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Licenses and Permits: Overview

It may seem strange to you that your small consulting service or home-based handknit sweater business would need to comply with numerous local, state and federal licensing and permit requirements, but in all likelihood it will, so it is important to understand what to expect. Business licenses and permits can range from the general (a basic license to operate a business within a city or county), to the specific (a state permit to sell alcohol or firearms).  

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Who Issues Business-Related Licenses and Permits?

Business-related licenses and permits are issued at all levels of government -- federal, state, and local (city, county, or town). For example, if you decide to open a bar and grill in the city of Chicago, you will need to obtain all necessary licenses and permits from the city of Chicago, the state of Illinois, and the U.S. government. So, you will most likely need (among other possibilities) a federal tax ID number from the U.S. government, a license to sell alcoholic beverages from the state of Illinois, a health permit from the city of Chicago (to prepare and sell food), as well as a basic business license to operate the bar and grill within the city. A discussion of these and other types of licenses and permits follows below.

What Types of Licenses and Permits Does a Business Need?

Following is a discussion of some of the most common types of licensing and permit requirements that affect small businesses. This list is by no means exhaustive, and it is important to check with government agencies at all regulatory levels to ensure that your business has obtained all necessary licenses and permits:

  • Business Licenses: There are many types of licenses. You need one to operate legally almost everywhere. If the business is located within an incorporated city's limits, a license must be obtained from the city; if outside the city limits, then from the county. For more information contact the county or city office in your area or the SBA website that offers business license information.
  • Property Use Permits: If you start a business that involves manufacturing, or if you decide to begin operating a business out of your home, depending on your location you may need to obtain a land use permit from your city or county's zoning department.
  • Building Permits: If you are constructing a new building, or expanding or renovating an existing building in order to operate a business, you will most likely need to obtain a building permit from the city or county. The process may require that you submit a detailed set of plans to the department prior to approval of the work and issuance of the permit.
  • Certificate of Occupancy: If you are planning on occupying a new or used building for a new business, you may have to apply for a Certificate of Occupancy from a city or county zoning department.
  • Health Department Permits: These permits are most often required for businesses involve in the preparation and/or sale of food, among other types of businesses.
  • Licenses Based on Type of Product Sold: Some state licensing requirements are based on the type of product the business sells. For example, most states require special licenses before a business may sell liquor, lottery tickets, gasoline or firearms.
  • Professional / Occupational Licenses: If you intend to open a business, and you (and/or the people who work for you) will be offering services in a wide range of areas -- including medical care, auto repair, real estate sales, tax services, cosmetology, and legal representation (attorneys) -- the business itself and/or the individual employees working for the business must apply for and obtain state licenses authorizing the practice of such a profession or occupation.
  • Employer Identification Number: Most business are required to obtain a federal employer identification number (or EIN; sometimes called a tax identification number) from the Internal Revenue Service (IRS). Your business may also need to acquire a similar tax identification number from your state's department of revenue or taxation.
  • Sales Tax Licenses and Numbers: In your state there may be a percent sales and use tax which applies to the retail purchase, retail site, rental, storage, and use of personal property and certain services. In other words, sales tax must be collected on just about every tangible item sold. A sales tax number is required for each business before opening.

Licenses and Permits: Beware of "Grandfathering" Issues

In the business permit and licensing context, "grandfathering" means that a new law or code is not enforced against those businesses and/or individuals who are already in business at the time the law is passed. The key thing to remember with "grandfathering" is that, once a business changes hands (i.e. it is bought and sold) the new owner will most likely be required to come into full compliance with all local regulations, including any from which the prior owner was exempted.

Curious Which Licenses and Permits Apply to Your Business? Get Legal Help

Licenses and permits requirements may seem challenging, but you don't have to figure it out on your own. Speak with an experienced business lawyer who can determine your obligations under the law and help develop a plan to make sure you're in compliance.

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