When Do You Need a Business License for Your Company?

Do I need a business licenseIf 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.

Our partnership with LicenseLogix makes it easy for new and existing businesses to obtain all the licenses and permits your business may need. Their Client License Information Center, or CLiC, makes it easy for you to manage the business license renewal process, thus avoiding late charges and fines.   

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?

 

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

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There are 14 comments left for When Do You Need a Business License for Your Company?

Shannon Billman said: Saturday, March 17, 2018

Hi I want to have an Online business what type of licence will I need?

HBS Staff replied: Monday, March 19, 2018

Your best bet is to check with the state in which the home business will be located. Each state has different requirements and guidelines. Try your local Small Business Administration office or your state's Divsion of Corporations website.

Dan Herman said: Monday, December 4, 2017

I have an LLC consists of a golf pro SHOP driving range and snack shop Do I need seperate business licences Even though I have one EIN FOR MY Corp

HBS Staff replied: Tuesday, December 5, 2017

Typically, a business license is obtained in the state where a company is physically operating. Some states may need the entity to obtain a license for each venture. It is best to ask the state in which your company physically operates what is required and if you need to obtain  business licenses to operate multiple ventures.

SUMAN SAHOO said: Thursday, August 24, 2017

We want to start a LLP of 3 partners, please inform us the startup procedure and engaged legal activities. Thanks & Regards Suman Sahoo

HBS Staff replied: Friday, August 25, 2017

Hello. Here is more information on LLPs: https://www.delawareinc.com/blog/what-to-know-about-a-limited-liability-partnership/

If you'd like to form an LLP, you can do so from our website or feel free to call us at 1-800-345-2677 during normal business hours.

michele miller said: Monday, November 28, 2016

I want to start a cleaning business. What steps do I need to take to get started

HBS Staff replied: Tuesday, November 29, 2016

To form an LLC or corporation, you can call us at 1-800-345-2677 9-5 EST Mon-Fri. This blog outlines some of the possible licenses you may need, and our partners at LicenseLogix can further guide you in regard to your specific type of business.

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