Why You Need a Business License

Once you have successfully formed your new company, there are still formalities and registration processes that you will need to address before you can legally conduct business. These tasks include securing a variety of licenses and permits, as well as ensuring that you are compliant with other miscellaneous regulations. Read ahead for information that will help you ensure that your business is properly prepared to begin daily operations.

Do I need a business license?

Most businesses will need to obtain at least one license before they can legally begin their normal daily operations. Depending upon the industry, several licenses may be required. These licenses can come from either the state, federal, or local government, but they are important regardless of which agency issues the license.

Federal licenses

Federal licenses are usually only imposed by the SEC (Securities and Exchange Commission) on large, publicly traded companies. Certain federal bureaus may require smaller organizations that deal in highly regulated products (e.g. alcohol, tobacco, or firearms) to be licensed. Since these licenses typically come from large, well-funded governmental agencies, they are often monitored very closely; businesses that fail to maintain registration are identified fairly quickly.

State licenses

Many states also require specific licenses that only apply to certain types of organizations. Many service businesses (and their employees) need state-level licenses in order to legally operate. These licenses ensure that professionals and organizations in certain industries are observing all necessary certification and training requirements. These types of licenses are required of businesses operating in the medical industry, food service industry and cosmetology-related industries. Retail outlets in most states must also acquire a state sales tax license to operate.

At the local level, necessary licenses can vary greatly even among different regions of one particular state. They may also be required at both the county and municipality level. These types of licenses typically include local tax licenses, as well as standard general business license.

Other business license considerations

Permits

Permits are different from licenses in that they signify your organization’s compliance with a specific local ordinance. Their purpose is to ensure that your business is operating safely and in accordance with community regulations. Common forms of permits are local health department permits (imposed on all food preparation related companies), signage permits, and fire department safety permits.

Zoning laws

Several businesses are also subject to zoning restrictions, which are designed to restrict specific types of organizations from operating in certain areas. Zoning problems are typically only an issue for businesses that offer what could be loosely defined as “vices” (e.g. liquor and tobacco shops, firearm dealers, or night clubs), which generate a great deal of pollution or noise. Home-based companies are also restricted in certain communities. The reason for this is to restrict certain activities from occurring in areas where they could likely interfere with the public good.

Miscellaneous considerations

There are also a few hard-to-classify formal requirements that some businesses must address. Most businesses must file for a federal tax identification number (also referred to as an employer identification number and abbreviated “EIN”). An EIN operates similarly to a personal Social Security Number, and assists in the payroll tax filing process. Many states also require businesses to file for a state tax identification number as well.  

Also, most sole proprietorships and general partnerships eventually find it necessary to take on a fictitious business name, (also called a  “doing business as”, and abbreviated “DBA”).  Many financial institutions require a formal DBA before opening accounts. A DBA also allows the business to conduct itself as something other than the owner’s personal name.

How to get a business license?

Before you begin to operate your business, you should do an exhaustive search to make sure that you’re aware of all requirements on your business. Be sure to check all levels of government in the location your business is registered and operating, as well as all organizations (both federal and private) that oversee your specific industries.

One way to efficiently manage this search is to hire a professional agency, like Swyft Filings, to complete this for you. They will be able to use their existing contacts to quickly compile this information. Contact one of our business experts today!