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Starting a Business? A Guide to Business Licenses and Permits

This guide will walk you through the different types of business licenses and permits you may need, the different government agencies that issue them, and best practices for the application process.

 Getting a stamp of approval
Before you launch your business, be sure you've got the right licenses or permits. — Getty Images/greenleaf123

Starting your own business can be a daunting task. You’re focused on creating the best product or service you can for your customers, but you also have a lot of operational considerations like bookkeeping, figuring out your cash flow, hiring employees, and setting up your digital infrastructure, physical storefront and social media presence. There's a lot to consider, which is why it’s easy to overlook some necessary license and permit requirements.

Complicating the issue further, there typically are no hard and fast licensure and permit rules. Every municipality, county and state has their own specific requirements. There are also federal requirements for certain business types. Fortunately, there are some guidelines that can help smooth the process regardless of the type of business you want to operate and where it is located.

This guide will walk you through the different types of business licenses and permits you may need, the different government agencies that issue them, and best practices for the application process.

Here are the questions to address to ensure your business is properly licensed and permitted.

Do you need to talk to an expert?

Chances are, yes. Unless you’re an expert yourself, it’s wise to consult a lawyer or accountant before launching your business to make sure you’ve fulfilled all of the relevant regulatory requirements. Even veteran entrepreneurs are often unsure about which city, county, state, and federal agencies they have to contact before opening day. And getting this process right is really important—one missed registration can be a huge setback (or fine) for your business. A lawyer, accountant or local economic development agency can help you identify all of the licenses and permits that apply to your business before you launch.

Licenses vs. permits: What’s the difference?

This is a great question to start with, as many people are unclear about the distinction. Licenses are granted by a government agency as permission to do something or use something—think of a driver’s license (Department of Motor Vehicles), fishing license (Department of Fish & Wildlife), or marriage license (County Clerk). Some licenses require an exam; others simply require a registration.

  • Licenses. These are required by state governments for many professions—including not only doctors and lawyers, but also (in some states) security guards, makeup artists, and auctioneers. These licenses are granted only after a test that demonstrates applicants are proficient in their trade and understand relevant rules and regulations.
  • Permits. In a sense, permits are a particular type of license that regulates public safety. Permits are typically granted by a government agency following an inspection. A fire department, for instance, may grant you a permit to open up a commercial space to customers, and a health department will grant you a permit to serve food.

Who issues licenses and permits?

Licenses and permits related to business operations are granted by the federal government, state governments, county governments, and municipal, or city, governments.

  • Federal. Business operations that are directly regulated by federal agencies must obtain permits or licenses from those agencies. For example, an individual providing paid investment advice must register with the Securities and Exchange Commission (SEC).
  • State. Some type of state license or permit is required for nearly all businesses. A state tax permit, for example, is required for any business (operating in states with sales tax) that sells products or services. States also provide licenses for many occupations, including doctors, dentists, and cosmetologists. The Small Business Administration (SBA) website provides links to business license agencies in all fifty states.
  • Local. Most businesses need a general business license to operate in a particular county or city. The license is often simply a tax registration certificate that gives you legal approval to begin conducting business in the area. This license, however, is generally only the first of several licenses or permits you’ll have to acquire from the city or county where your business is based. Ahead, we’ll identify the most common licenses and permits.

Unless you’re an expert yourself, it’s wise to consult a lawyer or accountant before launching your business to make sure you’ve fulfilled all of the relevant regulatory requirements.

Do you need a federal business license or permit?

If your business is involved in activities supervised and regulated by a federal agency—including selling alcohol—then you may need to obtain a federal license or permit. If your business involves any of the following activities (which represent a mere sampling of all regulated activities and industries), you should contact the identified agency to find out more about specific requirements:

  • Agriculture. You will need to apply for a permit from the U.S. Department of Agriculture (USDA) if you import or transport animals, animal products, biologics, biotechnology or plants across state lines.
  • Alcohol. If you manufacture, wholesale, import or sell alcoholic beverages at a retail location (including restaurants), you will need to register your business and obtain certain federal permits for tax purposes from the Alcohol and Tobacco Tax and Trade Bureau (TTB). Note that this registration does not grant you a license to sell alcoholic beverage products—you must still contact your state or local licensing authority to obtain a retail license.
  • Broadcasting. If your business broadcasts information by radio, television, wire, satellite or cable, you may be required to obtain a license from the Federal Communications Commission (FCC).
  • Investment advising. If you or your firm are engaged in the (compensated) business of providing advice to others—or issuing reports or analyses— regarding securities, then you must register with the Securities and Exchange Commission (SEC) as an investment adviser.
  • Preparation of meat products, other food stuffs: The U.S. Food and Drug Administration (FDA) regulates all foods and food ingredients introduced into or offered for sale in interstate commerce, with the exception of meat, poultry, and certain processed egg products regulated by the U.S. Department of Agriculture.

For a more comprehensive review of federal licenses and permits, try the Small Business Administration website.

Do you need to register with the state?

The legal structure you choose for your business will determine your registration requirements with state and local governments. The following business types are always required to register with state agencies:

Businesses operating as sole proprietorships don’t need to register at the state level. However, many states require sole proprietors to use their own name for the business name unless they formally file another name.

Do you need to register your business name?

Choosing and registering your business name is often the first step to legally operating your business. If you’re running your business as a sole proprietorship or partnership, you have the option of choosing a business name or “doing business as” (DBA) name. A DBA name is also called a trade name, fictitious business name, or assumed business name.

If you chose a business name or DBA that is different than your personal name, then you may need to register it with the county clerk’s office or with your state government, depending on where your business is located. Some states require DBA name filings to be made public for the protection of consumers conducting business with the entity. Other states do not require the registering of DBA names.

If you are operating under your own name, you can skip the process. In some states, you can also avoid filing a DBA if you’re able to use your name plus a description of your product or service (e.g., John Doe’s Bookstore).

If you have filed to become a corporation or limited liability company (LLC), then you’ve already registered your business name and don’t need a DBA—unless, that is, you plan on conducting business using a name that’s different than the name filed with your articles of incorporation documentation.

Pro tip: DBA names may not include the words “corporation,” “Inc.,” “incorporation” or “Corp.” unless your business is an actual corporation registered with the Secretary of State.

Do you need an employee identification number?

An Employer Identification Number (EIN)—also known as a Federal Tax Identification Number or simply a tax identification number—is used to identify a business entity. Most businesses will have to apply for an EIN, which can be obtained online from the IRS.

An EIN is not required for sole proprietorships with no employees, but a business operating under this structure may still want to apply for one in order to keep personal and business taxes separate.

Most states require a state tax identification number if your business is going to hire employees or sell goods or services. This number will be different from the federal EIN. State tax ID numbers are issued by the Department of Revenue or a similar agency.

Note that if your business has employees, you will likely need to register with relevant state labor agencies that provide unemployment and workers’ compensation. In some states, you must register even if you are the only employee. Your application for a state tax identification number may, in some states, also register you with these agencies.

Do you need zoning or building permits?

Local zoning regulations determine where certain types of businesses can and cannot operate. If your business is in a structure previously used for commercial purposes, then, in most cases, zoning regulations will not be a problem.

However, you should carefully review zoning regulations and building codes before

  • Constructing a new building,
  • Using an existing building for a different purpose than its original usage,
  • Undertaking a significant remodeling, and
  • Operating a business from your home

A building or construction permit from local authorities will be necessary for any substantial structural changes. If zoning regulations do not allow operation of the type of business you wish to open, you may file for a zoning variance, a conditional-use permit, or a zone change.

Pro tip: If zoning regulations seem inconsistent with actual property usage, consult an attorney. There can be a substantial difference between what an ordinance says and the way it is enforced.

Do you need health department permits?

You will likely need a local health permit if your business involves the preparation, handling or distribution of food. Health permits are typically part of the domain of a county health department, and you should check with them to learn about local requirements.

In some jurisdictions, businesses that involve contact with the human body (like nail salons or massage parlors) will also require health department permits, as will aquatic health businesses like pools and spas. The health department will want to inspect your facilities before issuing the permit, and will likely conduct annual inspections thereafter. You may also need to complete a food handler course, and keep that certification up to date, if you’re operating a restaurant or other food preparation-based business.

Do you need a sales tax license?

If your business sells goods or services—whether online or offline—and your state requires you to collect sales tax, you will likely be required to obtain a sales tax license (also called a seller’s permit). States generally require businesses to pay collected sales taxes on a quarterly or monthly basis.

If you operate an online business without a physical presence (known, in legal terms, as “nexus”) in a particular state, you are likely not required to collect sales taxes for that state. The definition of nexus varies considerably from state to state, though. If you are uncertain whether or not your business qualifies as a physical presence, contact your state’s revenue agency.

Do you need a fire permit?

You may be required to get a permit from your local fire department if your business (1) uses any flammable materials, or (2) is open to customers or the public more generally. In some cities, you must secure this permit before you open for business. Other jurisdictions don’t require permits but do perform periodic inspections of your business to see if you meet fire safety regulations. If you are not in compliance, the fire department will issue a citation. Businesses subject to close and frequent scrutiny include restaurants, clubs, bars, theaters, retirement homes and daycare centers.

Pro tip: The federal Occupational Safety and Health Administration has very specific requirements for exit doors in order to maximize safety during fires, natural disasters, and other crises. These are the same standards that the fire department will be considering when reviewing your premises. You can learn more about these requirements on the OSHA website.

Do you need a sign permit?

Some jurisdictions require businesses to obtain a permit before putting up a sign. Local regulations may also stipulate very specific requirements about the size of the sign, the lighting of the sign and where the sign may be located. Some towns have banned neon signage altogether.

Do you need an environmental permit?

Many jurisdictions require certain businesses to obtain special permits related to pollution control. If your business operation involves burning material, using products that produce gas (such as paint sprayers), or in any other way discharging a pollutant into the air or water, you will likely need to obtain a special permit from a city or county agency. You should also check with your state environmental protection agency regarding federal or state regulations that may apply to your business.

Do you need a special license to sell particular products?

You will need to obtain a special state license if your business involves the sale of alcohol, lottery tickets, gasoline or firearms. These licenses generally demonstrate that your business and employees have met specific state-regulated standards regarding the sale of these goods. Federal permits may also be required in specific instances.

  • Alcohol. As stated above, some states issue liquor licenses at the state level, while others issue them at the county or city level. For state-level licenses, you must obtain approval for your liquor license from the Alcoholic Beverage Control (ABC); and for federal approval, you must contact the federal Alcohol and Tobacco Tax and Trade Bureau (TTB).
  • Lottery tickets. States regulate all gambling practiced within their borders, and regulations vary significantly. Retailers will need approval from state gambling agencies before selling lottery tickets or installing video machines.
  • Gasoline. Different state agencies regulate the operations associated with storing gasoline and dispersing it for consumer use. Check with your Secretary of State website for more details.
  • Firearms. A gun dealer’s license is regulated on the federal level by the Bureau of Alcohol, Tobacco, Firearms and Explosives. Some states may require you to obtain an additional gun dealer’s license for the state, or complete a firearms safety course before you can sell guns or firearms in your region.

Do you need an occupational license?

Practitioners of certain occupations—and the businesses they operate or are employed by—are required to have occupational licenses granted by the state before they can conduct business. Issuance of these licenses generally requires the applicant to show certain skills or training. States usually require licensing for anyone who provides personal services, including:

  • Medical care
  • Law
  • Auto repair
  • Accounting
  • Plumbing
  • Electrical work
  • Real estate
  • Cosmetology

The types of occupations or businesses that require licensing will vary significantly from state to state. Contact your state government offices to get a complete list.

Do you need a license or permit for an online or home-based business?

If you run an online or home-based business, you should assume that you’re operating under the same regulatory requirements as a brick-and mortar business, including:

  • Forming a business entity and registering the name with the state
    Recall that businesses operating as sole proprietorships don’t need to register at the state level.
  • Registering with the state government to collect and remit sales tax
    Although this requirement only applies in states that have a sales tax, and only for online businesses with a physical presence (or nexus).
  • Obtaining any relevant occupational licenses from the state government
    Note that the only licensing requirements you have to abide by are those in the state where your business is located—not where your customers are located.

Many cities and counties require home-based businesses to obtain a home occupation permit. Even if a permit is not required, you’ll still want to check your lease or zoning codes to see if there are any prohibitions on running a business from your occupancy. This step is especially important if you’re holding substantial inventory or having customers visit your home. This post from the Small Business Administration provides more details about running a home-based business.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Published February 25, 2019

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