Do I Need a Business License for My Company?
A business license refers to the authorization that a business needs to operate legally in that state. If you are about to launch a start-up, you have no doubt asked yourself, “Do I need a business license?”
No matter what type of business you own—whether it’s in a physical storefront or based online—and regardless if it’s a small or large company, you are going to need to obtain and maintain a business license (possibly more than one).
Understanding business licenses can be difficult. This article seeks to answer some of the most common questions business owners have about why you need a business license, how to get a business license, and more.
What is a business license?
- A business license is a mandatory approval or permit issued by a government agency that authorizes a business to operate within a specific jurisdiction. This license is often an additional requirement beyond the registration of a business at the state level. Whether a business is required to have a specific license depends on such factors as the nature of the business, the types of products it sells and the local government regulations in location of the business.
What is the point of a business license?
- Business licenses hold businesses accountable for their actions and behavior as well as protect the health and safety of the public.
- Professional licenses indicate the level of expertise a particular professional possesses.
- Sales tax licenses are required for the sale of taxable goods.
- The government uses licenses to track revenue for tax purposes.
Who needs a business license?
- Almost every company with an income stream will be required to have some type of business license, permit or registration in order to operate legally, in full compliance with government regulations.
- Some licenses are required of all businesses operating within a jurisdiction. These include:
- Basic Business Licenses
- Payroll Tax Registration (if there are employees)
- Sales Tax Registration (if it sells tangible goods or performs taxable service)
- Many licenses are industry specific. Commonly licensed industries include:
- Healthcare: Pharmacy, Wholesale Drug Distributors, DME, etc.
- Debt – Collection Agency, Debt Buyers, Debt Settlement, etc.
- Insurance
- Construction – roofing, electric, plumbing, home improvement, etc.
- Charities
- Tobacco – wholesale and retail
- Telemarketing
- Retail sales
- Security – Guards, Agencies, Alarm Companies, etc.
- Energy Broker
- Engineering
Where can I get a business license?
- Business licenses are issued by all levels of government and, depending on what type of goods you plan to sell, you may need to obtain a business license on federal, state and/or local levels.
- Certain businesses are required to obtain a federal business license, such as the sale of alcohol or firearms.
- State business licenses differ from state to state, so be sure to find out what your state requirements may be.
How do I get a business license?
- First, determine where your business will be operating—which state, county and city.
- You can find your state and city regulations on the SBA website.
- Make sure you have your company’s Federal Tax ID Number (EIN).
- Every type of business has a specific business code, so know your code when you apply for a business license.
- Check to see if, in addition to a business license, you may need a permit, as certain types of businesses need both.
- Be sure to pay the filing fee, which can range from $50 to $400 or more.
- You may need to get fingerprinted, depending on the type of business and the state.
Where do I need a business license?
Most businesses, regardless of their size or structure, need a business license to operate legally, so you'll likely need to get one before you begin operations. Furthermore, if you adjust your offerings at your business, you may need to obtain a new business license. Certain professions or services may require special licenses or permits.
What happens if I do not obtain a business license?
- Your business could be liable for significant damages and/or penalties.
- Neither you nor your company will be protected by local, state or federal ordinances.
- You will likely have to pay a fine.
- Your business may be temporarily or permanently shut down.
- Your company’s reputation may be tarnished.
- You could be held personally liable.
What happens after I have my business license?
- Many business licenses, including most Delaware business licenses, require annual or biannual renewal.
- Businesses should rely on their own internal compliance personnel in order to stay on top of business license renewals. Although most licensing jurisdictions do send renewal notices, companies should not rely on these reminders.
Keep in mind that it is not just new businesses that have to think about acquiring a business license. Existing businesses must be mindful as well. Many situations could cause your company to fall out of compliance. The following are circumstances in which the requirements of your existing business license could change, and your company could need to update its business license:
- Your company began transacting business in another city, county or state
- Your company hired a new employee
- Your company began selling a new product or service
- You opened an additional business location
- You closed a business location
Business license compliance is an important aspect of owning a company, but it doesn’t have to be stressful or tedious. However, some governmental agencies are easier to deal with and more efficient than others.
Next: Business License or LLC First?
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such sources content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
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There are 14 comments left for Do I Need a Business License for My Company?
annita kaur said: Sunday, May 26, 2019I am registering my Delaware company in New York. New York is where I will be operating my business. Do I need two licenses - Business & Esthetics/Cosmetology? Does every state require a business license? Does NY require a business license? and How do I determine which is the correct License - Cosmetology or Esthetics?
HBS Staff replied: Thursday, May 30, 2019While we can certianly help Foreign Qualify the Delaware company to do business in New York, we’re unable to assist with obtaining a business license as this is separate from a Foreign Qualification. Typically, the business license is registered in the jurisdiction where the company is physically operating often times at the county level. While we’re not able to assist with specific licensing, some of our clients have had success working with LicenseLogix for those services. Feel free to visit the website here: https://www.licenselogix.com/lp/harvard-business-services-and-licenselogix?referredbyaccountid=108978.
If your business will have a physical presence by operating, hiring employees, banking or even holding an asset in a State other than the State of Incorporation, clients will often qualify the business to operate in that State. The foreign qualification process enables a company to transact business in a jurisdiction other than where it was formed. Since each State has its own requirements, let HBS take care of this detail for you. For more information on the foreign qualification process https://www.delawareinc.com/blog/what-is-foreign-qualification/.
Carl said: Thursday, January 31, 2019Hi, if we are based outside the US and using a Delaware LLC for selling consulting services outside of Delaware do we need a business license?
HBS Staff replied: Friday, February 1, 2019Carl - Generally, our clients based outside the U.S. are not required to obtain a business license to conduct business outside U.S.
Steven Morgan said: Monday, July 16, 2018I want to establish an internet-based business in which I sell a service. Do I need a business license and, if so, how do I obtain one? I am based in California.
HBS Staff replied: Tuesday, July 17, 2018For business licenses and specific states' rules, it is best to contact the specific state in which you want to do business, in this case California. We suggest you contact the Small Business Administration office in California.
Scott said: Thursday, June 21, 2018I work for a contractor that sends me a 1099 . I live in Maryland but has sent me to Delaware to do work do I need a license?
HBS Staff replied: Friday, June 22, 2018We are not experts in business license issues. Your best bet is to call the Delaware Small Business Administration; they should be able to answer your question. Thanks for reading our blog!
Tom Way said: Thursday, May 24, 2018I do some occasional consulting writing software and entertainment script writing and reside in Delaware. I typically receive a number of 1099-MISC forms and report this on a Schedule C. Do I need a Delaware business license for this sort of personal, rather than formal business, work?
HBS Staff replied: Tuesday, May 29, 2018For business license information, your best bet is ton consult your local Small Business Administration office, as that information is outside the realm of our experience.