Two people discussing licenses over legal papers.
When you start a business, you will likely need certain permits or licenses to open and operate legally. Most cities and states in the US require businesses to have a general business permit or license to operate along with a tax ID number, and ensuring you have the right documentation is the first step to getting your business off the ground.
The requirements for licenses and permits vary based upon the type of business, the industry, the organizational structure, and the location. To figure out which permits you need, you’ll need to do some research in your area. In the US and many other countries, the local Chamber of Commerce and city government are good sources of information, and so are economic development organizations in the US and abroad. Be advised that some businesses are required to have additional federal business licenses and permits as well.
If you neglect to obtain a license or permit you need, you put yourself at risk of operating a business illegally. MOBI also provides a session on Licenses and Permits with additional information.
What is a Tax ID Number?
In order to operate a business in the US, you will need a tax ID number. If you will operate your business as a sole proprietor, your tax ID number will be your social security number (SSN) or individual taxpayer identification number (ITIN). If your business will have employees, you will need an employer identification number (EIN). To learn more about different organizational structures for businesses, visit MOBI’s Business Organization session.
Do You Need a Business License to Start a Business?
In most cases, the answer to this question will be “yes.” You will need a general business license to operate your business. This license is an annual piece of paperwork that states you have a right to operate a business in your locality. Obtain one of these through your local government or city website or office. Business license fees vary by location and type of business.
What Other Licenses Do You Need for Your Business?
The license(s) you need will vary depending on several factors including the type of business, the industry, and the location.
Licenses and Permits for a Business Location
In addition to a general business license, if your business will occupy a physical space, such as a retail store, restaurant, flower shop, etc., you might need other licenses and permits:
- Zoning Compliance Permit. In some places, you’ll need to obtain a zoning compliance permit to open and operate a business in your intended location. This helps ensure that your location can legally house the type of business you plan to run.
- Remodel Permits. If you intend to remodel the space where you plan to operate your business, you may need special permits to remodel before you begin construction. There may also be permits required to create new signage for a business location.
- Accessibility Compliance. In the US there may be requirements to accommodate access for people with disabilities. These requirements can vary for new structures, existing structures, remodels, etc. Visit the ADA.gov for more information.
- Trade Licenses. Child care centers, beauty salons, barbershops, and other specialty businesses often require their own specific licenses and permits. You can access a complete list of businesses that require these licenses on your state’s business website. These businesses may also have requirements for the physical space itself, for example to ensure sanitation, that need to be implemented and approved.
- Food and Beverage Licenses and Permits. Food and beverage businesses may also have different license and permit requirements based upon the type of product, where it is made, where/how it is sold, etc. For example, some but not all of the requirements might include: a Food Handler’s Permit, Cottage Food Operator Training, registration or a permit from a local Environmental Health Department, and other measures to comply with food industry standards and requirements.
Licenses and Permits for a Home-Based Business
Today, more people than ever are working from home. If you’re one of the many people operating a home-based business, be aware that special permit and license regulations likely apply to you. Here are some license types that you may be required to have:
- General Business Licenses. In most cases, home-based businesses are required to carry a general license as mentioned above.
- Trade Licenses. Trade licenses are also required for home-based businesses that specialize in child care and other professional or occupational pursuits. As mentioned above, visit your state's website for a list of businesses that fall in this category.
- Home Occupation Permits. In some cases, you’ll be required to file a home occupation permit with your city planning agency. Some businesses may not be allowed to operate in private homes depending on the location.
- Sales Tax Permits. If you’re running a company that sells taxable goods or services, online or offline, you may be required to collect sales tax when consumers buy the products.
- More. Home-based businesses may also be affected by health and safety permits, sign permits, construction permits, food/beverage permits, and HOA issues. To ensure you’re complying which each of these bodies, check with your state and local government agencies. They’ll be able to tell you more about the type of state business licenses and permits you’ll need to have.
You may also want to visit MOBI's Freelance, Independent, and Home-Based Business session for more information about starting a business that does not require a physical space.
It’s important to note that if you are operating a home-based business it does not mean you can write off the cost of your home as a business expense. Typically, deductions can only be applied according to the percentage of use. For example, if your home is 2000 square feet and your office space is a 10-foot-by-10-foot room or 100 square feet, then you may be able to write off 5% of your rent or mortgage for the time you operate your business. This is only guidance as MOBI is not a tax expert. It’s always best to consult with a tax advisor when preparing your tax returns and reporting deductions!
Licenses and Permits for a Profession
As mentioned above, the licenses and permits you may need will depend on the type of business you plan to run. There are some professions that require a specific license, these include but are not limited to cosmetologists, studio teachers, painting contractors, car washing and polishing providers, and others. This requirement will vary depending on your location.
Here is a list for California:
https://calosba.ca.gov/permits-licenses-regulation/professional-licensure-guide/. Requirements vary by state. For example in Louisiana you need a license to be a florist.
For businesses in the US, here is the National Occupational Licensing Database: https://www.ncsl.org/labor-and-employment/the-national-occupational-licensing-database.
What Businesses Require a Federal License or Permit?
Federal licenses are required for some businesses. If your business is regulated by the federal government, for example, as is common with businesses that specialize in broadcasting, drug manufacturing, preparing meat and other food products, or manufacturing firearms, alcohol, or tobacco, you may be required to carry a federal license. Visit this page on the US Small Business Administration (SBA) website for a list of businesses that require federal licenses and permits.
Where Can You Learn about the Licenses and Permits You Need?
To figure out which license(s) you need, start by communicating with your city and county government. In the US, the first step is to consult with the City Clerk’s office to determine which license(s) and permit(s) you need, based on the type of business you run. It’s also a good idea to ask the city or county government about cost saving strategies and grants that may help you with your licenses and permits. For example, some cities might offer grants that can be used for building improvements, or you may not need a sign permit if you are just replacing the image within the frame of a sign that already exists. Do your research to comply with requirements and discover helpful tips!
If you run a home-based business, you may need to do extra research by looking into local zoning ordinances and other regulations that apply to home-based businesses.
Using State License and Permit Lookup Tools
Still not sure which state license or permit you need? Consult a simple lookup tool like the one offered by the SBA. This tool allows you to identify the type of business activity you’re pursuing, and locate the issuing agencies that deal with state licenses and permits.
Before you start a new business, you need to ensure you’ve obtained the correct licenses and permits to operate your business legally. Depending on where you live and what kind of business you’re running, you will be required to obtain certain licenses and permits. To find out which apply to you, contact your local and state government offices for more information. You can also learn more in the Licenses and Permits session of MOBI’s Starting a Business course.