A business license allows a business to operate in a specific geographic location. Licenses are issued by the local, state, or federal government and are typically required for regulated businesses and those that present a danger to customer health or the environment. The cost and application process for a business license vary. Most can be obtained online and require a fee of anywhere from $25 to $50 or more.
How Business Licenses Work
Licenses give businesses the right to operate at specific locations and within certain industries. They may be required at either the local, state, and federal level or possibly all three.
A business license is granted to ensure that businesses operate consistent with relevant laws and in the interest of public health and safety. Companies that fail to comply with the requirements are subject to additional fees and penalties. In the worst case, some may even be shut down.
If you’re opening a business, then you will likely need at least one local license to operate—and you may need one from the state or federal government as well. Businesses in highly regulated industries usually need more licenses than those in other fields.
Licenses are typically renewed annually, and following government renewal requirements are vital to keeping your business compliant.
Federal License vs State License vs Local License
Depending on the type of business, licensing may be required at the local, state, or federal level. In many cases, you’ll need to obtain a combination of business licenses from different jurisdictions (legal entity over a location). Here’s what to expect from each:
Federal Business Licenses
Federal business licenses are only required if your business is in an industry regulated by the federal government. Business areas that are commonly covered by federal law include:
- Fish and wildlife
- Mining and drilling
- Alcoholic beverages
- Firearms and ammunition
- Radio and TV broadcasting
- Transportation and logistics
The federal business licenses must be obtained from the relevant regulatory agency, and costs and application processes vary by industry.
State Business Licenses
Like federal licenses, the type and number of state licenses (also called professional licenses) you need depend on the type of business you operate. However, state and local licensing often cover a broader range of industries and activities. Also, it can be extremely location-specific.
Examples of professions that commonly need state licenses include:
- A/C Contractors
- Funeral Directors
- Massage Therapists
- Physical Therapists
To obtain a state license, contact your state’s Secretary of State, Department of Revenue, or other business-related agency to determine what licenses you need for your business.
Tip: Keep in mind that state licenses may be required even if you’re already registered as an LLC or other business type.
Local Business Licenses
Finally, local business licenses are typically required when starting a business with an office or retail location. Often based on local zoning laws, these permits consider factors like whether the use is permitted or if adequate parking is available.
To obtain a local permit, contact your city’s business license department. If you live in an unincorporated area, then get in touch with the county’s licensing office.
If you’re struggling with which business license you need and how to apply for it, then consider hiring an online legal service for help. IncFile has a research package that will find the necessary licenses for your type of business and explain how to file them. Get started with IncFile’s Business License Research Package for $99.
Business License vs Permit
The use of business licenses or permits varies by state and city. If you’re starting your own business, then you should contact the relevant local, state, and federal agencies to confirm current licensing and permitting requirements.
Overall, business licenses are most commonly granted to identify businesses to government agencies and enable them to engage in certain activities such as the sale of alcohol or firearms. These licenses are typically issued for periods of a year or more. Professional licenses may require examination, while others are limited to registration.
On the other hand, a permit is a type of license that is often associated with protecting public health or safety. Permits frequently have inspections and may be valid for a shorter period than a business license. Often at the local level, permitting arises in the context of health permits, zoning permits, and building permits.
Costs of a Business License
The cost of obtaining a business license depends on several factors but ranges from around $25 to $50. However, depending on the business, license, and jurisdiction, licenses can cost several hundreds of dollars each.
Keep in mind that many companies will need more than one license. And when you add up the costs of all licenses, the total may be in the hundreds.
Additionally, some licenses—like those required by the federal government—are more challenging to obtain than state and local licenses. Acquiring a fed license may require the assistance of a business attorney. In this scenario, costs will be much higher and could exceed $1,000.
How To Get a Business License
The process of applying for a business license varies substantially depending on the license type and regulatory agency. However, to begin the licensing process, you should follow these general steps:
- Research the licenses necessary for your business.
Remember, depending on the type of business, you may have to comply with regulations at the local, state, and federal levels. To gather information, visit the SBA licensing website and your state’s Department of Commerce, Secretary of State, and local Chamber of Commerce website.
- Contact the office that handles each type of license.
Once you identify the types of licenses you need, contact each regulatory agency to learn about the application process. The information is often available online but can be very confusing. It’s best to contact the office directly and get someone to walk you through the process.
- Complete relevant applications.
After becoming familiar with the application process, collect your business’ information such as tax ID numbers and other details. Use this information to finish the application. Some jurisdictions offer fully online applications, but others may require you to print and mail a hard copy.
- Pay application fees.
Application fees vary, but you should expect to pay at least $25.You may even have to pay hundreds of dollars, depending on the type of license. For the application, online payment may be available, but some jurisdictions or agencies require you to mail in a check.
- Keep your licenses current.
To maintain your business licenses, you must also renew them with the issuing departments. As with the application process, renewal requirements vary by license and jurisdiction. However, renewal is usually required every year. It involves submitting the past year’s tax returns or other relevant documents and paying a renewal fee.
Business License Providers
Applying for and obtaining the correct business licenses can be a complicated and overwhelming process. Some business owners even choose to get assistance from an online legal service or attorney.
IncFile is an online legal service company. It provides a licensing research package that includes research to identify a business’ state and federal licenses and how to apply. The Business License Research Package is available for $99.
Like IncFile, LegalZoom offers a range of online legal services, including business licensing research starting at $99.99. Business owners can also hire LegalZoom’s team of specialists to assist with license applications.
If you’re opening a business that’s subject to more complex licensing and permitting requirements—such as a restaurant—then we recommend consulting with an attorney. Doing so will simplify the legal steps of starting a business by ensuring you meet every local, state, and federal licensing requirement.
If you need a business attorney but don’t have funds, then consider using Rocket Lawyer. Its service enables you to work with an attorney for a flat fee of $49.99 per question.
Business License Frequently Asked Questions (FAQs)
Why do I need a business license?
Business licenses serve to identify your business to the community and government. They may also track your business’ finances for tax purposes. Also, licenses help protect public health and safety by requiring businesses to uphold specific standards.
What is an example of a business license?
An example of a common business license is a liquor license that bars and restaurants must have to sell and serve alcohol. Restaurants are also subject to additional licensing and permitting for the preparation and sale of food.
Occupational licenses are another common type of business license. These are often required for professionals to engage in a job in certain businesses like spas and hair salons.
Is a business license the same as an LLC?
A business license is not the same as an LLC (limited liability company). An LLC is a business legal structure that protects the owner’s personal assets from a lawsuit judgment or creditors.
Businesses are not required to register as an LLC, although it is highly recommended. Most companies that need a license list as an LLC or a corporation.
What does it mean to license a business?
Licensing a business describes the process of registering a business with the relevant local, state, or federal agency in order to operate lawfully. Depending on the type of license, this may require an examination; but typically, you only need a registration. Keep in mind, even if you obtain the relevant licenses to operate, your business may still need additional permits for certain activities such as a live music event.
Licensing is often a necessary part of starting and maintaining a business. It’s essential to understand the state, local, and federal requirements early on. Start by contacting your state and local licensing agencies and researching federal requirements through the SBA. Then, if you need help with the research or application process, consider hiring a business attorney or using an online service like IncFile.