The number of agencies at the federal, state, and local levels give rise to a multitude of business license, registration, and permit requirements. These requirements vary by location and by type of business activity.
In this article, we discuss business license requirements and obligations for the state, federal, and local levels along with the different types of licenses that a business might need.
A business license legally authorizes a business to operate in a specific jurisdiction by ensuring compliance with the regulations of that jurisdiction. Licensing requirements exist to enforce rules that govern how a business operates. They protect the public by upholding health and safety standards, as well as allowing governments to track economic activity and ensure proper taxation.
Beyond regulatory compliance, licensing can also help you position your business for growth and maintain a positive public image. Licensing requirements vary depending on business type and location, and a business will often need multiple licenses for different activities.
Why do you need a business license?
A failure to comply with business licensing requirements can result in fines, penalties, arrest, and even the closure of your business by tax and licensing authorities.
Throughout the lifecycle of your business, you must adhere to a host of legal obligations at all government levels. These include taxes, business registration, and employment requirements, as well as licenses and permits.
Before you begin operations, you must obtain the right licenses, permits, and tax registrations and keep them current. You may also be responsible for obtaining new licenses as your business evolves or regulations change.
There are many different types of business licenses, but required licenses, registrations, and permits may be placed into four broad categories:
Licensing, registration and permit requirements vary by jurisdiction, as well as by the type of business or activity within a locality. The procedures for complying with assorted licensing requirements also vary among states and municipalities.
Certain businesses and professions require special licenses. For example, industries, like daycare or aviation, are more highly regulated than others. Other kinds of businesses that require professional or occupational licenses include the following:
Business license requirements can vary depending on the type of license and the licensing jurisdiction. Generally, before you apply for your business license, you will need to -
New businesses may also need to obtain these licenses and registrations:
Note: A home-based or online business often requires the same level of compliance as a traditional brick-and-mortar commercial establishment. In addition, there may be licenses specific to home-based businesses. For example, many cities or county governments require home-based businesses to have a “Home Occupation Permit.”
Related resource: How to get a business license
Making changes to your business can trigger new compliance obligations. Changes such as growing your business, ceasing operations, or adding a new product line may require new licenses or permits or cancelling existing ones.
A common trigger is if you expand into a new state or municipality. Because license requirements vary by location, you should ascertain the need to obtain any additional licenses. These requirements could differ from those of your business’s current location.
Note: Any licensing costs necessary to support business operations, or to carry out an expansion or contraction, should not be forgotten in annual budget planning.
Changes that can bring about the need for a new license include:
If you decide to dissolve your business, any current licenses will need to be canceled. As with the initial filings and renewals, this may need to be done at the federal, state, and/or local levels.
For more information, see Business changes that can impact business license compliance.
Many jurisdictions are moving towards increased regulations and oversight and stricter licensing requirements. Consumers, business partners, employees, and shareholders are also demanding greater compliance and transparency. Furthermore, many jurisdictions are considering or adopting increased licensing fees or requirements to offset budget shortfalls.
Enforcement efforts against unlicensed businesses are also on the rise. As a result, it’s critical that you reevaluate how you manage business license compliance. Any violation risks negative publicity, adverse public perception, and damage to your company’s good name and positive reputation.
A failure to maintain the right licenses or pay licensing fees could result in a variety of consequences since each jurisdiction may levy its own penalties. For example, you may face fines from the licensing or tax authority or be forced to cease operations until the violation is addressed. Violations can even lead a business or business owner to be subject to liens or criminal penalties.
Compliance failures can also affect the timely implementation of strategic business decisions. For example, they could result in:
Don’t underestimate the potential impact of licensing noncompliance, especially if you have been operating in a less aggressive enforcement area.
Here are examples of unlicensed business operations featured in the media:
Check to see if you are eligible for a license amnesty program. Even if such a program does not exist, contact the proper licensing agency and address any failure immediately. Don’t wait for the agency to implement enforcement measures.
Laws and regulations are continually changing, along with the number and types of licenses, permits, or registrations your business may need.
You may choose to manage your licensing obligations internally. Another option is to outsource licensing compliance management to a professional service provider. These third-party companies can offer different levels of service. For example, a provider may offer research services, preparation and filing services, or full outsourcing services.
Regardless of the size or type of business, business license compliance is complex. It is important to keep up with licensing requirements to maintain the legal health of your business and to avoid unnecessary fines and penalties. Having the right compliance strategy will provide your company with a solid foundation for success.
Outsourcing business registration and license research, applications, management, and renewals can help you take the pressure off internal resources. By working with a full-service management provider who specializes in the efficient processing of business licenses, permits, and registrations, you can free up your time to focus on starting and growing your business while ensuring you keep up with changing compliance requirements. Alternatively, if you prefer to keep renewal filings in house, we also offer a self managed option through our Business License Hub.
For more information on CT Corporation services and how we can streamline your business licensing, please contact us.
