Key takeaways
- Nearly every business in the United States is required to have at least one active business license
- Business licenses are often needed to perform certain business activities, and they also add credibility to your business
- Licensing requirements vary depending on your industry, location, services provided, and more
Running a business isn’t a free-for-all. No matter what you’re selling and where you’re selling it, the government has rules for what your business can and can’t do. Getting a business license (or a few) is a key part of legally operating in your city or small town. Fortunately, business licenses won’t complicate your plans and are fairly easy to obtain.
What is a business license?
A business license is a document that allows you to operate in a select region. Business licensing ensures that you’re registered with the government, so buyers can trust that you’re regulated and competent in your trade. Getting a permit—a type of license that usually requires in-person inspections—can further show that you can be trusted to conduct business activities safely.
Do you need a business license?
Most businesses are required to have at least one business license or permit issued by their local, county, or state government. The exact type of business license you need will depend on where you’re operating, what products or services you’re selling, what your business structure is, and if you have employees. If you operate in multiple cities, odds are that you’ll need to apply for more than one license.
Typically, businesses only need licenses or permits from federal government agencies if they perform one of 11 regulated activities, such as selling alcohol or driving an oversized vehicle.
Even if your business is exempt from federal, state, and local license requirements, completing the licensing process can still be beneficial for you. Business licenses can help you:
- Limit personal liability
- Stay on top of your taxes and avoid IRS audits
- Access funding, especially for startups
- Build trust among your target customers (for example, 75% of Yelp users value brands that hold business licenses)
9 common types of business licenses and permits
Though licensing requirements can vary greatly from industry to industry, a typical business needs at least one. Here are a few common types of licenses and permits that you may need:
1. General business license
A general license is required for you to run your business in almost every state. They’re often issued by the Department of Revenues and Secretary of States—whichever office is in charge of business registrations. A general business license is often required at the city or county level, too, so don’t forget to check local regulations.
2. Seller’s permit
Businesses need a seller’s permit in every state that has sales tax. This permit lets you sell your products and services—whether in-store or online—as well as collect sales tax on any taxable goods. Seller’s permits may be known as sales tax permits or licenses in some areas and may be required at a city or county level.
3. Doing business as (DBA) license
If you own a sole proprietorship or partnership, your business name is your personal name by default. A doing business as (DBA) license lets you legally run your business under a different brand name than what you’ve registered.
A DBA license also allows other types of business entities, such as LLCs or S corporations, to rebrand without going through the time-consuming process of changing their legal business name. In some areas, the DBA license may be called a fictitious name or trade name license.
4. Home occupation permit
Remote work is clearly a growing trend across the United States. Over a third of U.S.-based human resources executives expect to have at least 40% of their teams primarily working remote in the near future. If you’ve taken on the work-from-home lifestyle, there’s a chance you may need a home occupation permit. You’re required to apply for this permit through your local regulatory agency if your neighborhood isn’t already zoned for home-based work.
5. Zoning permit
You won’t find a liquor store next to a daycare anytime soon. That’s because every municipality has zoning guidelines for what businesses can operate where as well as what areas are strictly residential. Check with your city hall to get the go-ahead with your business location plans.
6. Commercial sign permits
It may be one of the last things you think of when you own a local business, but you may need to apply for a sign permit before posting certain types of signs outside your building. Even if you own your office or store, local governments often regulate size, color, and placement. You can avoid needless penalties by checking commercial sign rules in your area and getting a permit if necessary.
7. Health permits
Many types of businesses—including restaurants, beauty salons, tattoo parlors, and waste haulers—are required to complete inspections to get health permits. These permits help keep you, your guests, and your team safe while operating.
8. Liquor license
Whether you own a bar, restaurant, event venue, nightclub, or any other business that serves alcohol, you’ll likely need a liquor license to do so. Most states offer different types of liquor licenses, including those for exclusively serving beer and wine or running a liquor store.
You can usually obtain this type of business license at the state level, though you should double-check that you’re not operating in a dry county—i.e., areas where alcohol cannot be sold—before applying. You’ll also want to check for any federal license or permit requirements from the Alcohol and Tobacco Tax and Trade Bureau before you start selling alcohol.
9. Professional licenses
Some types of companies (and their employees) may need to obtain professional licenses before they can operate. This is especially common with service-based businesses. If you provide services such as accounting, legal counsel, lawn care, plumbing work, massage therapy, it’s worth researching special license requirements for your industry in your state and city.
How much do business licenses cost?
A single business license can cost between $50–$400. Most business licenses need to be renewed every 1–5 years, depending on the rules set by the agency that issued it. Renewal is often slightly lower than or half the cost of the initial licensing fee.
While business licenses aren’t exactly cheap, the good news is that most companies only need one or two. Once you’ve done your research to determine which business licenses you’ll need, figure out your budget and mark in your calendar when it’s almost time for renewal.
How to apply for a business license
You can get started on business license applications as soon as you’re ready to launch your new business.
Your city hall can help you obtain general business licenses at a local level. For state, federal, or professional licensing, you can visit the websites of the agencies in charge of issuing the license you’re seeking. These resources can help you understand licensing requirements and get you access to all the paperwork you need.
Once you complete and submit your paperwork and pay any required fees, you’re all set—the agency will let you know if you’re approved within a designated time frame. The approval process usually takes no more than 10 days in most states, but you may need to allow for a month or longer depending on your agency. Expedited services are often available for an additional fee, which can double the cost.
Business licenses are good for business
Getting a business license is something to be proud of. It adds credibility to your business and creates trust that you can nurture into customer loyalty. Frame your licenses and display them on the walls of your business location, or highlight them on your website.
Once you claim your Yelp Business Page, you can even use your trade license to stand out through Verified License badges or by highlighting it under your business information section. The possibilities are endless.
