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Licenses and Permits: Overview

It may seem strange to you that your small consulting service or home-based handknit sweater startup would need several local, state and federal licenses and permits. But it probably will. So, it is important to understand what to expect.

Business licenses and permits can range from the general to the specific. You may need a basic license to operate a business within your state. Further, you may need specific local or state permits for certain regulated activities. As a small business owner, you should be aware of all of these licensing requirements. This will help you to avoid fines and legal hassles in the future.

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Who Issues Business-related Licenses and Permits?

All levels of government issue business licenses and permits. This includes federal agencies, state and local governments.

For example, imagine that you are opening a bar and grill in the city of Chicago. You will first need to get all necessary licenses and permits from the city. This will include a general Chicago business license and health permit (to prepare and sell food). You will also need a liquor license from the state of Illinois to sell alcoholic beverages. You will probably need a federal tax ID number from the U.S. government too. A discussion of these and other types of licenses and permits follows below.

What Types of Licenses and Permits Does a Business Need?

The types of licenses and permits you might need will vary depending on your location and the nature of your business.

It is important to check with government agencies at all regulatory levels to ensure that your business has all necessary licenses and permits. Below, you will find an overview of some of the most common types of small business licensing and permit requirements. This list is by no means exhaustive and regulations are subject to change. Thus, you should do your own research or talk to an attorney if you have any concerns about your licensing requirements.

  • Business Licenses: There are many types of licenses. You need one to operate legally almost everywhere. If your business is located within an incorporated city's limits, you will probably need a license from the city. If your business is outside the city limits, then you will likely need a license from the county. For more information, contact the county or city office in your area. Additional licenses may be required at the state level depending on the nature of your business.
  • Property Use Permits: You may need a land use permit if you start a business that involves manufacturing. A home-based business may need a land use permit too, depending on your local regulations. You should contact your city or county's zoning department to learn about your requirements.
  • Building Permits: You will need a local building permit to construct or renovate a building for commercial use. The process may require that you submit a detailed set of plans to your local government agency. The agency will review your plans before approving the work and issuing the permit. If you hire a general contractor, they will likely be familiar with applying for building permits. This could save you time and money.
  • Certificate of Occupancy: If you are planning on occupying a building for your new business, you may have to apply for a Certificate of Occupancy. The issuing authority will probably be your city or county zoning department. This certificate will verify that your building complies with local zoning ordinances and building codes.
  • Health Department Permits: These permits are most often required for businesses involved 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, you usually must get a special license to sell liquor, lottery tickets, gasoline, or firearms.
  • Professional / Occupational Licenses: If you will be offering professional services, you will most likely need to receive state licenses before you can practice. Licensed professions include medicine, law, accounting, architecture, and others.
  • Employer Identification Number: Most businesses need a federal employer identification number (EIN). An EIN is a unique number that the Internal Revenue Service (IRS) issues to businesses. You can think of it as a Social Security number for your company. You may also hear people calling this number a Tax Identification Number. Your business may need to apply for a similar tax identification number from your state's department of revenue or taxation, too.
  • Sales Tax Licenses and Numbers: Most states have a sales and use tax that 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 you sell. In states with sales taxes, you will need a sales tax number and sales tax permit. A sales tax permit is also known as a seller's permit.

Licenses and Permits: Beware of "Grandfathering" Issues

Existing businesses are sometimes exempt from new business laws and regulations that come out after the business is already operating. This is known as “grandfathering."

However, once a business is sold, the new owner may need to come into full compliance with all local regulations. This includes any regulations from which the prior owner might have had an exemption. In other words, if you buy an existing business, you may need to get permits and licenses that the prior owner was exempted from.

Small Business Permit and Licensing FAQs

What are the types of government licenses?

In general, the types of business licenses that governments issue fall into two categories. They issue general business licenses and specific licenses.

Many states and local level governments require a general business license for all businesses operating in the state or city. For the purposes of a general business license, it does not matter what the nature of your business is. All businesses must apply for this license. There is usually a fee involved. Sometimes there is a yearly report and annual fee, too. These general licenses give states and local governments a way of tracking business activity and collecting revenue. Tax registration will also be necessary in most states, especially if you hire employees or sell goods.

You may also need to get specific licenses. These depend on the type of business you conduct.

What types of business activities require a specific license or permit?

In many states and towns, you will need a license to operate any business. However, there are some business operations that give rise to additional specific licensing requirements. Some common examples include:

  • Alcohol, tobacco, or firearm sales
  • Professional services (e.g. accounting, law, medicine)
  • Commercial transportation
  • Auctions
  • Financial services
  • Agriculture
  • Construction

Your state or local government may require licenses for the above, and other, business activities. Your state's secretary of state website is usually a good place to find out more about the things that require a license or permit.

You may need a federal license if you operate in certain federally regulated industries. These include, among others:

  • Aviation
  • Broadcasting
  • Mining
  • Trucking
  • Firearm sales

You should visit the U.S. Small Business Administration (SBA) website to view a full list of business categories that federal agencies regulate. If you fall into one of these categories, you will need to apply for a business license from the associated federal agency or licensing authority.

Is a certificate of occupancy the same as a business license?

No. A certificate of occupancy does not take the place of the other business licenses you need to get. The certificate of occupancy is an extra requirement. You will probably need a certificate of occupancy if you build, rent, or buy property for commercial use. You should contact your city or county building department to find out how to get a certificate of occupancy. If you hire a general contractor, this person will often have experience getting permits and licenses. They will probably know which agency to contact and how long the certificate of occupancy will take.

Do I need to register my business name?

Sometimes, yes. When you create a business structure such as a corporation or LLC, you will give your company's name to your state government. This will be part of your business formation documents. If you operate a sole proprietorship or general partnership, your official business name will be your personal name.

If you plan to conduct business under a name other than your official business name or personal name, you will need to register the new name. Most counties and states do not allow businesses to do business under a name other than their legal name without registering the name first. The new name is called a DBA (doing business as). Depending on the county and state, it may also be called a fictitious business name or an assumed name.

Registration requirements for DBA names are typically easy. First, you usually need to choose an original name that no other state business is using. Next, you submit some paperwork and a government fee to your local county, secretary of state, or other city or state agency.

Concerned about Business License Compliance? Get Legal Help

Small business license and permit compliance may seem challenging. You don't have to figure it out on your own, though. An experienced business lawyer can help you with your business license applications. With an attorney's help, you can feel confident that you are fully compliant with the laws that apply to your business. A business lawyer can also help to answer any other legal questions you may have about your business.

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