Why Do I Need a Business License?
A business license is a document stating you’ve met the requirements to run a particular type of business in your country, state, or local municipality. It gives you the right to conduct business either as an individual or a business entity.
Rules vary from state to state and the business license rules could even be different from one local town to another. Because of this, it’s critical to make sure you research the exact requirements based on your exact location when deciding how to start a small business
5 Steps To Getting a Business License
Getting the right business licenses and permits in place is an essential part of business ownership. Here are the general steps needed when you’re ready to move forward with business operations.
1. Form Your Business Entity
This is what type of business you will operate as. This is an ideal time to bring in a professional for advice, such as a tax accountant or attorney. Common business entities include:
Sole Proprietor: The business is run by one person with no legal separation between the person and business.
Incorporated Business: A legal entity is formed and it is separate from the owner or owners.
Limited Liability Company (LLC): A private company separates the owners from a business and provides a pass-through for tax purposes. Nonprofit corporation. A legal entity is set up for a social benefit versus earning a profit.
2. Apply for an Employer Tax Identification Number or EIN
This is required for some businesses or optional for all and can be set up online. You should note, that this is a free service from the IRS.
3. Determine Which License(s) You Need.
If you don’t know where to start, your city hall or courthouse can point you in the right direction for local and state permits and licenses. You could also use your local Chamber of Commerce as a resource.
4. Apply for a Business License.
Once you determine which ones you need to operate your business, start the application process. It’s up to you to ensure you are applying for all necessary licenses.
5. Renew Your Business License.
Most licenses need to be renewed on an annual basis, but some allow for a lengthier renewal period.
How Business Licenses Work
The business you choose to operate will determine the exact way the business license will work. But let’s work with a few examples.
The first step is to obtain an employer identification number (EIN). This is a unique 9-digit number assigned to your business by the Internal Revenue Service (IRS). It’s required for almost all businesses by the IRS too.
The good news is, that you can apply easily online and it only takes a few minutes to generate if you input the right information. This is required for any business operating within the U.S.
The next step is to register your business with the state where your business is formed or will operate.
In addition to registrations, you may have licenses and permits to obtain. For example, if you are opening a restaurant that services both food and alcohol, you need to obtain both a food and alcohol license from the state, and a fire and a health department permit from your local county, plus other required licenses. It is important to consider these costs when calculating your business startup costs.