What Is a Business License?

Once your company is registered with the state, you might also need a local business license depending on your location and other factors. This is typically required even when you plan to operate the business from your home. However, if your corporation or LLC is merely a holding company for assets or real estate, a local business license is not usually required. In most cases, the business license will be issued by your local city hall or by your county of operation.

Do I Need a Business License?

In most cases, whether you have a storefront or an online business, you will need to obtain a local business license if:

  • You have formed or plan to form a business entity in your state.
  • You are required to remit state sales tax on the products you sell.

In addition to the business license, you may need a special zoning permit if you are holding inventory at your home or office location.

If the products or services you sell involve a regulated industry such as health care or medicine, you may need a special license from the state.

Your attorney can help ensure that you have the required permits and licenses for your area and your industry. You should also be sure to obtain appropriate insurance coverage for your business.

Why Do I Need a Business License?

Business licenses allow the government to keep track of activities of and tax revenue from local businesses. Failing to get a business license can carry expensive fines, and you may even need to close your business until you have the appropriate permits.

Some locations require you to be licensed before any sales are made, while in other areas, you must reach a certain revenue before a license is required.

Even when it isn't strictly required, registering your business has other benefits. It allows you to claim tax deductions and increases your credibility with potential customers and stakeholders. It may also be required when you seek financing for your business.

What Are the Requirements For a Business License?

Each state has its own business license requirements, which can be downloaded from the U.S. Small Business Administration. You'll typically need to provide:

  • The legal structure of your business
  • A description of your operations and activities
  • A sales tax license
  • Other required permits such as building and zoning

How Do I Obtain a Business License?

First, you'll need to register your business with the state and obtain an employer identification number (EIN) from the IRS. Like a Social Security number, this nine-digit code is used to identify your business for tax purposes.

If your business has employees, you'll need to register to pay unemployment and workers' compensation taxes in your state. Some states also require you to obtain a separate state tax ID number.

You will also need a sales tax permit if your company is involved in selling goods or services. However, if you have no storefront and only sell your products online, you likely will not need to remit state sales tax.

Who Does Not Need a Business License?

Sales of handmade items such as crafts and jewelry can often be made without a business license. Many areas do not require small home-based businesses to obtain a license, but it's important to check with your local department of licensing and inspections to make sure.

If you do not make a profit from selling your items, this is considered a hobby and does not require a business license. Even if you make a profit, you likely don't need a license if you only make occasional sales at flea markets, craft fairs, and yard sales.

You probably don't need a business license if you sell seasonal items only during the holidays. You can also avoid licensure by selling only to a small group of family members, friends, and business associates.

In addition, some jurisdictions don't require business licenses for online sales. This means you can sell your items on craft and auction sites without obtaining a license.

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