Starting a business is an adventurous activity, accompanied by many responsibilities. Obtaining the right licenses and permits is one of the most important steps toward legitimizing business ventures.
A business license is an important document that allows a person to carry on a legitimate business in a given jurisdiction. In this article, it’s to discuss what business licenses are about, why they’re necessary, and several examples from various industries on different types of business licenses that are there.
What’s A Business License?
A business license is a form of official document issued by any government agency that legally allows you to start up your business in that specific locality. This is usually an indication or a form of evidence that your business is legally registered and complies with the levels of regulations available at the local, state, or even federal level. In most cases, business licenses are local—city or county-based—but other industries require state or federal licensing.
Why Do You Need a Business License?
Legal Compliance
One business license is most critically required to legally run one’s business. Without proper licensing, you are at the mercy of fines, penalties, or closure of business.
Tax Purposes
Business licenses are often appended with tax systems in such a way that the local government can have a check on the businesses in the process of collecting taxes. This, therefore, will ensure that every business obligates its right quota towards the local economy.
Public Safety
Often many licenses are inclined toward protecting public welfare and health by ensuring that businesses conform to certain standards and regulations.
Consumer Protection
Licenses can hence offer the consumer some element of protection because it may act as proof that the business has a certain minimum qualification or something along those lines related to their industry.
Types of Business License
General Business License
This is the most common type of license that normally applies to all businesses. Normally, it is a requirement for any business, irrespective of the nature of the business, that operates within a given city or county area.
Example: A small bookstore in downtown Chicago would need to get a general business license from the City of Chicago to legally operate.
Professional License
Professional licenses are for those occupations that practice that require special skills or knowledge. Many professional licenses require unique education, training, or examinations.
Example: For a dentist who sets up a new practice, he or she may have to secure a dental license from the state’s dental board, as well as a general business permit.
Home Occupation Permit
If one intends to operate a business from one’s own house, one will be required to secure a home occupation permit. This permit will confirm that one’s home-based business does not interfere with the residential character of the neighborhood where one lives.
Example: A freelance graphic designer who works at home might need to obtain a home occupation permit from their local zoning department.
Sales Tax License
Businesses that sell physical goods, and in some localities certain service-oriented businesses as well, are required to collect sales tax. A sales tax license will allow you to collect and forward these taxes to the applicable government agency.
Example: An e-commerce retailer that sells handcrafted jewelry may be expected to have a sales tax license to collect and remit sales tax on transactions that are made by customers living in that state.
Health Permits
Businesses that offer food or any type of personal care service would generally need a health permit to ensure that they abide by the appropriate sanitization and safety standards.
Example: A neophyte food outlet must first obtain a health permit from the local health department before it can start operating.
Liquor License
Every business that serves, sells, or provides it must obtain a liquor license. Oftentimes, these are highly controlled and strictly limited in quantity in a certain geographic area.
Businesses such as construction and home improvement typically require a contractor’s license to carry out work at residential and commercial sites.
Example: If the plumbing company wanted to be licensed and practice within the law, they would need to get a contractor’s license from their state’s licensing board.
Zoning Permit
Others may require a zoning permit to ensure that they are operating the business in a zone zoned for their type of activity.
Example: A manufacturing company would need to obtain a zoning permit to ensure that its factory is located in a zone zoned for industrial use.
Federal Licenses and Permits
Although most licenses are obtained at the local or state level, a few industries require federal licenses or permits.
Example: A manufacturer of firearms would require an FFL to operate a business from the Bureau of Alcohol, Tobacco, and the ATF.
Industry Licenses
You may also be required to obtain industry-specific licenses.
Example: A daycare would likely need licensure by the state Department of Human Services or child welfare agency.
First, research the particular licenses that apply to your business in your location. You can check from your city hall, your county clerk’s office, or from your state government website to find all the information you need.
Gather Needed Documents
Get together the required documents. These may include
Business formation documents (articles of incorporation, etc.)
Employer Identification Number (EIN)
Proof of business address
Identification documents
Complete Application
Fill out the license application completely and accurately. There may be some jurisdictions with online application facilities, while for others, you may need to fill in a paper application.
Submit Fees
Business licenses are subject to differential fee structures; the determination of fee can vary with jurisdiction, the nature of the business a person is involved in and the kind of license being applied for. Once you are done submitting your form, be ready to pay the corresponding fees.
Application Submition/A Report on the Application
Apply with all supported documents and fees attached. It may be a few days or several weeks before it is approved, depending on the license type or jurisdiction.
Renew Your License
Most business licenses have to be periodically renewed, usually on an annual basis. Mark your calendar so that you do not forget the renewal date and operate your business without the license being valid.
Examples of Business Licenses in Different Industries
Retail Industry
Small Clothing Boutique
Generally, for a small boutique opening in a city, the types of general business licenses needed would be:
General business license
Sales tax license
Resale certificate (this will allow you to buy inventory tax-free)
Sign permit (if a sign requires an application)
Food Service
For a new café opening in a city, the general business licenses that many cities will require are:
General business license: most cities will require a business license
Health permit: for almost any kind of food-serving operation, most cities will require some kind of health permit
Food handler’s permit – required of employees
Sign permit – required if signs are being utilized
Outdoor seating permit – required if applicable
Construction
Specialty trade licenses, such as electrical, plumbing, etc.
Workers’ compensation insurance certificate
Technology Industry
The following are the required licensing needs for a software development type of startup:
General business license
Home occupation permit (in the case of operating from home)
Professional license (in connection to unique specialized services ancillary to this practice)
Healthcare Industry
New medical practice opening up would need to have the following:
General business license
Medical license for practitioners
DEA registration is needed for prescribing medication
HIPAA compliance certification
Entertainment Industry
A movie theater opening within a local shopping mall would need to have:
- General business license
- Public assembly permit
- Food service permit (if serving concessions)
- Sign Permit
Automotive Industry
An auto repair shop could require:
- General business license
- Automotive repair dealer license
- Environmental permits (for handling hazardous materials)
- Sign Permit
Real Estate Industry
A real estate brokerage firm could require:
- General business license
- Real estate broker license
- Individual agent licenses for employees
Issues With Acquiring Business Licenses
Multiple Jurisdictions
Businesses that operate in many locations may require a license from each regional unit, making it cumbersome and complicated.
Changes in Regulation
Licensing requirements themselves might change over time, meaning more knowledge has to be invested in updated regulations by businesses.
Specialized License Requirements
There are very specialized licensing requirements for different industries that a business may be dealing with and can prove difficult to understand without expert help.
Cost
Fees for many licenses can be very expensive, which can affect micro or small businesses and start-ups.
Duration End
Sometimes, some licenses will last for weeks and even months before they can be processed. This can be a significant hindrance to business operations.
Ways to Govern Business Licenses
Stay Organized
Store your license documentation in a safe and accessible place. Create a digital backup of all relevant documentation.
Set Reminders
Incorporate a to-do list into your calendar or utilize business management software to make reminders about renewals and any necessary inspections.
Budget for Fees
Ensure that fees required for the business licenses are captured in the annual budget so that when the time to renew comes, you will not be taken by surprise by the costs.
Information keeps you in the loop
Stay informed about the changes in the licensing requirements that your business should comply with.
Get Professional Help
If handling licenses seems increasingly stressful, you might want to invest in a lawyer or business consultant who is an expert in license specifications and issues connected with compliance.
The Future of Business Licensing
Online Portals
Many jurisdictions are going paperless with license application and renewal processes.
Standardization Efforts
Certain states are trying to make business licensing requirements standard throughout the state to simplify things for businesses.
Blockchain Technology
Blockchain technology can be used in the future for better and more efficient license management.
Conclusion
A business license is among the necessary suffering one needs to do to set up or keep a working business good. Although the process can be somewhat overwhelming, in consideration of the type of license or licenses your business might need, this is a way to run your business legally and responsibly. We’ll help you work your way through the process.
Remember, business licenses keep you in compliance with local, state, and federal business regulations, protect public safety ensure a fair business playing field, and contribute to their part in the local economy.
If you are getting started in business or expanding what you are engaged in, obtaining and maintaining the necessary licenses should be the priority. You should be aware of changing regulations, budget associated costs, and be ready to seek professional help if the need for it arises. You are then well on your way with the right licenses in your hand, and it is only a matter of growing your business and reaching your entrepreneurial goals.
