- Most small businesses will need business licenses and permits that grant them legal permission to operate in compliance with federal, state and local guidelines.
- The average business license costs a few hundred dollars, plus renewal fees.
- Check with an attorney to ensure you comply with all necessary business license requirements.
- This article is for new business owners seeking information on getting a business license.
When you start a new business, there’s a good chance you’ll have to register your company to acquire a business license and other necessary operational permits. Your business location and industry will determine which licenses and permits you need.
Since acquiring a business license can take considerable time and resources, it’s crucial to know which ones apply to your business (and how to get them) as soon as possible.
What is a business license?
A business license is your company’s legal registration that permits you to operate within your industry and jurisdiction. Small businesses are legally required by federal, state and local governments to acquire the applicable business licenses before providing goods or services.
Business licenses benefit counties by allowing them to collect revenue and regulate the companies within them. However, a business license is also advantageous for your small business.
“Becoming licensed allows business owners to provide their customers, employees and other stakeholders with the confidence that the business is well run and its goods and services are trustworthy,” said James Gilmer, manager of strategic partnerships at Harbor Compliance. “Licensing in certain sectors can also be used as a competitive advantage, where licensed businesses can demonstrate proof of licenses at the negotiation table or [during the] RFP process.”
Every county imposes different business license requirements and regulations, and failure to comply can have a litany of consequences, including fines, late fees, penalties and denial of operation. Therefore, it’s essential to identify which licenses and permits you need before opening your doors to the public.
“Filing requirements change depending on the type of business, and businesses like restaurants and day care facilities require additional business licenses,” said Kelly DuFord Williams, founder and managing partner of Slate Law Group. “It is paramount that anyone interested in starting a business understands what licenses they are required to carry before inception. Furthermore, it is advised to seek counsel to ensure proper adherence to local rules.”
Types of business licenses and permits
Business licenses can vary wildly across different states, cities and industries, so pinpointing which specific licenses you need can be challenging. We spoke with industry professionals to identify some of the most common business licenses required to get started, but it’s crucial to seek legal counsel to determine which ones apply to your business.
Business operating licenses
Business operating licenses are state- and city-issued licenses that grant you legal permission to operate your business within your city and state. You may need to apply for these separately at the state and city levels, as each jurisdiction has its own requirements and regulations.
DBA (doing business as) license or permit
If you operate your business under a different name from the business name you chose and registered, you may be required to register a DBA name. DBA stands for “doing business as.” It’s also known as a trade name, fictitious name or assumed name.
DBA requirements vary by location, but registering a DBA name is essential for avoiding trademark infringement and other problems.
Tip: After choosing a DBA name, consider registering a business trademark to protect your intellectual property.
Planning and zoning permits
Each municipality has regulations for which businesses can operate in specific areas, so you must verify that the city in which you operate is zoned for your specific business type. If it isn’t, you must apply for a zoning variance and prove that your business will not significantly disrupt the community.
Building and home occupation permits
A building permit verifies that the building in which you operate is up to code, a necessary component of applying for business insurance. Buildings that lack occupation permits may have structural problems or be at risk of flood or fire.
If you plan to operate your business from home, a home occupation permit can allow you to do so in some instances.
“If you run and operate your business from home, you must obtain a home occupation permit,” said Deborah Sweeney, vice president of online acquisitions at Deluxe Corp. “This ensures your neighborhood is zoned for home business activity; that is to say, the business conducted from your home does not add additional traffic or noise to the community.”
Fire department permits
A fire inspection and safety permit from your local fire department verifies that your business will be operating safely and does not violate any fire codes. This is especially important for companies that use volatile or flammable materials.
Some jurisdictions require every business to receive a fire department permit before operating, while others require recurring inspections. Check with your local government to see which fire inspection regulation level applies to your business.
An essential (and sometimes confusing) element of running a business is ensuring you comply with all appropriate tax regulations, which typically includes acquiring multiple licenses for tax purposes. For example, nearly every business must obtain a federal tax identification number (FEIN). This number is also called an EIN (employer identification number). It enables you to hire employees and collect payroll taxes.
Businesses that sell goods (and sometimes even those that sell services) are also often required to obtain a seller’s permit, also known as a sales tax license or permit.
Health licenses and permits
Depending on your industry and location, you may need specific health permits to operate your business. For example, businesses in the food and beverage industry must be assessed to verify they’re up to health code standards.
Unless you’re one of the few exempt organizations, you’ll also have to comply with safety regulations like those from the Occupational Safety and Health Administration.
Companies in specific locations and industries may be required to get one of the many government-regulated environmental licenses. These typically protect environmental factors like air and water quality.
For example, Williams said that most counties in California require businesses that produce water waste (e.g., car washes and outdoor cleaning companies) to complete an urban runoff section of their business license, projecting any possible water runoff that could cause pollution in local waterways. These companies must fill out additional information in their business license application to determine their compliance. [Learn more about running a business in California.]
Although it may seem innocuous, putting up a business sign before obtaining the proper sign permits can lead to hefty fines. Many local governments regulate business signs, including how big they can be and where they can be placed.
To avoid wasting money on a sign that isn’t up to code, check with your local government to see if you need to follow any guidelines or obtain a sign permit beforehand.
In addition to the standard business licenses most businesses need, you’ll likely need licenses and permits specific to your industry. These are some industries and business types that require specific licenses and permits:
- Child care
- Cleaning and janitorial services
- Food and alcohol
- General contracting
- Pest control
- Temporary events
Some examples of permits these industries need are reseller’s permits and Alcoholic Beverage Control (ABC) licenses.
“Another thing that a business might need is something called a surety bond,” said Angelique Rewers, CEO of training and consulting firm BoldHaus. “Surety bonds are financial guarantee agreements that ensure a company’s compliance with state regulations and/or contractual obligations. This is something that is often required for certain types of companies, such as those in the construction industry.”
Rewers also said that businesses in federally regulated industries often have to fill out licensing forms with agencies like the U.S. Fish and Wildlife Service and the U.S. Department of Transportation. Since the licensing you will need varies by state, city and industry, you should contact the relevant government authorities and legal counsel to understand your specific requirements.
Did you know?: If your business operates a fleet of vehicles, you need to abide by the Department of Transportation’s hours-of-service regulations to keep your drivers rested, awake and alert.
How much does a business license cost?
You’ll need to include license and permit costs in your business budget. Business license or permit costs depend on several factors, including license type, location, processing fees and recurring fees. On average, business licenses cost between $50 and a few hundred dollars, plus renewal fees.
According to Gilmer, some states have general business license requirements. For example, a state business license in Nevada can cost $500 per year plus fees to file annual reports that include an updated list of officers and directors.
“For industry-specific and local licenses, fees can range from anywhere from a few dollars to a few thousand dollars, either one time or on an ongoing basis,” Gilmer said. “For budgeting purposes, business owners should do their homework and contact the relevant agencies as part of the planning process, rather than suffer sticker shock when applying for a license reactively or on short notice.”
Where to get a business license
The process for filing business licenses varies by license or permit, but you can generally find the information for obtaining a business license on county, state and federal websites. In several jurisdictions, look for the department of business and professional regulation at the local level, also known as the state license bureau.
Applying for a business license can be daunting, as very few states have central agencies that oversee licensing. Gilmer suggests that business owners start by contacting the city, county and state governments where they plan to operate or hire an attorney or company to assist with the process.
“If you think there’s a chance the type of business you’re starting is also regulated at the federal level, be sure to check out the information about federal business licenses listed by agency on the Small Business Administration’s website,” Rewers said. “Err on the side of caution versus making an assumption that you’re in the clear.”
How long does it take to get a business license?
Getting a business license can take anywhere from a few days to months. Along with your business type, your jurisdiction determines how long it will take to get a license. Some states can grant business licenses within a week, while others may take three to four weeks.
Your industry also determines how long you can expect to wait for your business license. According to the U.S. Small Business Administration (SBA), businesses in the construction, farming, dry cleaning, vending and restaurant industries often face specific state regulations with extra business licensing requirements and extended approval time frames. The SBA warns business owners that licenses are not always permanent and may have an expiration date with required renewal.
In some cases, federal agencies may also have to approve a business license. This is particularly true in cases where the national government oversees industries, such as agriculture, tobacco, firearms, transportation, mining, fishing and aviation.
Tip: Entrepreneurs and small business owners can sometimes expedite business license approvals by submitting completed applications along with any requested fees.
Which comes first, forming an LLC or obtaining a business license?
According to Harvard Business Services, it’s important to form a limited liability company (LLC) before getting a business license. Although some companies establish an LLC only, they risk fines and penalties (and their business assets) if the business violates any local regulations.
It also makes the most sense to get the LLC first because a business license requires your business’s legal name. If you form the LLC after obtaining a business license, you’ll need to request a business name change with the licensing agency, which may incur a fee.
How to get a business license
To get a business license, you have three options:
- File on your own.
- Contact a third-party filing service to help prepare your license applications.
- Consult an experienced attorney who can help you file your business license.
If you’re going it alone, follow these general steps:
- Determine which business licenses you need.
- Compile the appropriate business documents for your application.
- Apply for the business license.
- Receive your business license.
- Keep up with license renewal requirements.
Let’s explore each step in more detail.
1. Determine which business licenses you need.
Start by researching which licenses apply to your business at the federal, state and local levels. Contact the relevant agencies in the locations where you plan to operate.
“This can be a time-intensive process, as many government agencies do not have helpful websites or phone service, but it’s important to avoid the consequences of running an unlicensed business,” Gilmer said.
Remember that you should first create an LLC and obtain an EIN from the IRS before seeking other business licenses.
2. Compile the appropriate business documents for your application.
When applying for a license, pay close attention to each application to identify which documents to submit. The documents you need depend on the license type, the work you’ll be doing and any specific regulations enforced by the applicable government agency.
According to Gilmer, most license applications will require the following:
- A description of the business, its planned activities and the location of its physical premises
- Copies of corporate records (e.g., articles of incorporation, corporate bylaws)
- Proof of state or local tax status (e.g., a sales tax permit)
- Lists of ownership, managers and individuals allowed to accept service or sign agreements on behalf of the company
- A filing fee to the government, which can range from a few dollars for a local permit to several hundred or thousands dollars for state-level licenses
For business licenses in specific industries, such as architecture and construction, Gilmer said that business owners might also have to provide the following:
- Proof of insurance or surety bonds
- Educational or professional qualifications of owners and key staff
- Audited financial statements or proof of operating capital
Every state also requires businesses to designate a registered agent allowed to accept service of process and other documents. The registered agent must be based in the state where the company is headquartered; it can be an individual, attorney or company.
Did you know?: It may surprise you that many occupations require licenses, including makeup artists, security guards, interior designers and florists.
3. Apply for the business license.
Once you know which business license to apply for and the documents you need, you’ll need to fill out and submit your application. Each application’s submission process is different, so be sure to follow the instructions closely.
“Preparing applications and accompanying documents is only one small piece of the process,” Gilmer said. “Every government agency has a unique process for filing applications, which can be by mail, in person, email, fax or online. Sometimes, forms must be signed by multiple parties or notarized, and original forms – or duplicates or triplicates thereof – must be submitted.”
4. Receive your business license.
You can submit many business licenses online. After applying, you may receive immediate approval, or you may have to wait to hear back from the licensing agency. Many agencies can take weeks or months to approve applications – and that’s assuming you correctly completed the application.
“Business owners should be prepared to contact government agencies after submitting license materials to ensure approval and to correct deficiencies,” Gilmer said. “Given the overall time it takes to become licensed, business owners should make researching and obtaining licenses and permits part of the planning process, rather than wait until a project or development opportunity surfaces – it could be too late.”
It’s also worth noting that in many cities and states, only a certain number of licenses are available for a particular industry. Depending on your location and the type of license you apply for, you may end up on a waitlist until a license becomes available.
“Certain licenses, such as in the pesticide world, require several years of hands-on experience before you can actually get the license yourself,” Rewers said. “That means you may have to hire a full-time manager or operator of the business that already has the license you need.”
5. Keep up with license renewal requirements.
Once your application is approved and you receive your business license, you will be granted legal permission to conduct a specific type of business for a certain period of time. However, many business licenses must be renewed, so note any renewal requirements to avoid accidentally letting your license expire.
“The stakes are high when it comes to getting all of your licenses and permits in place,” Rewers said. “If you miss even one item, your business could be fined, or worse, it could be shut down until you get everything sorted out. And while you’re working through the paperwork, you’re not only losing sales, but you are also carrying all of your expenses, including rent, salaries, utilities, insurance and more.”
Key takeaway: The best states for small businesses have straightforward licensing requirements. No matter which state you’re in, it’s a good idea to seek legal counsel to help you apply for licenses and maintain compliance.
Pro tip for getting a business license
For the best chance of receiving a business license and maintaining legal compliance, seek counsel from an experienced legal professional, especially when dealing with complicated licensing requirements and applications.
“In addition to online services that can help you sort through what you need to have in place, it’s also a good idea to work with a local attorney who knows your local government departments and the laws and regulations of doing business in your area,” Rewers said.
Dock Treece contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.