As a small business owner, you want to make sure you’re starting off on the right foot by running your new business in line with local laws and regulations. One way to do this may be to get a business license, but this depends on the nature of your business and the laws in your area. Business licensing requirements change from state to state and even from city to city.

Getting a business license or permit can add credibility to your business by legitimizing you both in the eyes of your local government and your customers. Read on to find out more about why you should consider a business license and how to get one.

What is a Business License?

A business license is any government-issued license or permit that is required to do business activity in that locality. In the U.S., these are generally governed state to state and depend on the kind of business you have. Keep in mind that your city or county may have specific business licensing requirements even if your state does not. There are several types of businesses that usually need a business license, regardless of location. It all depends on your business structure and where you’re located. 

A business license can do more than just keep you in line with local laws. It can also help you to limit your personal liability, gain access to funding, keep up with your taxes, and help you build trust with your customers. 

Who Needs a Business License?

Generally, small business owners may need a business license for the following reasons:

• You have a brick and mortar business. A business license will allow you not only to engage in commercial activity, but also to do work on the building. City laws may require you to have a business license for fire safety or to ensure you’re posting proper safety signs, too.
• You sell goods. In this case, you’ll likely need a seller’s permit, which allows you to collect sales tax.
• You’re a licensed professional. This includes medical providers, hair stylists, lawyers, accountants, childcare providers, and others. 
• You sell highly regulated items or perform a regulated service. You’ll need a license to sell food, alcohol, tobacco, or firearms, as these are highly regulated by law. Services that are regulated by federal or state law will also require industry-specific licenses.

What are the Types of Business Licenses?

There are many different types of business licenses, and the kind you need will depend on what type of service you provide and where you do business. You can get a full list of federal license requirements and where to apply for them from the U.S. Small Business Administration (SBA). Here are a few common licenses or permits that business owners should consider:

• General Business License –  Generally issued by the Department of Revenue (DOR) or Secretary of State, a general business license or operating license is not required in most states. However, you may need one depending on your city or county regulations. 
• Doing Business As (DBA) – Typically, your business name is your personal name if you own a sole proprietorship. If you’d like to do business under a different name than the one you’ve registered, you can get a “Doing Business As” (DBA) license. It acts as a sort of legal nickname for your company, which can help you rebrand without having to go through the time-consuming and expensive process of legally changing your business name. 
• Permits – Depending on where you do business and what kind of business it is, you may need special permits, like zoning, home occupation, buildings, planning, signs or fire permits. These types of permits are most common for brick and mortar businesses.
• Professional Licenses – Many service-based businesses, like law firms, accounting firms, therapists, salons, and even landscaping may require licenses to operate. These are regulated at the state and city level. 
• Federal Permits and Licenses – You’ve heard of a liquor license being necessary for a bar, restaurant, or liquor store to run. This is because alcohol is regulated by the federal government. Other businesses that require federal licenses include firearms, TV and radio, and aviation industries. 

What Are the Steps to Get a Business License?

Although it may sound daunting, getting a business license can be straightforward if you’re prepared. You may want to enlist the help of a small business accountant to make sure you check all the boxes, but in general, following these steps will help you figure out what licenses you need and how to obtain them. 

1. Form your business entity

Business formation is the legal start of your business. There are several structures available, including a sole proprietorship, general partnership, limited liability company (LLC), corporation, or nonprofit corporation. Please note that choosing a business structure, such as an LLC, is not the same as applying for a business license or permit. 

2. Apply for an Employer Identification Number (EIN)

The employer identification number (EIN) or employee tax identification number is a nine-digit number used by the IRS to identify your business, and allows you to file your business tax return. You can either apply for free using the SS-4 form through the IRS via their online portal, mail, or fax, or have your business accountant fill out the forms for you. 

3. Determine what licenses you need (if any)

Depending on your business location, these requirements can vary widely. Your local SBA office can be an excellent resource for this, but you can also visit your state’s Secretary of State website or Department of Revenue office. If you’ve hired a business lawyer or accountant, this is another opportunity for them to go to work for you. 

4. Apply for the licenses

 Business license applications can generally be completed online with your city, state, or federal agencies. And again, the SBA is an excellent resource for ensuring that you’re following the right processes for the licenses and permits you need to function as a business. 

5. Renew the license as needed

Just like your driver license, business licenses expire after a set amount of time. Keep on top of renewal dates to make sure your business continues functioning legally and remember that some government agencies may need a long lead time to renew licenses due to staff shortages or other issues. 

Why is a Business License Important?

Staying on top of your federal, state, and local licensing and permitting requirements can make your business much safer and more secure in the long run. It’s worthwhile to put in the work up front to ensure that you’re following local laws and regulations, not only to keep your business out of trouble with the law, but to increase your customers’ respect and trust. 

FAQ

How Much Does a Business License Cost?

The cost of a business license will depend on many factors, especially the kind of business you’re running and where you’re running it. You can expect a general license to be as little as $15 or as much as several hundred dollars. If you’re selling something that is federally regulated, such as alcohol or tobacco, you can expect to pay even more. Once again, your local SBA is the best place to track down how much your business license will cost, and a business lawyer or accountant can help you make sure you’re filing everything properly. 

Can You Run a Small Business Without A License?

The answer to this question is yes — if you run a small business in a state that doesn’t require a license. For instance, Texas does not require a general business license. However, there are instances where you may need a permit or license to operate based on the kind of business you’re running and the county or municipality in which you’re planning to operate. Even in Texas, you need a liquor license to sell alcoholic beverages and you have to have a medical license to open a medical clinic. Your local economic development office, DOR, or State Department will provide you with a list of necessary licenses and permits. 

Is an LLC a Business License?

No. An LLC is a type of business structure, like a sole proprietorship or general partnership. While determining your business structure may help you decide which permits or licenses you need to run your business, the structure is not the same as a business license.