Setting up your business is not an easy task. You will have to put up requests for multiple permits and appeals to operate the business in your city. A business license is a permit that provides you with the right to operate and conduct business within the government's geographical jurisdiction. The types of licenses and permits will certainly depend on the location and industry. For instance, restaurant owners will require an FSSAI license and other permits to operate their food chain. This article is intended to guide new business owners regarding the need for a business license and how to get one.
What is a Business License?
It is the company's legal registration before you start operating or functioning in the market. Small business owners are legally required to register and acquire these licenses. Any business owner who does not have the required permissions may have to face legal repercussions. For example, pharmaceutical companies cannot sell unauthorized and untested drugs in the market. They may be legally charged for violating or conducting any such illegal activity.
Do you need a Business License?
Many states have not made it mandatory to get a business license, and it often becomes a dilemma for business owners to decide. However, we suggest you get a business license, irrespective of the city's or country's rules and regulations. Even if you are operating digitally, you must seek a license to protect your business from legal issues. Contact a lawyer or an accountant to deal with this and get proper licensing before setting up your business.
Benefits of Registering a Business
Here are some of the benefits of acquiring a business license for your company:
- Easy access to funding
- Limited liability protection
- Easy transferability and ownership
- Helps in the opening of a new business bank account
- Enhances the credibility of the business
- Protects your business against legal hassles
Types of Business Licenses
Here are some common types of business licenses that you may require. Check the industry or state to understand which ones may be applicable for your business:
- Business operating license – You may require this license to operate the business in your local region or state. Check the rules of your state before you apply for this license. For instance, some states will provide you with a license, while you might need a license from your city or county in certain situations.
- Seller’s license – If you are selling goods online or offline, you will require a government license to collect taxes from your customers.
- Industry licenses – If you work in industries such as medicine, healthcare, electrical, law, or salon, you will require special permits. Make sure to check the laws in your city or county before proceeding.
- DBA or fictitious name statement – This license will allow you to operate your business under a name different from your legally registered business name.
- Special permits – Brick-and-mortar or physical stores will require special permits for planning, building, signs, zoning, and fire. Check out the laws in your city or county.
- Federal licenses – Industries that are regulated and authorized by the federal government will require this type of licenses such as the Securities and Exchange Commission, liquor, cigarettes, firearms sales, and aviation. Check the SBA.gov website to understand the types of licenses the businesses require.
How to Get a Business License?
Here’s the process that you should follow to get a business license for your organization:
Decide your Business Entity and Structure
The first step is to determine the proper structure for your business. From sole proprietorship to a general partnership, LLC, and corporation, you should decide which one suits you best. For LLCs and corporations, choose a unique name for your business. You can also avail yourself of a DBA certificate from the state or local government.
Apply for an Employer Tax Identification Number
You will have to get an Employer Tax Identification Number (EIN) for your business, which you can avail of from the IRS website. It is a unique identification number that makes tax reporting easier.
Determine the License or Licenses You Need
The type of grants and permits will depend on the industry and state. You can find out which licenses you will need through the following:
- Check with the state’s Secretary of State office, Department of Revenue, or any other agency that issues business licenses.
- Check Small Business Administration Office resources.
Contact a business attorney to complete the paperwork and apply for the necessary licenses.
Apply for a Business License
Gather all the information and documents that may be required for the process. In most states, you can also apply for a business license online. Business operating licenses and sales tax permit licenses are generally approved in less time. The other types of licenses have a more extended review period, and you will have to wait until the process is complete.
Renew Your Business License
You will also have to get your business licenses renewed. Check with your lawyer and read the rules to determine if it must be renewed annually or every five years.
Frequently Asked Questions
How Much Does a Business License Cost?
The business license cost may vary according to the state or industry. Most likely, you will have to pay a fee between $50 to $200 to get the required license.
Can You Sell Online Without a License?
It will undoubtedly depend on the laws in your county or state. Check with the state department or city clerk. Most online businesses will need the same licensing requirements. So, we suggest you get the required licenses and permits.
Can You Run a Business Without Registering It?
Sole proprietors and partners can run a business without forming a business entity, but you will still have to complete certain registration formalities as per your county laws.
Final Thoughts
Most entrepreneurs often skip having a business license in the beginning because of the high expenses and costs. However, it is necessary to understand that failure to get a business license can cost you later. You may have to pay penalties, fines, or worse still, end up in prison. Irrespective of the size and type of your business, you must consider applying for a business license.
