Running a business can be tricky, especially if you’re an entrepreneur. The last thing you want is to fall behind on the paperwork and end up fined or jailed. To comply with the law, you’ll need a few licenses, including a business license. This is required by law and essential for running a successful business.
This blog will cover all the basics you need to know about business licenses, including their types and importance. So you can decide what type of business license you need to run your business successfully.
What Is a Business License?
A business license is a legal document that allows you to operate a business in a particular jurisdiction. Local governments issue Business licenses, which are required by law for all businesses regardless of size or type.
There are several different types of licenses; some states require more than others. To run a business, you must know what license you need to operate your company legally. Your business’s location and what it does will determine which licenses you need to operate legally.
Why Is Licensing A Business Important?
A business license is a legal document that allows you to start a business in the state or country where it is issued. If you operate your business without one, you will be breaking the law and could face fines or even imprisonment.
Moreover, if you want to apply for a bank account, conduct business in your name and apply for government contracts, grants, and loans, then you need a Business Licence. It allows you to open an account with any financial institution, including banks and credit unions.
A business license also allows governments to collect taxes and other fees from businesses. To run a business, you must first obtain a business license to ensure that all your transactions will be subject to VAT (Value Added Tax) or any other applicable levies or charges.
What Are the Types of Business Licenses?
There are several types of business licenses, each with its own requirements and benefits. The type of business license that you need depends on the business you’re running and where it’s located. However, the major categories are local licenses, state licenses, and federal licenses.
Local Licenses And Permits:
Local licenses and permits are issued by a city or county government. You can get these for your commercial or industrial property within its boundaries. Here’s a list of the main types of business licenses and permits you might need to operate your business in a particular city:
- Building permits
- Zoning and land use permits
- Local business operating license
- Fire department permit
- Environmental license and permits
- Health licenses and permits
- Signage license or permit
State Licenses And Permits:
Certain industries or businesses operating in specific areas require state licenses and permits. A state agency gives state licenses and permits for a business to operate legally within that state’s borders—and its requirement varies from state to state. To determine your state’s requirements, you can consult your government website. Here is a list of standard state-level licenses in the United States:
- State business operating license
- Tax registrations and permits
- Occupational license
- Seller’s or sales license or permit
- Unemployment insurance license (required if you have employees)
Federal Licenses And Permits:
Federal agencies issue federal licenses and permits. Many small businesses aren’t required to obtain a license or permit. Some industries require special licenses to operate:
- Agriculture (license issued by the U.S. Department of Agriculture)
- Drug manufacturing (license issued by the Food and Drug Administration)
- Alcoholic beverages (license issued by Local Alcohol Beverage Control Board)
- Aviation (license issued by Federal Aviation Administration)
- Fish and wildlife (license issued by the U.S. Fish and Wildlife Service)
- Maritime transportation (license issued by the Federal Maritime Commission)
- Firearms, ammunition, and explosives (license issued by the Bureau of Alcohol, Tobacco, Firearms, and Explosives)
Do I Need a Business License to Sell Online?
Yes, you do need a business license to sell online. The business license is used to verify that you are operating legally and not breaking any laws. It’s not just about being able to sell your products safely—it’s about being able to make sure that you’re complying with all of the rules and regulations that apply in your area.
Your state may have different regulations than the federal government. So must check with your local government office before starting your business. It will help ensure that you don’t run afoul of any regulations and penalties for violating them.
Is a DBA a Business License?
A “doing business as” (DBA) license is a legal document that allows you to operate your business under a different name legally. This license can be helpful if you want to start a new business with the same name as an existing company.
A DBA business license is also required when you want to operate your business as a division of another company. However, a DBA license is not a requirement in every state, but you should check the rules in your state before opening a business under an already registered company name.
What Is Better, A DBA Or LLC?
A DBA does not provide you with legal rights—it’s merely a business name. Anyone can file for the same DBA name and get approval from authorities. The major downside of having a DBA is that it does not protect your assets. So if the business were sued, you could risk losing everything you own personally—your home and bank accounts, and even other possessions.
On the other hand, a limited liability company (LLC) is a legal structure that protects owners from being personally liable for the actions or debts of their businesses. Unlike DBA, if your company goes bankrupt or someone sues it and wins the case, you will not be held financially responsible for its debts.
Other than that, an LLC gives you more tax flexibility than a DBA. With LLC, you can choose from several types of business entities. You can file as a sole proprietor, partnership, S corporation, or regular corporation. Which is best for your situation depends on factors, including how much money you want to pay in taxes. Each form of business entitles you to certain tax breaks and has different filing requirements.