What your startup needs to know to get a small business license
If you’re ready to start your own business, you’ll probably need a small business license to operate legally. Nearly every company needs one—even home-based small businesses. Depending on the company type and industry, you may need a local, state, or federal small business license. Here’s what you need to know to get started.
Do I need a small business license?
Since you’ll most likely need a business license, it may be easier to list which types of operations don’t need one. However, keep in mind that state and local ordinances vary. Businesses that may not need a small business license include:
- Independent contractors or sole proprietors that don’t require a professional license: Freelance web designers, app developers, photographers, or graphic designers may not need a small business license. But a hairdresser or plumber needs one because they must maintain professional certification.
- Crafters and artists: Creatives selling their handmade goods on Etsy or other online sources such as an ecommerce store may not need a license.
- Consultants and life coaches: Providing your expertise as a service may not need licensing unless you’re required to be certified.
- Independent salespersons: If you sell products from Avon or Amway, for example, you may not need a small business license.
Rules and regulations on business licenses differ by city and state, so it’s best to double-check with your local government office. You could also consult a professional accountant or business attorney to confirm you meet all legal requirements before you open for business.
Before you start the business licensing process
Before you can file for any small business licenses or permits, you’ll need to establish your company as a legal business entity. The Secretary of State can provide the necessary information to apply online to do business as a corporation or limited liability company (LLC).
Smaller startups may prefer to register as a sole proprietor instead of as a corporation or LLC. For sole proprietorships, you’ll need to register your business name as a "doing business as" or DBA at the local level. DBAs are typically filed at the County or City Clerk office.
Once your business entity is registered, apply for an Employer Identification Number (EIN) by filling out the IRS Form SS-4. Your company will need an EIN to file taxes. And along with your DBA or incorporation, you can apply for the proper small business licenses once you have one.
Types of business licenses
Knowing which type of license your startup may need isn’t so simple. There are local, county, state, and federal small business licenses and permits. Your company may even need more than one based on your startup’s business activity. Here’s a breakdown of business licenses into local, state, and federal categories.
Local and county business licenses and permits
Your startup may need local permits and licenses to operate. Refer to the U.S. Small Business Administration’s (SBA) small business resource tool to find local licensing requirements and government offices for your area.
In most cases, you’ll need to visit or contact your local City Hall or County Clerk office to apply. Some local small business permits and licenses your startup may need include:
- Zoning and land use permits to ensure your company is allowed to run in the designated business location.
- Building permits if you plan on constructing a building or renovating an existing one.
- A local business license to legally operate in the area.
- A fire department permit if your business will be open to the public.
- Health licenses for cafes, spas, fitness studios or other types of businesses related to the public’s health.
- Signage permits to ensure your company’s signage meets the local design rules and restrictions.
Start by inquiring about a business license. You can ask for guidance on whether you need other permits once your business type has been appropriately classified.
State licenses and permits
Now that you’ve reviewed your startup’s local requirements, it’s time to determine if you need a state business license or permit. Although states usually regulate a company’s activities more than the federal government does, not all states require businesses to obtain licenses.
For example, the state of Texas doesn’t require a general business license, but companies may need to obtain other types of permits. Here’s a list of possible state permits and licenses your startup may need:
- State-level business license to legally operate and help the state track your company for income and sales tax purposes.
- Seller’s permits that allow you to sell certain types of goods such as liquor, lottery tickets, or firearms.
- Tax permits and registration to obtain identifying numbers for tax purposes, such as a resale number, federal tax ID number, or an EIN.
- Professional or occupational licenses for professions such as accountants, contractors, plumbers, electricians, insurance agents, physicians, and real estate agents.
- Environmental permits and licenses to ensure your business does not adversely affect the air or water quality in your area.
Federal licenses and permits
Not all small businesses need a federal license unless you’re in a government-regulated industry such as:
- Alcoholic beverages
- Commercial fishing
- Firearms and explosives
- Mining and drilling
- Radio and TV broadcasting
- Transportation and logistics
Refer to the SBA’s licenses and permits page for a complete list, including the governing agencies for each industry.
How to obtain a small business license
Once you have an idea of what type of business licensing and permits your startup may need, you’ll need to begin the application process. Make it a priority—failure to obtain the proper permits and registrations before you start doing business may cost you in fines and penalties. You may even get shut down.
The exact process for getting a business license is specific to your city, county, or state, but there are a few general steps you can expect to follow to obtain a business license:
- Submit a business license application in person or online. Present your business entity paperwork showing your startup will operate as a DBA, corporation, or LLC. You’ll also need to provide personal identification and a physical address where any legal documents may be sent.
- Pay the filing fee to submit your application. Startup costs vary based on the type and size of your business, as well as the location.
- You may receive additional information about other licenses and permits you must apply for. Follow the steps outlined by the representative.
- Wait to receive your business license in the mail, which you’ll need to operate in your area legally.
- Display your permits and licenses where the public can see them. It’s required by law.
- Note when your business license expires, so you renew it on time. Licenses usually expire after two to three years.
License requirements all business owners should know about
Small business owners tend to get overwhelmed with the number of licenses and permits a new business may need. What makes it more complicated is that no two cities or states have the same requirements.
As long as you have an idea of the general types of permits you’ll need at the local, state, and government level, you can begin gathering information to get your company licensed.
Contact the County Clerk at the local level and the Secretary of State at the state level to get started. Either agency can offer you guidance on business licensing, and it will ensure you set up your business to operate legally. Once you’ve gotten this task out of the way, you can pursue other aspects of launching and growing your small business.