What Is a Business License: a Comprehensive Guide
Are you just about to begin the business now? Pretty exciting, isn't it? But there are some requirements and obligations which one needs to abide by.
One of these essentials is obtaining business licenses and permits. But what is, in fact, a business license? Here, we are going to find out the things that you need to know about business licenses – from their definitions and types, as well as how to get one.
Hence, if you belong to the league of business aspirants or have a keen interest in business matters, read on below to get a glimpse of it as one of the essential factors contributing toward running a profitable enterprise.
- A business license is a legitimate document that permits an individual or a corporation to conduct their businesses within specified jurisdictions.
- The business licensing process then involves identifying the detailed type of license needed for your industry and region.
- One must identify the authority that issues them out and gather all the relevant documentation before submission of an application.
- The process involves payment of all the necessary fees and waiting for a permission grant to get into the activity.
- When one complies with all licensing regulations, it grants them legal operation, credibility, and conformity to all local regulations.
What Is a Business License?
A business license is an official paper or document granted by the concerned authority of the government that offers permission to an individual, either self-employed or as a company, to exercise the right to do business in any specific jurisdiction.
Why do you need a business license? It is an indication that the business has gone through registering with necessary government departments and meeting local regulations.
Most of the information on what it takes to get a business permit varies from jurisdiction to jurisdiction, and also from business to business.
However, some of the most common categories include general business licenses, professional licenses, occupational licenses, and specialized industry-specific licenses.
For example, let's say you want to start a restaurant in a particular city. To get a business license, you need to undergo a specific process where you should provide all the necessary information about your future entity.
This information could include its name, address, health measures taken care of by the company against restaurant safety, type of cuisine the restaurant serves, as well as any permits or licenses that will be needed for proper functioning.
Upon licensing approval, it would be brought physically or as an e-copy to you, and a copy should be displayed under the glass at your work visibly for compliance. Lack of a valid license might lead to occasional fines or even closure of your business.
What Kinds of Businesses Need a License?
Different types of businesses require licenses to run legitimately. The type of licenses you need usually depends on aspects such as where the business has been established, the nature of the industry, and the kind of business. A few instances include:
- Professional Services: In most cases, businesses such as law consultancy, accounting, architecture, or even medical services are industries that require some professional licenses or certifications in hand.
- Retail and E-commerce: If a business uses brick-and-mortar stores or e-commerce platforms, the consent for the entire operation would only be legally approved if some general business license is in existence for the whole operation.
- Food and Beverage: Usually, in addition to the regular business license, a health permit and an alcohol license or permit are required for restaurants, food trucks, cafes, bars, or similar food and beverage businesses.
- Home-Based Businesses: If it is about providing home-cooked food or home daycare, you would still need home occupation or zoning permits according to the local regulations on the matter.
- Specialized Trades: Any specialized trades such as construction contractors, electricians, plumbers, beauticians/barbershops may need specific licenses and certifications from the industries to which they belong.
For that reason, every entrepreneur looking into their industry requirements (for any type of business!) is advised to consult with locally vested government agencies or licensing boards so as to identify licenses required for their particular line of business.
Types of Business Licenses
Business licensing can be a complex matter; no one size fits all. Depending on the type of business, various licenses and permits are needed to ensure legal operation.
To make navigating this terrain easier for entrepreneurs, here's an overview of some common types:
General Business License
A general business license, otherwise referred to as a basic business license, is quite common within most businesses. Generally, the license is acquired from the local government or municipality where the business entity is operated.
This license enables the businesses to function effectively under activities of business within that jurisdiction and, at some time, may not solely cater to one activity.
Such licenses are required from retail businesses to service-oriented ones. They will ensure the business is up to certain standards and satisfies local regulations.
When a business, therefore, has a general business license, it establishes that all the requirements are catered for, thereby giving assurance to clients and customers who deal with the entity.
Federal Business License
A federal license refers to a particular type of license applied and acquired by some businesses for them to carry out certain types of activities that are regulated under federal agency.
For example, most businesses acquire licenses from state and local authorities in many cases before carrying out various business activities. However, through some particular industries and some other selected activities, the federal government has jurisdiction over them, issuing federal licenses.
Some such businesses' examples would include retailers of firearms, manufacturers and distributors of alcoholic products, radio and television broadcast entities, aviation operators, transportation companies, and others.
Federal business licenses ensure that the industries operate within the federal laws and regulations for ensuring that the businesses engaged are safe and sound.
Special State Business Licenses
Some of the industries or activities are very specific and need extra regulations to control them, and in fact, special kinds of business licenses have been issued apart from the general business license.
Those companies specifically need to apply these at state agencies so that they can show compliance with the laws, rules, and safety measures that are uniquely defined in the industry of a particular company.
This includes, for example, licensing of professional occupations such as medical practitioners, attorneys, or accountants and other specialized industries like construction, transportation, and childcare services.
Requirements are thus diversified amongst the states for such licenses, and therefore, all business operators in those sectors must seek and comply with relevant state-required licenses to be within that jurisdiction's laws.
Local Business Licenses
A local business license is a special type of license that cities or municipalities require to operate any business within their jurisdiction.
Often being more specifically delineated than a general business license, local licenses may have tailor-made extra requirements for the locality.
The local business license is basically there to ensure that businesses are compliant with particular regulations and also following the details of the local laws in regard to a zoning ordinance (like a city business licenses), health and safety standards, as well as taxation stipulations.
The exact requirements to acquire a license to run your business locally will vary with the place and nature of the business.
A professional license could be regarded as a specialized and separate license demanded from any person offering professional services within regulated areas of law, medicine, accounting, engineering, architecture, or other such types of practice.
These licenses ensure educational, experiential, and examination requirements for the practice of certain professions. Usually, these licenses are granted by state licensing boards or professional organizations as proof of competence besides ethical standards.
Being a professional license, it not only creates credibility but also ascertains to the clients that they deal with a professional qualified and competent in the respective field.
A DBA (Doing Business As) license should be applied for every case that the business is conducted from a name that's not the legal name of the owner or the entity.
This license aids the businesses to run and advertise, all underneath their picket trade name. It keeps away the confusion from the consumers and curbs any fakeness in carrying out the business.
The exact process of how to get a DBA license varies significantly depending on the jurisdiction. However, often, it involves filing an application to the appropriate local governmental agency as well as payment of a fee.
Most sole proprietors or partners who do business under another name other than the individual legal name of the owner are supposed to get a DBA license.
A seller's permit, sometimes referred to as a sales tax permit or resale license, permits a business to charge and report sales tax. It is generally issued by the state's tax authority.
A seller's permit is a license that is applied by businesses that are mandated to sell taxable goods or offer taxable services, whereby this allows the business entity to transact the transactions legally under the sales tax laws.
This particular permit (or sales tax license) helps a business to pay its taxes as required and follows up on how the distribution of the sales tax revenue is done in a proper manner.
All businesses running operations in the wholesale, retail, or any other industry involving taxable sales must have sales tax licenses.
A zoning permit is a legal document accepted as having obtained the permission required from local government authorities with regard to land use and having complied with zoning regulations.
Zoning permits can be defined as the ways and factors about which the properties or buildings located within areas and zones can be used for residential, commercial, or industrial purposes.
A zoning permit is issued during property development or change of use, such as putting up a new structure, renovating an already existing one, or even changing the nature of the business being carried out.
The common reason for using a zoning permit is the management and organization of communities undisturbed, providing an improved view of conditions affecting vehicular traffic, environmental pollution consequences, and public safety effects.
A health permit is simply referred to as a license or certification necessary for the type of business entailing involving or having to do with the processing, handling, or serving of food, beverages, or service matters having to do with public health and safety.
Mostly, such a permit is issued by the local health departments, mainly to ensure businesses adhere to health and sanitation requirements. They check organizations for cleanliness, food handling and storage systems, and waste disposal, among other related issues as well.
From the restaurants, cafes, and food trucks to the catering companies and even tattoo parlors or beauty salons that make body piercings or certain beauty treatments - all of these places have something in common since their activities raise matters of public safety and disease prevention.
Home Occupation Permit
Home occupation permit is the type of license that allows people to carry out businesses in familiar surroundings like their homes.
The permit ensures that activities that go with running businesses in a residential area are done in compliance with local zoning regulations and so do not deteriorate the way of life of neighborhoods.
The requirements to obtain a home occupation permit vary by location but generally have an application accompanied by a fee and some demonstration that the business will not create excessive noise, traffic, or other disturbances.
For example, the businesses that would likely require a home occupation permit are online shops, home-based childcare, artist studios, or consulting and counseling services.
How to Get a Business License in 5 Steps
Obtaining a business license may seem like something that is both difficult and complex. But in reality, it can be done fairly clearly if you stick to these five steps:
- Find out the category of license: Look into and be clear as to various license(s) pertinent for the business based on geographical location, type of industry, and activities carried by your business.
- Determine the issuing body: Approach the relevant governmental agency or department that issues the license in your jurisdiction. They may furnish details of the application and any other additional needs to be complied with.
- Get your documents in order: Gather all requisite documents such as identity proofs, identification number, tax registration, proof of address, articles of incorporation, certificates, permits, and any other relevant documents as may be required by the licensing authority.
- Send in your application: Fill and send in, as per the directions of the licensor, an application for licensure. Ensure accuracy and thoroughness to avoid delays or rejections.
- Pay the fees and wait for approval: Pay for any applicable fees in getting your license. After your submission, patiently wait for approval to be issued by the licensing authority. This may take several days or weeks, depending on their processing time.
Keep following up on the status of your application and responding to any information request raised by the licensing authority promptly. If approved, display the business license on a conspicuous place in your premises as required by the law.
A business license is a critical requirement for any entrepreneur who intends to start or operate a business. It assures the credibility, legal compliance, and adequacy of the activities of an enterprise in alignment with the requirements of the local authorities.
Though the actual process of obtaining a business license may vary by jurisdiction and your type of business, following the simple steps outlined in this article, should better clarify it.
With a business license in hand, entrepreneurs can move boldly and confidently to set up their own ventures and prove their worth of operating professionally and earning in compliance.
So do not undermine the importance of a business license - it's the missing link that could prove vital for success in any entrepreneurial venture.
Frequently Asked Questions
Do I Need a Lawyer to Apply for a Business License?
In many instances, a lawyer isn't required to secure a business license. Nevertheless, it can be advantageous to get legal advice if you have intricate issues or specific worries about adhering to local rules and regulations.
What's the Difference Between an LLC And a Business License?
An LLC (Limited Liability Company) provides a protective shield for its owners, acting as an entity that safeguards them from potential liabilities. In contrast, businesses must possess a valid business license in order to operate legally. This is necessary for ensuring regulatory compliance and meeting governmental regulations. Although both the LLC structure and business licenses are of great significance to any organization, they serve distinctly separate purposes - one relates to company structure, while the other focuses on maintaining adherence to legal guidelines.
How Much Does a Business License Cost?
The cost of a business license is dependent on the specific area, industry sector, and laws that govern it. It can range from pocket change to hundreds or even thousands of dollars every year - depending on where you are situated!
Can You Run an Online Business Without a License?
It is essential to research local laws and regulations that may apply to online businesses, even when licenses or permits are not explicitly required. Certain jurisdictions could have particular licensing requirements based on the operations of the business or services offered - adhering to these rules brings credibility while minimizing risks in the long term.