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Do I Need a Business License? Your Questions Answered

Do I Need a Business License?

As a new business, you have three obligations: registering your business, paying taxes, and acquiring
the proper permits.

Finding the right permits is one of the most complicated of these three. Registering an LLC or
partnership often requires little more than a few one-page forms. Taxes aren’t easy, but accountants
simplify the process. Permitting, however, usually means a wild goose chase between local and state
agencies.

There are very few circumstances in which you do not need a business license. The type of permits
required often depends on what kind of business you run and where you set up shop. Location plays
one of the most significant roles. Working in one zip code could mean the city subjects to you to
different zoning laws, regulations, and even taxes.

For example, zoning laws are local regulations that often designate a neighborhood for residential or
commercial use. These restrictions might limit or ban certain businesses from operating in an area.
Business licensing and permitting isn’t simple, but it is essential. You shouldn’t be running a business
without a license. If you do, you might be violating local ordinances or even state criminal law.
Do you have questions about business licenses? If you’re still wondering “Do I need a business
license?” then read our guide for everything you need to get started.

Do I Need Business License?

license

The following types of businesses almost always need a business license:

  • Sole proprietorships
  • Partnerships
  • Limited Liability Companies
  • Corporations
  • Non-profits/NGOs

In effect, it doesn’t matter whether you are a home-based social media consultant, a franchise, or a
fledgling corporation, there’s a high likelihood that you need a business license to operate.
If you’re unsure, consult a business lawyer or another legal resource to learn whether and what kind
of permits you need to run your business.

Why Do I Need a Business Licence?

stamp

You may run a simple, low-maintenance business, but you still need a license. Licenses are the
government’s way of keeping track of your income and activities. Your license will identify your
unique business to ensure you:

  • Uphold local, state, and federal law
  • Protect the public
  • Protect the public
  • Report your income
  • Pay the correct taxes

Where Do I Get a Business License?

business permit

Forty-thousand licensing jurisdictions across the United States issue business licenses. They may
come from every level of government from the federal government right down to your municipal
government.

Depending on your business type, you may need to get a license at each level of government
including:

  • Federal
  • State
  • County
  • Municipal

What Happens If I Don’t Get a License?

You might think that your business is small enough to fly under the government’s radar. But the
government takes licensing, permits, and registration legally.

If you fail to get the appropriate license from the state and you get caught, you may face expensive
fines and penalties. It may also leave you legally vulnerable. For example, if you don’t have the
proper licenses and someone makes a liability claim against your business, your insurance company
may deny the request.

Do You Work at Home? You Still Need a License

If you operate your business out of your own home, you still need a license. Home businesses are
particularly susceptible to violations because they don’t realize they need a permit, even as a sole
proprietor.

Your state or municipal government may ask you to apply for a Home Occupation Permit.

Fortunately, if you run a business like a consultancy or freelancing business, then you may not need
any other permits bar this one. If you run a shop or production shop out of your home, then you will
likely require additional licensing that varies according to your business type.

Make sure to check with your community association if you live in building managed by a home
owner’s association (HOA). HOAs may bar residents from running any operating out of their home.
For more on the kind of permits you need to run a home business, use the U.S. Small Business
Associations’ interactive guide.

What Kind of Business Licenses Might You Need?

questions

The kind of licenses and permits you need depend on the kind of business you run and the city in
which you register. Requirements vary by municipality and state, but they may include licenses like:

  • Business license
  • Health Department permits
  • Sales tax license
  • Zoning permits
  • Building permits
  • Sellers permits
  • Police permits
  • Tax registration
  • Professional licenses

Who Should I Ask About Business Licenses and Permits?

Your first port of call should be your local city government to start with necessary permits for
operation such as a zoning permit, a home occupation permit, or a sellers’ permit.

Many new businesses find their local chamber of commerce is an invaluable resource for learning
more about licenses and permits and connecting with other companies who can provide friendly
albeit non-legal advice.

One of the difficulties new businesses face is that you’ll need to visit multiple departments to get the
permits you need. For example, you’ll find yourself visiting the state’s department of commerce,
health, and likely several other agencies to get the help you need.

Where to Get a General Business License

You’ll find your city or county government issues general business licenses. Expect to renew it
annually with the local government. It typically requires completing a short form and paying an
annual fee.

Where to Look for Zoning Permits

Zoning is a local affair, so before setting up a business, you’ll need to get in touch with your city. You
should find preliminary information on your city’s website, but you’ll learn the most once you start
the application.

If you’re opening a business, then zoning permits are the first place you should stop after forming an
LLC. You should never sign a lease to rent any commercial real estate without first checking the
zoning requirements. Don’t expect the city to allow your business to replace a previous similar
business. The previous owner’s zoning designation may not carry over to your business.

You might find available business locations are in short supply as a result of your city's zoning
requirements. Be warned. Local politics may mean that these requirements may not make any
sense.

For example, the City of Chicago features distinct zoning districts used to promote and reflect the
diversity of the city’s neighborhoods. The city manages the business activities allowed in each
district. When you apply for zoning in Chicago, the city considers whether:

  • You properly classified your business activity
  • Your activity is allowed in the district you apply for
  • You comply with zoning requirements (building, landscape, parking, etc.)
  • You provide a valid driveway permit

Where to Look for Tax Permits and Registration

ballpen and coins

You might be most familiar with the IRS as the premier tax agency in the country. As a business,
you’ll also pay state and local taxes including:

  • Income tax
  • Sales tax
  • Corporate tax
  • Property tax

You’ll need to speak to both your city and your state government to get the relevant tax permits.
Some cities or counties collect local sales tax through the general business license fee.

Whatever you do, make sure you don’t neglect your tax permit. Some cities or states consider
running a business without a sales tax license to be a criminal offense.

While you are in the process of getting your tax permits, ask your local U.S. Small Business
Administration office about tax incentives for small and new businesses. Some local and state
governments use tax breaks as an incentive to attract commerce to the area.

Where to Look for Health and Safety Permits

safe

Your county health department will require you to get a health permit any time you sell food or
beverage products to the public. Health permits aren’t just for restaurants. You’ll also need a health
permit if you:

  • Sell packaged food
  • Run a wholesale or distribution business
  • Run a street vendor business (including flea markets, farmers markets, and food trucks)
  • Sell and service vending machines
  • Own a beauty salon, nail salon, or tattoo parlor
  • Distill or brew alcohol
  • Haul waste

Regulations for health permits vary widely by county and state. Find your local health department
here.

What Do I Do After I Get All the Right Permits?

Once you have all the licenses and permits you need to run your business lawfully, your work
continues.

You’ll need to keep both the originals and copies of all your documents in a safe but accessible place
in case you get audited or inspected. Your state or municipality may also demand that you display
some licenses. If so, be sure to follow the guidelines. Often, you must place the permits somewhere
where customers can readily see them.

All your licenses will likely come with expiry and renewal dates. Keep track of these dates and add
them to your calendar to ensure you renew in time. Failure to renew your license when required
could lead to penalties or even temporary shutdowns for your operation.

Have more questions? Visit our archive of business resources.

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