Business licensing ensures businesses are operating in compliance with all relevant laws and regulations, from public safety and professional standards to paying local taxes. Figuring out if your business needs a license comes down to what your business does and where it’s located. Some professions, like doctors, lawyers, and real estate agents, always need a state-issued license because they have strict standards to meet. Other businesses, like a small craft store or an online shop, might just need a local business license for local zoning rules and tax handling.

Businesses operating without the necessary licenses can face severe penalties, including fines and legal action. Below, we’ll unpack everything you need to know to figure out exactly what licenses your business needs and how to apply for them.

What’s in this article?

• What is a business license?
  
• Types of business licenses
  
• How to know which licenses you need for your business
  
• How to apply for a business license
  

What is a business license?

A business license signifies official permission for a company to operate in a particular geographical area, as issued by local, state, or federal government entities. The scope of a business license varies depending on the type of business, location, and industry regulations. For instance, a restaurant might need a health permit, a liquor license, and a general business license to operate. A freelance graphic designer might only need a basic business license to legally offer services from home.

A business license serves several purposes:

• It ensures businesses comply with relevant laws and regulations, ranging from safety standards to environmental practices and tax laws.

• It helps governments monitor and regulate businesses for public and workplace safety, gather economic data, and plan for the future.

• For business owners, licenses legitimize their operations and avoid legal issues or fines down the line.

Types of business licenses

Here are the different types of business licenses you might encounter.

Local licenses and permits

Local licenses and permits are issued by city or county government and are often specific to the nature of your business and its location. Common examples include:

• General business license: A basic license required for most businesses to legally operate in a specific city or county

• Zoning permit: A permit ensuring your business complies with zoning laws that govern where certain types of businesses can operate

• Building permit: A permit required for any construction or renovation of your business’s space

• Sign permit: A permit regulating the size, type, and placement of signs for your business

• Health permit: A permit required for businesses in food service, healthcare, or other activities that might impact public health

• Fire department permit: A necessary permit if your business deals with flammable materials or has certain occupancy levels

State licenses and permits

In the US, these licenses are issued by state governments and typically regulate specific industries and professions. Some common examples include:

• Sales tax permit: A permit that allows you to collect and remit sales tax on the goods or services you sell

• Professional license: A necessary license for occupations that require specialized skills and training, such as doctors, lawyers, accountants, and contractors

• Industry-specific licenses: A license for specialized industries, including agriculture, liquor sales, or childcare

Federal licenses and permits

Federal licenses and permits are required for businesses involved in activities regulated by the federal government. They’re less common than state or local licenses, but some examples include:

• Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) license: A licensing requirement for businesses that manufacture, import, or sell alcohol, tobacco, firearms, or explosives

• Federal Communications Commission (FCC) license: This is required for businesses that broadcast radio or television

• Agriculture licenses: Certain agricultural activities require a license, including importing or transporting animals

Licenses for home-based businesses

Even if you operate your business out of your home, you might still need certain licenses and permits. In addition to the state and local licenses and permits mentioned above, requirements might include:

• Home occupation permit: A permit allowing you to run a business from your residence, often with restrictions on the type of business, signage, and noise levels

• Zoning variance: Businesses can apply for a request to deviate from the applicable zoning regulations, which is called a variance. These are granted on a case-by-case basis

How to know which licenses you need for your business

When assessing which licenses and permits you might need, it’s always a good idea to consult with a legal advisor. Here’s a basic guide to get you started.

• Understand your business activities: Start by clearly defining what your business does, its industry, and its specific activities.

• Check local requirements: Visit your local city or county clerk’s offices or websites. You can call local officials for the most precise information. Most local governments provide detailed information on the required licenses and permits for local business.

• Be aware of state regulations: If your business will be located in the US, consult state government websites or business portals, which often list licensing requirements by business type. If your profession is regulated (e.g., healthcare, real estate, legal services), you’ll likely need a professional license. Also, consider state-specific requirements, such as environmental permits or a sales tax license if you’re selling goods.

• Look into federal licenses: Determine if your business involves any federally regulated activities. For example, if you’re selling alcohol or broadcasting to the public, you might need federal licenses. Check the relevant agency’s website for guidance.

• Consider home-based business regulations: If you operate from home, you might need a home occupation permit, especially if customers visit your home. Your local zoning board can tell you if your home-based business complies with local zoning laws, which dictate how properties in certain areas can be used.

• Consult industry-specific guidance: Industry-specific associations often provide detailed licensing guides for particular business types. These organizations can also connect you with peers who can offer firsthand advice. The US Chamber of Commerce can also be a resource to guide you on the licenses and permits you’ll need.

• Use online resources and tools: Online tools and services can simplify this process. Websites such as the US Small Business Administration (SBA) offer guides that suggest typical licenses required for different types of businesses based on your location.

How to apply for a business license

Here’s a general step-by-step guide on how to apply for a business license.

Determine specific requirements

Pinpoint the specific licenses and permits your business needs to operate.

Collect documentation

Gather all necessary documentation, which might include:

• Personal identification, such as a driver’s license or passport

• Proof of business name registration (DBA)

• A detailed business plan and description of operations

• Lease agreements or proof of property ownership

• Articles of incorporation or similar documents for LLCs or corporations

• Financial statements or proof of capital

These documents often need to be notarized or certified, so plan for extra time to complete these steps. Some applications might also require supporting statements or letters, such as a letter of intent or a professional recommendation, especially in regulated industries.

Complete applications

Fill out the application forms. Mistakes can cause delays, so double-check all entries. If you’re applying for multiple licenses (e.g., local, state, federal), organize your paperwork to ensure each application is complete.

Pay licensing fees

Pay all fees associated with your licenses. Some might require a flat fee while others vary based on your business size or projected revenue. Some agencies might require checks or online payments while others might only accept money orders.

Submit applications

Submit applications to each licensing body. For local licenses, you might need to submit in person and could benefit from discussing your application with a clerk for any immediate corrections. For federal licenses, online submissions are more common, but certain parts of the application might need to be mailed.

Follow up on application status

Processing times can vary widely—from a few days to several months. During this time, be proactive: regularly follow up via phone or email to check on the status of your application and be prepared to submit any additional information that the licensing agency requests.

Schedule inspections as required

Certain types of businesses might require an inspection before the license is granted. This is common for restaurants, day care facilities, and manufacturing plants. Schedule inspections promptly and prepare your premises to meet all specified standards.

Display licenses as needed

Once approved, you’ll receive your license either through the mail or online. Some licenses need to be publicly displayed in your place of business; make sure to comply with these requirements to avoid penalties.

How to save money when incorporating a business

While some incorporation fees are unavoidable, it’s possible to lower your business’s costs by handling as much as possible in-house and seeking professional help when necessary. Here are a few key strategies for saving money:

• DIY incorporation: If your business structure is straightforward and you’re comfortable with paperwork, filing the incorporation documents yourself can save you hundreds or even thousands of dollars in legal fees. Online resources and guides are available to help you through the process.

• Compare registered agent services: Registered agent fees vary between providers. Compare prices and services from different companies to find the best deal for your needs.

• Consider forming an LLC: Limited liability companies (LLCs) are often simpler and less expensive to form than corporations, making them a cost-effective option for small businesses.

• Choose the right location: Some locations have lower filing fees and franchise taxes than others. Research different places to see which ones have the most favorable business environment for your industry and budget. Delaware is a popular choice in the US for its business-friendly laws and low fees, for example.

• Take advantage of online legal services: Online legal services offer affordable packages that can guide you through the incorporation process and provide templates for necessary documents. Some might even have discounts and promotions for new customers. This can be less expensive than hiring an attorney.

• Negotiate professional fees: If you need to hire an attorney or accountant, don’t hesitate to negotiate their fees. Some professionals might offer discounts for startups or small businesses.

• Plan for ongoing costs: While saving on initial incorporation costs is important, make sure to factor in ongoing expenses such as annual report fees, franchise taxes, and registered agent fees.