. Some agencies allow you to apply for your business license online, whilst others may prefer in person.
6. Remember the Renewal Requirements
Once you have received your hard-won business licenses and permits, make sure to check the expiration date. Renewal requirements are different for specific licenses and are a crucial part of business licensing. Pay attention to the fine print and continue making sales.
Most business license issuing authorities send you a notice if your license needs to be renewed or if the expiration date is coming up. The State of Washington, for example, sends a renewal notice 45 days before the business license is due for renewal.
Even within one state there can be different renewal rules for different businesses operating in different industries. If you don’t pay your license renewal fee by the deadline, there can be an additional late fee added.
The process for renewing a business license is not always easy to find or clear. If it has been coming up to a year since your license was issued and you are not certain how to renew your license, check out these tips to start:
- Check the federal government Small Business Administration
- Check with your state regulatory authorities
- Check with your local government
How Much Does It Cost to Get a Business License?
Business license cost depends on a range of factors, such as the type of business license, the location, processing fees and renewal fees. For many businesses, business license fees will be between $50 to $400 per business license. However, many businesses can operate without a license. Research your business plan and you may not need to pay anything.
For example, a California business license typically costs between $50 and $100 for most businesses and there is no charge for a seller’s permit. However, industry-specific licenses from the relevant California department can cost a lot more. It can be best to research licensing requirements and fees, including this in your planning and budgeting process.
How Long Does It Take To Get a Business License?
Once you submit your application for a business license, you will either receive an instant approval or have to wait to hear back from the business licensing agency. This process can be the same whether you apply for the business license online, by post or in person.
Many local government business licensing agencies can take weeks to approve applications, assuming there are no errors in the paperwork and you meet the licensing requirements. Be prepared to check your approval status by contacting the agency. This can help you promptly correct any potential paperwork errors.
Benefits of Getting a Business License
If you are working with the public in some regard, then a business license is nearly always required. There are a range of benefits that getting a business license offers, beyond just professional licensing. Check these key benefits of a business license:
1. Legal Protection
A business license can ensure that a new business complies with all the regulations, from the local government up to the state level. Most cities require a business to be licensed and obtaining a business license can protect the business from being shut down.
Using your personal name for your business can add a personal element, but it does not offer any legal protection against any damages or injuries caused by your business. Separating your business from yourself with a business name also maintains your personal privacy. Depending on your business structure, a licensed business protects owners against liability.
2. Build Trust
Customers can be wary of a new business, particularly when making a purchase online. Displaying a business license in-store or on an online storefront can be a direct method of building trust with the potential customer.
Having a business license can offer a sense of stability and security for customers. Sharing your business license information with potential investors can show that you are invested in and dedicated to your business’s long-term success.
3. Tax Compliance
Business licenses can allow entrepreneurs to keep up to date with taxes owed to local, state, or federal authorities. Issued licenses are important for the local authorities because they can keep a record of all businesses that pay tax.
A licensed business’s taxes are filed separately from personal taxes, because it is a separate entity. This can also provide you with the opportunity to deduct business expenses that potentially cannot be exempted from your personal taxes. Separating personal and business income can make it easier to make sure you are tax compliant.
4. Access to Assistance
Operating as a licensed business can provide you with access to aid from local government, particularly for new businesses. This can take the form of funds, guidelines or advice on how to operate legally. To qualify, a business must possess a business license demonstrating that the city approves of the business venture.
Business organizations can increase a business’s success. To join many require a business license. For example, the Better Business Bureau (BBB) requires you to be licensed and offers the opportunity for your company to be listed as trustworthy.
To Sum Up…
Getting a business license may not be the most exciting part of starting a business, but it can be essential to keep the sales coming in and making a profit. Avoid any unwanted legal trouble or costly fines and learn how to get a business license today.
- Establish your business strategy and name
- Apply for EIN
- Determine which busines license you need
- Apply for the business license
- Remember the renewal requirements
It is important to know what are the different types of business licenses, how much they cost, and how long it takes to get one for your business.
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