Updated onJuly 13, 2021

Do I Need a Business License? 5 Steps To Get One

9 Min Read

Difficulty:moderate

Written by:**Sara Coleman**
Freelance Financial Writer

Reviewed by: Kal Salem, CPA, PMP and Finance Consultant; MA in Accounting and BS in Supply Chain Management, Arizona State University

Fact-checked by: Somer G. Anderson, Ph.D., CPA, CGMA, CFE, Accounting and Finance Professor at Maryville University

Yes, you do need a business license. Almost any business needs to have some type of business license, permit, or registration. This is required to operate legally and within full compliance with government regulations. The type of license you need depends on the business you’re operating and the location.

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.

Final Word

Like so many topics in business, the answer to “Do I need a business license to start a business?” isn’t as straightforward as we might like. Fortunately, there are plenty of resources to confirm the licensing requirements.

Start with your local and state government to find out what is required.
Forming a limited liability corporation (LLC) is not the same as obtaining a business license.
The type of business license or permit your business needs depends on what type of business entity it is, where it’s located, and if it involves federally regulated products.

Now that you know how to register your business, you might like to find out where to look for additional small business funding sources. Explore the most recommended start-up business loans with no revenue in our latest article.

Frequently Asked Questions (FAQ)

What happens if I do not obtain a business license?

Operating without the proper licensing is illegal. In addition to being subject to fines and penalties, you could face enormous legal trouble. For example, if you tried practicing law without a license, you could face imprisonment.

What happens after I have my business license?

Once you obtain your license, it will be your responsibility to renew each one by the designated renewal period. Most require an annual renewal.

Why do I need a business license?

A business license is required by law for almost all types of businesses to operate in the U.S. Additionally, federal, state, and local governments each have their own rules and regulations for businesses and may require further licensing to operate.

Which states require a business license?

All states require either a license or permit to operate. Each state has its own requirement, which is why it’s essential to research which specific licenses are required by the state your business operates in.

Is an LLC and a business license the same thing?

Although commonly confused, no, an LLC and business license are not the same thing. An LLC stands for limited liability company and is a business entity that determines how your business is structured for legal and tax purposes. A business license is simply a permit or license granted that allows your business to operate within the local municipality and state, and has nothing to do with tax status.

Can you sell on Amazon and eBay without a business license?

Yes, you can sell on Amazon or eBay without a business license, but it may be required if you are selling an item that is federally regulated. You should also check with your state licensing requirements to confirm the requirements for an online business.

Can you run a business without registering it?

If you run a business as a sole proprietorship or general partnership (you and one or more partners) then you may not have to register it. However, sole proprietorships and partnerships may still need to register DBAs (doing business as) and obtain business licenses from government agencies to operate legally.

Do you need an EIN to run a business?

An EIN is not required for all businesses. For some it is mandatory, and for others it is optional. However, it’s a good idea to obtain the 9-digit identifier, since you will need it to open up a business checking account or if you want to eventually hire employees.

How much does a business license cost?

The cost of a small business license depends on the type of business activity you are engaged in and where your business is located.