If you have a small business, you will probably need to acquire at least one business license or permit from your state or local government to legally operate. Depending on the industry, there may also be additional federal-level licensing and registration requirements.
In this article, we explain business license rules, what licenses or permits you may need to obtain, and how to apply for business licenses and permits.
This article covers:
- What is a business license?
- What type of business license do I need?
- Steps for obtaining a general business license
- What are the penalties for not obtaining a business license?
- Conclusion
What is a business license?
A business license is an official document or registration that grants your business the legal right to do business within a jurisdiction. It can be issued by a state and/or local government agencies.
Having a license signifies that your business is complying with the rules and regulations that protect both your business and your customers. It also indicates that your business is reputable and trustworthy.
Business licensing and permit requirements will vary depending on your specific business activity, location, and governmental regulations.
A general business license is commonly required for most businesses. This license is sometimes referred to as a business privilege license, business tax registration, or basic business license. Typically issued by a county or municipality, a general business license gives you permission to operate your business within that specific jurisdiction. If you operate in multiple locations, you may need to obtain a separate business license for each location, even if all business locations are in the same state.
In places where a general business license is issued by the state, you may still need local-level licenses to be compliant.
What type of business licenses do I need?
Business licenses and permits vary by the type of business and the governing jurisdictions. Specific requirements can also change over time. Your business may need to obtain one or more of the following licenses, permits, or registrations:
- Federal registrations: Federal licenses are generally required only for businesses regulated by a federal agency, such as the U.S. Food and Drug Administration (FDA), the U.S. Department of Agriculture (USDA), the Securities and Exchange Commission (SEC), and the Bureau of Alcohol, Tobacco, and Firearms (ATF). Businesses subject to federal licenses include grocery wholesalers, trucking companies, individuals and facilities handling controlled substances, food service companies, restaurants that sell alcohol, and gun stores, just to name a few. In addition, any individual who buys or sells more than 2,000 pounds of fresh or frozen fruits and vegetables in a day must obtain a USDA-issued PACA license.
- Employer Identification Number (EIN): An EIN is a federal tax ID number issued by the IRS. Many businesses are required to obtain an EIN, whether or not they have employees.
- Sales & Use tax license: If your business is required to collect sales and use tax, you must comply with sales tax registration requirements from your state tax authority and obtain a state tax identification number.
- General business license: A general business license is typically required by local counties and municipalities for the privilege of doing business in that jurisdiction. Certain states, such as Nevada and Washington, require that a business obtain a general business license or the equivalent from both state and local governments.
- Professional/occupational license: A number of industries (such as drug manufacturers, pharmacies, insurance, and construction) are highly regulated in each state. This means your business may need to comply with industry-specific licensing and certification rules.
- Special state-issued licenses and permits: If your business sells liquor, tobacco, lottery tickets, gasoline, and/or firearms, you must obtain a state-issued permit for these activities.
- Miscellaneous local permits: Additional permits may be needed for alarm systems, signage, food preparation, home-based businesses, buildings, zoning, and more.