What Is a Business License? How to Aquire & Simple Case Study Breakdown
A business license is the legal registration of your company that allows it to operate within your industry and jurisdiction. When you start a new business, no matter what country you are in, you have to take several steps to get your business registered legally. Governments register every business primarily to generate tax revenue and legitimize exchanges between businesses and between businesses and customers. It is necessary to register businesses for many reasons, such as documenting the trade, issuing invoices, issuing return invoices, keeping accounting records, and avoiding conflicts on issues such as names, brands, models.
Businesses need different business licenses according to their industry, the region where they are established, their fields of activity, and the type of company. Obtaining a business license takes time as it requires preparing different documents. Some types of businesses may result in divergence of initial investments or unforeseen costs due to differences between the industries or states in which they operate.
For example, while the conditions of opening a veterinarian in one state are standard, in another state, you may be required to keep a shop of at least 50 square meters and have separate sections such as a waiting room and examination room. In such a case, if you have rented a shop that does not comply with these conditions before starting the transactions, your expenses will be wasted.
What is a Business Licence?
A business license is a government document that certifies a business is confirmed that it’s healthy and safe for the public. Determining the exact business license required depends on the type of business and where you operate.
A business license gives you permission to engage in a specific type of business in a certain jurisdiction. Federal and local governments legally require small businesses to obtain valid business licenses before providing goods or services.
A business license is a mandatory permit issued by a state government body that allows a business to operate in a particular industry. There are many conditions that determine whether a business needs a certain license and additional license and permit documents other than the operating license. For example, type of product and service, location, company size, number of employees, etc.
Definition Of Business License
The business license is a document issued by the state or local authorities representing the state, confirming that a business is in accordance with the standards of that country due to its product line and services and that it is safe for the public.
If you are considering establishing a company in the United States, you may need to obtain certain permits and licenses from federal, state, or local governments. Permits and licenses required for small businesses vary from region to region, so it’s important to contact your state and local government.
A business license is an official permit issued by a government agency or affiliated body that allows the company to conduct particular business activities within.
What Does A Business License Mean?
A business license indicates that a business formally bears the responsibilities in its field of business and meets the minimum requirements required by the state, state, or local government. In short, a business license holds the business accountable for its activities. The business license basically aims to protect public health and public safety. It ensures that the public receives service at certain standards and that they do not experience victimization while receiving this service.
Professional licenses indicate the level of expertise of the professional doing that job in a particular subject. Sales tax licenses are required for the sale of taxable products. The state, through these licenses, controls the incomes of the enterprises and follows the taxes.
Who Should Obtain a Business License?
Almost every company with an income stream will be required to have some business license.
However, some businesses can be maintained without a business license. For example, if you’re going to sell garments on social media page with gigs, you don’t need a license anyway. If you plan to grow this business and continue to something of sale on B2C sites like Amazon FBA, it’s better to build a real company and register it. If you plan to open any local businesses, and you’re going to be a for-profit business, getting a business license is inevitable.
Except for a few isolated cases, usually involving broadcasting or telecommunications, there is no federal or provincial licensing system for businesses.
Where to Get a Business License?
A business license can be obtained from your state, city council, or local government. This will vary depending on the city or state and the type of business you are applying for.
In a business establishment, the documents required to obtain a license and the documents that must be attached to the business file vary by business type and the state in which the business will be established. For example, the permits and documents to be requested for accommodation facilities such as hotels and food businesses such as restaurants will be different.
For sales, such as guns and liquor, some products must be licensed at the federal level. How state-level licenses are obtained and their costs may differ from state to state. Therefore, you should familiarize yourself with the rules for obtaining business licenses for your industry in your state or city.
How To Get A Business License?
Business license procedures and application authority will vary depending on the state in which your business will be established. The U.S. States’ and cities’ regulations on licensing can be found on the SBA (Small Business Administration) website.
Before you can get a business license, you must obtain your business’s “Federal Tax ID Number.” There is a different job code for each job type; therefore, before applying for the license, determine the sector in which the business you will establish and the code to be obtained. In addition to a license, you also need to find out if you need a special permit for the work you do.
How Much Is A Business License Fee?
To obtain a business license, you will need to pay an amount ranging from $50 to $400, depending on your region and line of business. While this figure is rare, it is higher in some states. For example, Nevada’s cost for a state business license could be up to $500 per year, plus fees to file annual lists of officers and directors.
If you do not obtain a business license, your business cannot benefit from local, state, or federal laws. When unlicensed businesses are detected, fines are issued, and a period is determined for obtaining a business license; at the end of this period, the business can be closed. Businesses that are found to be operating without a license in sectors such as food can be closed immediately.
Business License Renewal Periods
The operating license is obtained at the establishment stage, but it must be renewed periodically in some business lines. For example:
- If you own a contracting business in California, you should renew the contractor’s license every two years.
- In Texas, licenses are valid for three years for most business types.
- In New York, a facility registration or business license is valid for two years.
- In Chicago, business licenses need to be renewed every two years for many businesses such as dry cleaners, animal grooming, daycare facilities, even home-based businesses.
Different states and cities have their own rules and requirements on the business license renewal period. All states require a license fee to be paid as part of that renewal.
Is A Business License Required To Do e-commerce?
B2C and B2B commerce, that is, the sale of products and services over the internet as retail or wholesale, is no different from a local business before the law. Especially those who sell their own products through social media channels or sites such as eBay and Etsy, and those who do small-scale trading, are not within this scope as they have not yet established an official business. However, if you entered business online as a business, you will likely be responsible for the same permits and licenses as any other business.
Businesses engaged in e-commerce are only responsible for permits and licenses in the state in which they are established. For example, an e-commerce company based in Delaware is not liable for sales to California and Texas.
Is a Business License Required for Home Business?
Today, working from home has become popular with the increase of internet-based jobs. There are also businesses founded by entrepreneurs that provide many services such as pet care, massage, therapy, yoga.
Home-based businesses are subject to licenses and permits, just like businesses that provide services from offices and stores.
Benefits Of Business License
Today, there are large numbers of people who do business on a small scale, not just in the U.S. but around the world, without establishing a legitimate business. Some countries and states may not be required to establish a business in some business lines or freelance businesses. Investors may not want to establish an official business or postpone their decisions continuously due to establishment costs and taxes paid afterward.
However, this is an obstacle to developing and growing a business. In addition, this situation creates legal problems, leads to risks such as not being able to tax the money earned. Being licensed and having a formal identity allows business owners to reassure their customers, employees, and other stakeholders that the business will continue and their goods and services are reliable.
List of Federal And State Permits And Licenses:
a) Basic Business License: The basic business license is obtained from the city or county where your company will do business. If your company is outside the city limits, it is taken from the county.
b) Federal employer identification number (EIN): It is required for almost all types of jobs. It is also called a Tax Identification Number. The tax number can also be obtained from the state department of the revenue office.
c) DBA (doing business as): In the U.S., a DBA lets people know who the actual owner of a company is. DBA is also called Fictitious Business Name or Default Business Name.
d) Territory and land use permit: It is required especially for new generation companies and home-run businesses.
Health department permits: Especially if your company is in the field of food preparation or sales. Sales tax license: For the sale of all products and services.
e) Fire brigade license: Especially for businesses that will hold many customers together (such as bars and nightclubs).
f) State-specific business licenses and permits: If your business sells products similar to the following, you must obtain a separate license to sell these product groups:
- Lottery tickets
g) State-specific professional/professional licenses: If your company or your employees will provide one or more of the services listed below, the required licenses must be obtained:
- Vehicle repair
- Property/Land sale
- Tax services
- Insurance sale
- Legal representation (attorneyship)
h) Federal licenses and permits: If your company includes one of the following:
- Investment advice (U.S. Securities and Exchange Commission)
- Pharmaceutical Manufacturing (U.S. Food and Drug Administration)
- Preparation of meat products (U.S. Food and Drug Administration)
- Broadcasting (Federal Communications Authority)
- Ground transportation, eg, truck and trucking (U.S. Department of Transportation)
- Manufacture or sale of alcohol, tobacco, and firearms (U.S. Bureau of Alcohol, Tobacco, and Firearms)
Types Of Business Licenses & Permits
Business licenses can vary between different states, cities, and industries. The licenses and permits that a business will need to start operating are very diverse when it comes to niche sectors. We’ve listed some of the most common business licenses in the list below.
a) Business Operating Licenses: Commercial business licenses are licenses issued by the state and city government. Because jurisdictions differ, it may be necessary to apply separately on a state or city basis.
b) DBA (doing business as) License Or Permit: “Doing Business as” (DBA) is the name a company uses to run different business lines that it does under its own name. The company is announced to the public with this name.
c) Planning And Zoning Permits: Every municipality has some rules about which type of business can operate where. If there is a regional restriction regarding your business sector, you should choose your address accordingly. For example, some businesses are not allowed to be opened in areas close to residential areas. Businesses such as gun sales, bars, nightclubs are not allowed near schools and parks.
d) Building and Home Occupation Permit: If you plan to operate your business out of a residence, a Home Occupation Permit will be required from the City’s Planning Division. Some limits are placed on home-based companies; for example, if you are going to use your home as a workplace, you cannot obtain a permit for a job that requires hazardous material storage or working with noisy machinery.
The home business permit allows neighborhoods to be divided into zones for home business activities. In this way, employees working from home on a city basis will be recorded and tracked. The number of permits granted for work done from home should not cause an increase in noise pollution and traffic in an area.
e) Fire Department Permits: Every business must obtain a fire inspection and safety clearance from the local fire department responsible for its area. It is determined by on-site inspection after establishing the establishment that the establishment makes the arrangements according to the fire instruction. In some cities, every business must obtain a fire department permit before starting operations, while in some cities, the inspection only takes place after the business is established.
Not every business is audited under the same conditions and is not subject to the same obligations. You should check with your local government to find out what level of fire control regulations apply to your business.
f) Tax Regulations: A key element in managing a business from an accounting point of view is taking all necessary tax regulations into account. Businesses may need to obtain more than one license for tax-related matters. For example, many businesses are legally required to obtain an Employer Identification Number (EIN) that allows them to recruit employees and collect payroll taxes. Businesses that sell goods and services must obtain a seller’s permit, also known as a sales tax license or permit.
g) Health Licenses & Permits: Depending on your industry and location, you may need to obtain specific health permits to run your business. For example, businesses in the food and beverage industry will need to be evaluated to verify they meet health code standards. Unless you’re one of the few exempt organizations, you will also have to comply with safety regulations, such as those from the Occupational Health and Safety Administration.
h) Environmental Licenses: Some industries or companies over a certain size are subject to government-issued business licenses aimed at protecting the environment. Such licenses and permits are issued for purposes such as air pollution, noise pollution, protection of underground resources such as water and soil. For example, businesses that generate water waste (e.g. cleaning companies) need to document the materials they use for cleaning. In this type of enterprise, the products they use and the product usage instructions are inspected to protect the health of the employees and determine the effects that may cause environmental pollution.
k) Sign Permits: Apply for a sign permit If you run a business, you need to identify the signage and be sure it’s proper to the current rules. Your business signage may include various directions or warning signs. Knowing the exact procedure and codes for obtaining a permit is important to save time during the installation process and avoid financial damage or fines for incorrect markings.
l) Industry-Specific License: Most businesses need industry-specific licenses and permits in addition to the standard business license they must obtain. Each sector will be subject to different permits and licenses due to the services it offers or the products it sells. Many occupational groups such as beauty salons, hotels, private nurseries, cleaning services, construction, electricity, engineering, food, alcohol, health, medicine are subject to different regulations.
Case Study: Licenses and permits required to open an Open A Restaurant
This section will select a sample business and examine the business license and permit processes required for opening.
In the U.S. states, restaurants are inspected by various local and state authorities. Entrepreneurs who are considering opening a new restaurant or cafe obtain the permits and licenses required by the health authorities who inspect the compliance of food products and places where food products are sold to public health.
a) Obtaining a Business License
To open a restaurant, you must first obtain a business license. A business license allows you to operate your business legally within a certain territory. According to the Small Business Regulations, if a restaurant takes part in events supervised by federal bodies, it will also need federal permits. State, county, or local governments may deduct a certain amount of tax from your annual income to renew your license.
b) Obtaining a Food Permit
One of the most important legal requirements for a new restaurant is a permit rather than a special license. It would help if you had a food service business permit to open a restaurant. With this permit, you demonstrate your competence in food processing, storage, preservation, and preparation. In addition, your employees must have a food worker license to show that they have a food safety certificate.
c) Obtaining Liquor Sales Permit
If liquor is selling at your restaurant, state officials will require you to obtain an alcoholic beverage license. Most states and local governments have required alcohol licensing. The liquor sales license may be subject to different levels or series. The type of license you apply for determines what types of alcoholic beverages you can sell at your venue. For example, if you want your restaurant to participate in local food festivals, you’ll need to obtain a festival liquor license in addition to your liquor license.
d) Music Broadcast
You will need to broadcast music in the restaurant, and such businesses must obtain a music license in order for the copyright to be paid to the authors. If you have plans to broadcast music, karaoke, D.J. performance, or live music, you will need a music license.
As a result, to open a business, you need to get a business license. However, the work does not end with a business license alone. Your business organization file, which consists of all necessary licenses and permits depending on your industry, must be completed.
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