Getting a business license might seem like administrative drudgery, but your company isn’t legit until it’s in compliance with local, state and federal licensing requirements. Depending on the general types of business you conduct and your specific business activities, you might also need a business permit, registration or certification.
Getting a business license serves two primary purposes:
In addition to obtaining a business license, you might need a business registration, permit or certification, usually from your local and state governments. But depending on the structure and nature of your business, federal licensing and registration might be required, too.
Most businesses do not need a federal business license or permit, but there are exceptions in cases where the federal government regulates the business activity you’re engaged in. The Small Business Administration lists the following industries as falling into that category:
State licenses and permits are more common than federal ones. Maryland, for example, regulates over a dozen industries, such as construction and liquor, through the Comptroller’s License Bureau. It regulates 26 more, including real estate sales and appraisals, locksmithing and home improvement, through the Department of Labor’s Occupational and Professional Licensing office. Texas requires licenses for 38 types of businesses ranging from air-conditioning and refrigeration contracting to weather modification. Most states also have state tax permit requirements as well. Depending on your company’s corporate structure and your state’s specific requirements, you might have state filings to square away before you can apply for a business license. Research the requirements of your state and business type to determine exactly which business licenses you’re required to get. You’ll also need a federal tax ID number. And if you incorporate outside of the state(s) where you’ll conduct business, you’ll likely need a certificate of authority, or sales tax certification, which essentially establishes your company for the purpose of sales tax.
Your local governments — city or county — have licensing and permit requirements of their own, and like the state and federal systems, their purpose is to protect the public and ensure that businesses are taxed properly. In some cases, whether you qualify for a business license depends on your taxes being paid up. Worcester County, Maryland is a good example. The county treasurer’s office must sign off on every business license application, and it only does so after verifying that the applicant has paid business and personal property taxes. Including the cost of a refundable personal property liability fee, Worcester’s total business license fee can be anywhere from $150 to $900.
The exact steps for getting a business license vary by business type and location, but there are some general steps most business owners must take to apply for licenses and permits, according to the Chamber of Commerce. Here are instructions on how to get a business license:
In Ocean City, Maryland, for example, businesses must submit a business license application each year. The application contains contact information for the business owner and information about the business. The city’s mayor and city council approve the application and issue the license after verifying that the business owner has paid their licensing fees in full.
Costs vary widely by location and type of business. In Ocean City, Maryland example, a small café with fewer than 25 seats pays $116 per year, whereas a retail store pays $1,167. In Newark, N.J., license fees range from $10 for a pet shop to $1,500 for an arcade, restaurant or laundry facility. This is in addition to state general and occupational licenses that might be required. Also, be prepared to pay an application fee.
The SBA is a good starting point for researching licensing fees. Its website has a state lookup tool to direct you to the correct agency for your state. Of all the steps involved in getting your startup off the ground, licenses and permits are probably the most tedious. But a misstep at his point can derail your business — or even put you out of business — so consider the time you spend getting the legalities in order to be time well spent.