Penalty for Operating Without A Business License: Everything You Need to Know
There is a penalty for operating without a business license, and therefore, it is important that you first obtain the proper licensing before doing business. 3 min read
There is a penalty for operating without a business license, and therefore, it is important that you first obtain the proper licensing before doing business. Specifically, a business license is given from your local, county, or state government where you plan on doing business. This license gives you permission to begin doing business in the state.
Those who just registered a new business might be excited to begin working, but even after filing the articles of incorporation or organization, you can’t start doing business right away. In addition to first obtaining an Employer Identification Number (EIN), opening a business bank account, and obtaining applicable permits, you will also need to obtain business licensing before you actually do any business.
Depending on the industry in which you operate, you could have several licenses to obtain before doing business. For example, if you hire employees and/or sell goods, there will be additional licensing, including franchise sales tax and employer withholding tax registration requirements.
Who Issues a Business License?
All levels of government, including the federal, state, and local government sectors, issue business licensing. This also includes county and municipal offices. In fact, you might require licensing at all levels. It might not be as easy and straightforward as you might suspect, which is why it is important to reach out to the appropriate departments to find out what licensing is required of you. There are greater than 40,000 separate licensing jurisdictions in the U.S., each with their own requirements.
Why Are Business Licenses Required?
Business licenses are required to:
- Properly identify your business
- Protect public health and safety
- Keep track of finances and other tax requirements
What Are the Consequences of Not Being Licensed?
If you don’t comply with the requirements expected of your business, it could lead to several consequences, including the following:
- Penalties, liens, and interest for non-compliance
- Potential suspension of your business until you become compliant
- Potential closure of your business if you don’t comply with the licensing requirements
- Your physical office might be padlocked by the government office that you didn’t obtain a license through
- Possibility of lawsuits
- Loss of reputation
There could be various government departments that charge your business fines and penalties for failing to comply with the licensing requirements. If this is the case, this might not only be too expensive to pay, but might even cause your business to go bankrupt before it was even able to really expand and grow.
Alternatively, your business might be forced to close, particularly if you fail to comply with the licensing requirements. Any one of the government departments can force closure of your business, especially if you fail to comply with the licensing requirements after the department has sent you reminders after identifying your failure to obtain licensing.
There could be a significant possibility of lawsuits, either from customers, business vendors, creditors, or the government. This might lead to closure or bankruptcy of your business if you are unable to afford defending such legal suits. Similarly, your business could lose its reputation amongst the public if you are conducting business illegally.
Lastly, you should keep in mind that some license violations carry swift criminal penalties for the business owners and not just on the business itself, particularly if the owners of the business are intentionally violating the license requirements.
How to Maintain Business Licensing
If you are worried about being able to maintain the ongoing business licensing requirements, you should keep a master list of all of the renewal dates and fees associated with each license. You should also have reminders for yourself in advance of the deadlines to ensure that you renew the business licenses before the deadline occurs. Also, keep in mind that, if you choose to expand your business by opening another physical store location or warehouse, or selling new products, you might need to obtain additional licensing. Therefore, you should have a dedicated system that can store all rules and regulations in terms of what licenses are required of you. You can also reach out to the Secretary of State’s office to find out what additional licensing might be required.
If you need help with obtaining a business license, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.