Licensing: it’s one of the least exciting parts of starting a business, but it’s also one of the most important. After all, without the right licenses, you open up your business to a number of legal ramifications, including fines, lawsuits and, worst of all, getting shut down. It’s an expensive thing to overlook, which is why you should take time to understand what the authorities in your area require.
Here is an overview of what to consider and where to look for more information.
State Business Licenses
One of the most common licenses to obtain is the business license. Essentially, it’s formal permission from state authorities to operate as a business. Often, your business’ industry will determine whether or not you need a business license. For example, some states do not mandate licenses for industries that do not require special training, such as consulting. However, other industries, like insurance and healthcare, require licenses to operate in almost every state. Also, it’s important to realize that incorporation or other formal business arrangements (i.e. starting an LLC or partnership) is not the same as being licensed to conduct business. Licensing is simply another step needed to legally set up your business.
To see if your state requires a license for your business, check out the Small Business Administration’s list of links to state business license offices.
Required Federal Licensing
Some industries require a federal license right out of the gate. If you manufacture, import or sell alcoholic beverages, for example, you must get a permit from the Alcohol and Tobacco Tax and Trade Bureau. If you import or transport animals, animal products, biologics or plants across state lines, you’ll need permission from the U.S. Department of Agriculture to conduct business. If you’re in the aircraft, gun or fishery business, the feds will want to hear from you as well. Likewise, companies involved in mining, broadcasting and logistics will also need federal licenses.
For more information on federal requirements for your industry, check out the Small Business Administration’s Federal Licenses and Permits website.
Common City and County Licenses
Licensing is also a local activity. If you’re preparing or serving food, for example, the county will almost certainly require a health permit. In many cases, you’ll have to display the permit for customers, and you’ll be subject to periodic inspections. Signage permits are also common requirements in municipalities. They ensure that business advertising stays within the required dimensions and has the required aesthetics. The city or county might also require a building permit, certificate of occupancy or other licenses that demonstrates that you’re operating a business that meets the authority’s zoning requirements.
For more information on local business requirements, check with your local town hall or county clerk, or you can use the SBA’s Permit Me tool or License123.com to find and acquire local as well as state permits.
Many fields of work require a license to practice, regardless of whether you’re an employer with his or her own company or an employee of another business. Common examples include doctors, lawyers, hairstylists, certified public accountants and contractors. The idea is to ensure that people performing certain services have formal schooling, appropriate experience, certain personal characteristics and/or the successful completion of a test demonstrating their skills. Practicing without a license is always a bad idea, so be sure to understand your state’s licensing laws. Some states have reciprocity standards, which means that a license from one state may be valid in another state as well.
Most businesses need some form of license or permit to operate legally (even home-based businesses), but the requirements vary depending on the type of business and its location. Websites like License123.com and the Small Business Administration’s Permit Me tool can help you get started. Once you have what you need, be sure to keep track of the renewal dates, as an expired license is the same as not having a license at all in some jurisdictions.