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Licenses and Permits Small Businesses Need

OBJECTIVE: 

Choose a suitable and available name for business and then research which licenses and permits will be required. This session reinforces the need for finding a lawyer whose practice is focused on business and then discovering what licenses and permits are required for your specific business.

  • First Things First
  • Licenses & Permits
    • Local Licenses and Permits
    • State Licenses and Permits
    • Federal Licenses and Permits
    • Where do I go to get a license?
    • How about if I am working from home?
  • Business Name or DBA (Doing Business As)
    • Do I need to have a DBA?
    • What are the benefits to establishing a DBA?
    • What is the process of getting a DBA?
    • Banking Under Your Business Name
    • Should I Trademark My Business Name?
  • Seller's Permit
    • What is a seller's permit?
    • Where do I get a seller's permit?
  • Employer Identification Number (EIN)
    • What is the importance of EIN?
    • Do I need an EIN?
    • An EIN is required if:
    • How do I apply for an EIN?
    • Useful Links
  • Suggested Activities
  • Top Ten Do's and Don'ts
  • Business Plan

First Things First

While some of the issues regarding licenses, permits, and business names can be handled alone, some matters (including establishing your business and brand names) may require the help of a lawyer. So before you start, it's a good idea to line up a lawyer whose practice is focused on business. A good way to find a lawyer is to ask for recommendations from your accountant or business acquaintances. If you're not sure about needing help on an issue, ask your lawyer about it first. Your investment in legal fees now can help you avoid much bigger problems at a later date.

If you're buying a business, keep in mind that all licenses and permits will also need to be acquired. For details, please visit our session 12, Buying Businesses, in the Business Expansion course.

Licenses & Permits

Do I need any licenses?
The answer is most likely "yes". Without this, you may be conducting business illegally. Just about all businesses need a county or city license. There may be local, county, state, and or federal licensing requirements, depending on the type of business you select. The fees associated with getting a license are typically minimal, if any.

Local Licenses and Permits:
Your local licensing requirements can and will vary. Some examples of these variations are the following:

  • You may need a zoning compliance permit before you can open for business. Make sure the space you own or lease is properly zoned for the specific type of business you select.
  • You may need a special license if you're conducting business out of your house, a beauty salon for example. Please see session 3 Home-Based Businesses to see which businesses work best out of the home.
  • Are you planning on remodeling your space? You may need to get a permit, so you will want to check the building codes first.

State Licenses and Permits:
There are certain businesses and professions that require a state license. State licenses are often required for the following occupations: (not all inclusive)

  • accountants
  • appraisers
  • auctioneers
  • barbers
  • bill collectors
  • building contractors
  • cosmetologists
  • private security guards
  • private investigators
  • real estate agents
 

Your state may require you to have special licenses if you sell certain products such as firearms, gasoline, liquor, lottery tickets, etc. You can check with your local and state government to see if your business will require any special licenses. For listings of state websites see our "Useful Links" section below.

Federal Licenses and Permits: For a very small number of businesses, federal licensing is a requirement. In businesses that are highly regulated by the government, federal licensing is typically required. Examples include

  • Broadcasting
  • Drug manufacturing
  • Ground transportation
  • Investment advising
  • Manufacturing tobacco, alcohol, or firearms
  • Preparing meat products
  • Selling firearms
 

Where do I go to get a license?
The best place to start is your local city hall or courthouse. See the city clerk, who should be able to direct you. You can also phone the city or county clerk's office with questions, or look in your local phone book under municipal government offices. Try a search online for "Your city hall" on Google or Yahoo local searches to find the Web site for your local city hall.

How about working from home?
Investigate local zoning ordinances covering home based businesses. Some residential neighborhoods have strict zoning restrictions that may prevent you from doing business out of your home. Yet, it may be possible to get a variance or conditional-use permit. In many areas, attitudes toward home-based businesses are becoming more supportive, making it easier to obtain a variance. Condominiums and planned communities may have bylaws that could affect your ability to do business out of your home.

Useful Link:

  • Lists of federal or state government links: find information on business licensing in your home state:

Business Name or DBA (Doing Business As)

What is a DBA?
A "DBA" (also known as Doing Business As, or as a Fictitious Business Name) is the legal name, other than the owner's name, you decide to give your business.

Do I need to have a DBA?
The answer is probably "yes," and you definitely want to take the time to find out. Most states require that you get a DBA. Sole proprietors and general partnerships operating their businesses under fictitious and or assumed names may need to apply for a DBA certificate in the county where the business is physically located. You will not be able to enforce any contracts you sign under your business name unless the name legally belongs to you. Another important point is, unless you register your DBA, other businesses will not know that you exist and may take the name.

What are the benefits to establishing a DBA?
Here are some of the more important benefits to establishing a DBA:

  • Operate and advertise under your business name.
  • Prevent other businesses from using the name within your state.
  • Operate with a bank account under your business name.
  • Accept checks written out to your business name.
  • Gain a more professional image.

What is the process of getting a DBA?
Contact or visit your local county clerk's office and ask about the specific requirements and fees. There typically is a small registration fee. The county clerk's office will often conduct a complimentary name search for the intended business name to make sure it's not already taken. There are several online resources available to conduct searches on your intended business name as well.

Some states may require you to place a fictitious name notice in a local newspaper for specified period of time. The costs for this are usually small, and the newspaper may even file the necessary papers with the county. Consider checking with different local newspapers to see what they offer.

For the majority of states, corporations are not required to file fictitious business names unless they do business under names other than their own. The incorporation documents have the same effect that fictitious names filed for partnerships and sole proprietorships do.

Banking Under Your Business Name
The vast majority of banks will not allow you to open a bank account unless you have shown them proof of a filed DBA. It is important to have a business bank account so that you can accept payments written out to your company name. You may consider checking with different banks to see the differences in services they will offer you and the requirements they have to set up a business account.

Should I Trademark My Business Name?
You are not required by law to do this but registering your name as a trademark is always a good idea. It provides you with protection in case another business tries to use your business name or a name that is likely to be confused with your business name. It may be smart to file an application for a federal trademark if your company is doing business in several states. Run a search with the government or through a service to determine if your name is taken.

Useful Links:

  • How to Name Your Business - What's in a business name? Plenty. Not only must your name reflect your brand and be memorable, there are also a host of legal issues to consider. Here's how to choose a name that'll best suit your business.

Seller's Permit

What is a seller's permit?
Sometimes a seller's permit is called a "certificate of resale" or a "certificate of authority." This permit lets you collect sales tax from your customers, which you, in turn, pay to the state. Keep in mind that a seller's permit is different from a business license. Are you engaging in retail sales? If the answer is "yes", then you probably need to register for and get a sales tax license or a seller's permit. You still would need this permit if you are also selling goods that are exempt from state sales tax. If you are selling both products and services, it is important you keep sales organized separately. Sales of services are not usually taxed in most states. Sales tax is imposed at the retail level and will vary depending on your state.

Where do I get a seller's permit?
You can register for a seller's permit through state's Board of Equalization, Sales Tax Commission, or Franchise Tax Board. The following is a useful link from the Irs.gov website to help you locate the appropriate offices in your state.

Employer Identification Number (EIN)

What is the importance of an EIN?
An Employer Identification Number (EIN), also known as a federal tax ID, is similar to a social security number for your business. This nine-digit number is important because it allows you to identify your business on important government forms and official documents. Often, wholesale distributors require either a federal tax ID or a seller's permit from a retailer.

Do I need an EIN?
You are required to have an EIN in some, but not all circumstances. We recommend you get an EIN instead of using your social security number. It is safer to give out your EIN than it is to give out your personal social security number. There is no fee for receiving this from the IRS. A benefit to having an EIN is that it can help you establish credibility with whom you do business.

An EIN is required if

  • Your business has employees.
  • Your business is a Corporation or a Partnership.
  • You file any of these tax returns: Employment, Excise or Alcohol, Tobacco and Firearms.
  • You withhold taxes on income, other than wages, paid to a nonresident alien.
  • You have a Keogh plan.
  • You are involved with: trusts, IRAs, exempt organization business income tax returns, estates, real estate mortgage investment conduits, nonprofit organizations, farmers' cooperatives or plan administrators.

How do I apply for an EIN?
Fortunately, the Internal Revenue Service makes it very easy to apply. You can apply by phone, fax, mail, or online. Please have a look at the links to the IRS website below. It is important to note that your business may also need to acquire a tax identification number from your state's department of revenue or taxation.

Useful Links:

Suggested Activities

  1. Research your intended business name to make sure it is not taken.
  2. Determine if it will be to your benefit to pursue a trademark for your business.

Top Ten Do's and Don'ts

THE TOP TEN DO'S

  1. Determine if you need a zoning compliance permit.
  2. Verify with your health insurance carrier if you need a National Standard Employer Identifier.
  3. Check on the zoning laws for your business location.
  4. Check if you need a special license to do business out of your home
  5. Check to see that the business name you have chosen is not already taken.
  6. Get a DBA by going to your local county clerk's office.
  7. Get a business license and a federal tax ID number.
  8. Open a business banking account in your business name.
  9. Get a seller's permit if you need one.
  10. Consider registering your trademark.

THE TOP TEN DON'TS

  1. Go into business without a business license.
  2. Start building without a building permit.
  3. Proceed without first consulting with a business attorney.
  4. Use your social security number as your tax ID number. Get an EIN number instead.
  5. Choose a business name without first checking to see if it is taken.
  6. Begin business without verifying zoning requirements.
  7. Operate under your business name until you have successfully filed for you DBA.
  8. Forget to check if your business requires state and/or federal licensing.
  9. Use your personal checking account for your business.
  10. Fail to collect sales taxes when required.
 

Business Plan for Session 6: Licenses and Permits

You can continue to assemble your business plan. We provided Microsoft Word templates for this section below:

Section 6: Licenses and Permits

 

The full template for all sessions can be downloaded as one document:

  MOBI Business Plan Template