Do I Need a Business License? Tips for Small Business Owners

Whether you need a business license depends on the type of business you run.

You’ve launched your new business. You have a solid idea and a detailed business plan. Maybe your online store is already up and running, or you’re about to sign a lease for a brick-and-mortar shop. Congrats!

Now you might be wondering about the official steps to keep your business moving forward. Who do you pay the sales taxes you’re collecting? Which governing body do you need to register with? Do you need to register at all? The answers largely depend on your business type, structure, and tax liabilities.

This guide will help you identify the kinds of businesses that need licenses, the combinations of licenses they might require, and how to obtain them.

What is a business license?

A business license is a certificate issued by a government agency that authorizes an individual or organization to operate within a certain geographic area—such as a city, county, state, or country. Governments or professional licensing authorities (like a state bar association) can also issue licenses and permits for certain regulated professions, such as health care services, accounting, or selling alcohol.

Do I need a business license?

Two main factors determine whether your business requires one or more licenses to operate:

1. Your business location

2. What your business is selling

From there, consider your business structure to determine the type of license you’ll need.

Types of business structures

Here are the main types of business structures to consider:

• Sole proprietorship: If you’re a freelance graphic designer, for instance, selling your services remotely as a sole proprietor from your home, you likely won’t need a business license to operate.

• Partnership: A general partnership is a business you run with one or more partners. As a pass-through entity where you and your partners pay income taxes on profits at the personal level, you may not need a business license to operate.

• LLC: If you run a limited liability company (LLC) selling goods subject to sales tax, you may need to obtain a seller’s permit from your state’s tax authority.

• Corporation: Whether you’re planning to incorporate as a C corp or S corp, both are relatively complex structures that typically require business licenses.

Types of business licenses

• Local business licenses and permits
• State business licenses and permits
• Federal business licenses and permits

In an ideal world, there’d be a single, standard business license for all entrepreneurs. Unfortunately, that’s not the case.

The regulatory landscape in the United States is complex, with legal requirements at local, state, and federal levels. Your business may need to obtain a combination of licenses or permits, including:

Local business licenses and permits

Depending on your business, you may need specific local licenses and permits from your village, town, city, or county. While you likely won’t need all of the following, understanding the full picture helps ensure you don’t miss any crucial requirements:

• Local business operating license: Your county or city government may require this to operate within their jurisdiction. Check with your city’s business office or use the US Small Business Administration’s online directory to find the appropriate agency.

• Building permit: If you’re constructing or renovating a retail location or office space, you’ll likely need building or construction permits from local authorities.

• Fire permit: Local fire marshals issue these for businesses using flammable materials or maintaining spaces with certain occupancy limits.

• Health and cleanliness licenses: Food-service establishments, fitness facilities, hair salons, and other health-related businesses typically require inspection and permits from local health authorities.

• Zoning and land-use permits: If your business doesn’t fit the existing zoning for your location, you may need a special permit (for example, running a café in a residential-only zone).

• Signage permits: Some areas restrict the types of signs you can display. Check local regulations to avoid potential fines.

• Home-based business operating licenses: Some locations require home occupation permits, especially for businesses involving significant inventory storage, shipping, or customer foot traffic.

State business licenses and permits

Even if your business requires minimal local licensing, you’ll likely need some state-level permits:

• State business operating license: This allows state agencies to track business activities and levy taxes. Use the SBA’s state business license office locator tool to find your local office.

• Seller’s permit: Necessary for collecting and paying sales tax, or for selling regulated goods like liquor, gasoline, or lottery tickets.

• Occupational licenses: Required for professionals in regulated trades such as accounting, electrical work, contracting, real estate, cosmetology, and private investigators.

Federal business licenses and permits

Federal licenses are less common but crucial for certain industries:

• Agriculture: If your business involves importing or transporting specific crops, animals, animal products, or biotechnology, you’ll need a permit from the US Department of Agriculture.

• Alcoholic beverages: Necessary for manufacturing, transporting, wholesaling, or importing alcoholic beverages. Obtain a permit from the US Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau.

• Fish and wildlife: Businesses involving wild or commercial fisheries or wildlife need to obtain certain licenses from the US Fish and Wildlife Service.

• Transportation and logistics: Needed for operating oversized vehicles or trucks, usually issued by state governments despite being a federal requirement. You can find the licenses you might need for trucking in your state here.

How to get a business license

While the process for obtaining a business license varies depending on your needs and business type, here are the general steps to follow:

1. Register your business: Register with your state authority (usually the Secretary of State’s office) and obtain an employer identification number (EIN) from the IRS. State and local authorities often use your EIN to identify your business for permitting purposes.

2. Gather necessary paperwork: Collect the documents you’ll need for federal, state, and local business licenses. This typically includes proof of registration and your EIN. You may also need to provide your business information (such as name and legal entity type), business plan, certificate of insurance, tax forms, professional certifications, and proof of zoning and land use compliance. Having these documents ready in advance will streamline the application process.

3. Acquire federal licenses or permits: Start the licensing process from the top down, as some state and local licenses may require federal approval first.

4. Secure state and local licenses and permits: After obtaining any necessary federal licenses, focus on state and local requirements. Begin with state licenses, then work your way down to county and city levels. State business offices can often guide you to the appropriate local agencies.

5. Track and renew your licenses: Most business licenses require periodic renewal, some annually. Keep track of all expiration dates to avoid fees or penalties for late renewal.

Do I need a business license? FAQ

How do you know what business licenses and permits you need?

Your required licenses and permits depend mainly on tour business location and type. State and local business offices are excellent resources for information on your specific licensing requirements.

Do you need a business license to sell online?

It depends. You may need:

• A state seller's permit if you sell goods subject to sales tax

• Specific licenses for restricted items at local, state, or federal levels

• A home occupancy permit if you're running significant fulfillment or warehousing operations from home

What license is best for a small business?

There’s no one-size-fits-all business license. The best license for your small business depends on various factors, including your location, what you’re selling, and any required personal certifications. Research the specific regulations affecting your business to ensure compliance.