A business license gives you legal authority to operate a business in a particular city, county, or state. Licensing rules vary by state, so the process to get a business license in one state is different from the process in another state. The U.S. Small Business Administration offers a tool that, when you plug in your zip code, takes you to the licensing authority in your region and gives you some helpful hints about getting your business licensed.1
Some people are so eager to get their businesses started that they skip getting a business license altogether. Bad idea. First, operating many types of businesses without a license is against the law. There are specific licensing requirements for salons, child care, food services, real estate, home health care, and other industries that affect public safety. Check with your local business-licensing authority for specific rules in your area. Starting your business on the wrong side of the law is a terrible way to build for a successful future.
You also need a business license in order to open bank accounts, sign leases, and perform many of the transactions necessary for day-to-day operation. Finally, operating without a business license opens you up personally for liability issues. You could get wiped out. And in today’s litigious society, it’s important to protect yourself.
Here’s what you need to know about getting a business license. The process may differ according to your state.
If you’re planning to form a business partnership or corporation, or if you’re planning to hire employees, you will need to apply for an Employer Identification Number (EIN), also known as a Tax ID number, from the Internal Revenue Service.
You can apply for an EIN in a variety of ways, such as by applying online or filling out and mailing a Form SS-4.
You will also need to register with the tax authority in your state. Each state has different requirements and tax rates.
Your city or county might also have permit requirements for your business. Each area has different rules. Building permits, zoning permits, and health permits are just a few of the requirements out there for local business, according to The Wall Street Journal.2
Corporations, nonprofits, LLCs, and partnerships are required to register with the appropriate state agency. Sole proprietorships usually don’t have to register.
‘Doing Business As’ (DBA) Filing
This one’s a bit tricky. If you plan to do business under a name other than your own, you need to file a DBA or “Doing Business As.” At that point, there are different requirements by state, but you might then need to register your new DBA business name as a trade. Even if it’s not required, filing your trade—usually with the Secretary of State’s office in your state—will keep others from doing business in your area under the same name.
The U.S. Small Business Administration has a list of all the steps required to hire your first employee.3