As a small business owner, you want to make sure you’re off to a good start by managing your new business in accordance with local laws and regulations. One way to do this may be to obtain 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 city to city.
Obtaining a business license or permit can add credibility to your business by legitimizing you in the eyes of both your local government and your customers. Read on to learn more about why you should consider a business license and how to get one.
What is a commercial license?
A business license is a government-issued license or permit that is required to conduct business in that locality. In the United States, these are generally governed from state to state and depend on the type 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 generally require a business license regardless of their location. It all depends on your business structure and where you are located.
A business license can do more than just keep you compliant with local laws. It can also help you limit your personal liability, access financing, pay your taxes, and build trust with your customers.
Who needs a commercial 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 not only allow you to engage in commercial activity, but also to perform work on the building. City laws may require you to have a business license for fire safety or to ensure that you also post appropriate safety signs.
- You sell goods. In this case, you will probably need a vendor’s permit, which allows you to collect sales tax.
- You are a licensed professional. This includes medical providers, hairdressers, lawyers, accountants, child care providers and others.
- You sell highly regulated items or perform a regulated service. You will need a license to sell food, alcohol, tobacco or firearms as these are highly regulated by law. Services regulated by federal or state law will also require industry-specific licenses.
What are the types of commercial licenses?
There are many types of business licenses, and the type you need will depend on the type of service you provide and where you do business. You can get a complete list of federal licensing requirements and where to apply for them from the US Small Business Administration (SBA). Here are some common licenses or permits that business owners should consider:
- General Commercial License – Typically issued by the Department of Revenue (DOR) or Secretary of State, a General Business License or Business License is not required in most states. However, you may need it depending on your city or county regulations.
- To do business As (DBAs) – Generally, your business name is your personal name if you are a sole proprietorship. If you want to do business under a different name than the one you registered, you can obtain a Doing Business As (DBA) license. It acts as a sort of legal nickname for your business, which can help you rebrand without having to go through the time-consuming and expensive process of changing your business name legally.
- permit – Depending on where you do business and the type of business, you may need special permits, such as zoning, home occupancy, buildings, planning, signs or fire permits . These types of permits are most common for brick and mortar businesses.
- Professional licenses – Many service businesses, such as 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 that a liquor license is required to operate a bar, restaurant or liquor store. This is because alcohol is federally regulated. Other businesses that require federal licenses include the firearms, television and radio, and aviation industries.
What are the steps to obtain a commercial license?
Although it may seem daunting, obtaining a commercial license can be simple if you are 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 which licenses you need and how to get them.
1. Create your business entity
Business creation is the legal start of your business. There are several structures available, including a sole proprietorship, partnership, limited liability company (LLC), corporation, or not-for-profit 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 allow you to file your business tax return. You can either apply for free using Form SS-4 through the IRS through their online portal, mail, or fax, or have your business accountant complete the forms for you.
3. Determine what licenses you need (if any)
Depending on where your business is located, these requirements can vary significantly. Your local SBA office can be a great resource for this, but you can also visit your state’s Secretary of State website or Department of Revenue office. If you have hired a business lawyer or an accountant, this is another opportunity for them to go to work for you.
4. Apply for licenses
Business license applications can usually be completed online with your city, state, or federal agencies. And again, the SBA is a great resource for making sure you’re following the right processes for the licenses and permits you need to operate as a business.
5. Renew the license if necessary
Just like your driver’s license, business licenses expire after a certain period of time. Keep up to date with renewal dates to ensure your business continues to operate legally and remember that some government agencies may take a long time to renew licenses due to staff shortages or shortages. other problems.
Why is a commercial license important?
Staying current with your federal, state, and local licensing and permitting requirements can make your business much safer and more secure in the long run. It’s worth working from the start to make sure you follow local laws and regulations, not only to keep your business out of trouble with the law, but to increase the respect and trust of your customers.
How much does a commercial license cost?
The cost of a business license will depend on many factors, especially the type of business you run and where you run it. You can expect a general license to cost as little as $15 or up to several hundred dollars. If you’re selling something that’s federally regulated, like alcohol or tobacco, you can expect to pay even more. Again, your local SBA is the best place to find out how much your business license will cost, and a business attorney or accountant can help you make sure you file everything correctly.
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 does not require a license. For example, Texas does not require a general business license. However, there are instances where you may need a permit or license to operate depending on the type of business you operate and the county or municipality in which you plan to operate. Even in Texas, you need a liquor license to sell alcoholic beverages and you must 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, such as a sole proprietorship or a general partnership. Although determining your business structure can help you decide what permits or licenses you need to run your business, the structure is not the same as a business license.
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