When you’re starting a business there’s so much to know, it can be overwhelming. Let us take some of the complexity out of the startup process by answering the top FAQs entrepreneurs have about small business licenses and permits.
Is a business license the same as a permit?
Although most businesses likely need various licenses and permits to operate legally, a business license and a permit are different. A business license from the city in which your company operates, confirms your business has complied with the city’s rules and regulations for legal operation.
Other business licenses refer to the specialty or profession of the owner and staff, for example, accountants, doctors, attorneys, and certain trade businesses such as electricians. Then, there are also licenses granted by various federal government agencies.
Permits, on the other hand, usually imply the business has passed an inspection or test of some sort, such as health or zoning.
How do you obtain a business license?
Start by contacting the business development office or business licensing office in the city where your company is located. You can most likely also find the information on the city’s website. Applications and requirements vary by location, but you can be expected to provide the following information on the application:
- Reason for application. Is this a new business? Are you changing of address for an existing business, changing of ownership, or needing a secondary license to an existing business?
- Business structure such as a sole proprietorship, partnership, corporation, or limited liability company (LLC).
- Owner’s name. For a partnership, this is the names of the partners are used. If this is a corporation, the name of the corporation is registered with the Secretary of State.
- Driver’s license number and social security number of the owner, or one of the partners, or officers of a corporation.
- Business name, which is the name used for the business other than the owner’s name (Doing Business As DBA).
- Type of business, which will provide information on the activity of the business?
- Address of the business. The location where the business activity is to be conducted.
- Phone number of the business.
- Mailing address if this is different from the business address.
- The residence address of the owner. For a partnership or corporation, you will need the name(s) and residence address(es) of the owner, partners or principal officers of the corporation and their titles and percent ownership in the business.
What are the different types of business licenses?
- Federal Licenses. Businesses regulated by a federal agency need a federal license. Start at the federal agency your business falls under and you will be directed to the appropriate state agency to secure a license. For example, businesses that sell, manufacture, import or wholesale alcohol, are regulated by the Alcohol and Tobacco Tax and Trade Bureau.
- State and Local Licenses. The Secretary of State and your city’s business licensing office will know what other licenses are required for your business. For example, you may need a special license to have an in-home daycare center or pet grooming facility license.
- Specialty Licenses. Specialty licenses come from the school or industry licensing agency for specific professions, such as hair and nail salons, plumbers, and more.
- Sales Tax License. Businesses selling products and services subject to sales taxes need a sales tax license from the state tax authority office.
Do you need a business license to incorporate?
All states require some type of business license to conduct business, however, you can start the incorporation process with the state before you acquire the appropriate licenses. In general, the steps to incorporating are:
- Conduct a business name search in the state to make sure the name is available.
- File the company’s articles of incorporation.
- Have an official meeting and create corporate bylaws.
- Get a Federal Tax ID number or Employer Identification Number (EIN) from the IRS.
- Acquire the appropriate business licenses from the county and/or city where you will do business.
That said, some states may require you to obtain a business license to open a business bank account depending on the type of business being conducted.
Is an LLC a business license?
An LLC or limited liability company is a business structure formed under specific state statutes. It is a separate legal entity from its owners (known as members). An LLC can be formed as either a single-member LLC or a multi-member LLC and either member-managed or manager-managed LLC.
The LLC is the formal business structure that is simplest to form and maintain. It offers some of the same benefits of a corporation without the costs and compliance complexity. An LLC offers business owners some personal liability protection, tax flexibility, and less strict management requirements than a corporation. The business registration paperwork to form an LLC is minimal as are the ongoing filing requirements.
What happens if you’re running a business and don’t have a business license?
A business discovered operating without the required licenses can be fined, forced to close, and is vulnerable to various lawsuits. The same consequences apply for businesses that let their business licenses lapse. A business failing to renew licenses may have to pay late fees or may be turned down entirely, depending on the department issuing the license. Without a license, a customer can decide to sue your company for fraud, if he or she is not satisfied with the product or service.
Do I need a business license or seller’s permit?
A business license is separate from a seller’s permit. A business license grants you legal permission to operate and a seller’s permit identifies your business as one that collects sales tax on products and/or services. As long as your company does business in a state that collects sales tax, you will need a seller’s permit from the tax authority in that state. The basic rule about collecting sales tax depends on whether the business has a physical presence (or a nexus) in a state. However, today, many states are requiring sales tax be collected from online businesses operating without a physical presence in that state. Read more in our Register for Sales & Use Tax page where we review seller’s permits in more depth.
You may also find the information at the county level, as sales tax amounts vary by county (and city). If you sell services, you may not need a seller’s permit, but check with your state.
A reseller license (resale certificate) is given to businesses who wholesale and therefore do not collect sales tax.
Can you own a business without a license?
In most cases, you cannot own a business without some type of license, however, some freelancers who operate under their own name and report earnings on personal income tax forms, would not need a license.
Is it illegal to have a business without a license?
Depending on your location and your type of business, operating without the appropriate licenses could be considered fraudulent activity and puts you at risk for lawsuits.
Can you file taxes without a business license?
You do not need a business license to file a business tax return.
Did you know?
CorXec can research and tell you which small business licenses, permits, and tax registrations you need for your new company and location. We can even help prepare documents and manage the application process for you. If you require an LLC registration, registered agent services, or even payroll tax setup, we can help with that too.
Call us today at 888-449-2638 and let us take care of the paperwork so you can focus on growing your business!
