As of 2024, there are over 31 million entrepreneurs in the US, and global entrepreneurship has exploded in the last 15 years. The pandemic showed us that non-traditional career paths were possible, which also accelerated this shift.
You may be late to the game though, and you’re only just ready to explore this new chapter in life. So one question that may be weighing on your mind is this: “Do I need a business license?”
We’re here to answer that question and more. So read on to see what a business license even is and if you need one to start your own company.
What Is a Business License?
This may sound like a silly question, but it’s good to go over the basics to ensure that you have a solid foundation of knowledge.
A business license is a government-issued permit that allows your business to legally operate within a specific jurisdiction. Essentially, it’s approval from authorities to conduct business activities, and it helps local governments track businesses operating in their area.
A business license ensures that the company complies with local laws, regulations, and safety requirements. In addition, in many cases, it registers the company with local or state authorities for tax purposes as well (including sales, property, or business income taxes).
The Types of Business Licenses
There are three levels: local, state, and federal. Let’s explore each one more in detail.
Local Business License
Most cities or counties require businesses to have a general business license. This will let you operate in that particular jurisdiction. The fees and requirements will vary depending on the location and business type.
State License
Some businesses may need a state-issued license in addition to local licenses. More specifically, they’re usually in regulated industries like healthcare, legal services, or real estate.
You might also need a seller’s permit if your business involves selling taxable goods or services.
Here’s a complete list of every state and their requirements for more detail.
Federal License
Like with state licenses, there are certain industries that may require a federal license from agencies like the Federal Trade Commission (FTC) or the US Department of Agriculture (USDA). Some examples of industries that’ll do this are transportation, agriculture, and firearms.
Do I Need a Business License?
Generally speaking, and in most cases, yes, you’ll need a business license.
There are many types of business licenses, such as:
- General: Required for most businesses
- Professional: For professions like law, medicine, real estate
- Sales tax: For businesses selling goods subject to sales tax
- Health and safety: For food, healthcare, or childcare industries
Do keep in mind that some industries require additional or special licenses. For example, restaurants need health permits, and contractors need construction permits. So always do your due diligence and research the licenses you need to operate legally and safely; failure to do so can result in fines and even closure of your company.
Do I Need a Business License to Sell Online?
If you’re getting involved in ecommerce, then it’s almost guaranteed that you’ll need a business license. This is true even if you’re running your business from home, as many cities or counties will require you to obtain a local business license.
On top of that, you’ll likely need a sales tax permit. This will let you collect sales tax on taxable goods sold within your state.
Those operating from out of their house may need a home occupation permit as well. This ensures that your home-based company complies with zoning regulations.
The exceptions are small-scale online sellers. If you’re selling online occasionally and aren’t making a living off it, then you might not need to apply for a business license.
Do I Need a Business License to Sell on Etsy?
On that note, Etsy itself doesn’t require its sellers to have a business license in order to sell on their platform. All you have to do is create an account, and you can start selling stuff.
However, matters aren’t that simple. The IRS has a clear distinction between hobbies and businesses, so you have to go through the details to determine if your Etsy account counts as a business.
Do I Need a Business License to Sell on Amazon?
Amazon is another platform that doesn’t require you to have a business license in order to be a seller.
But once again, there’s a distinction between hobby selling and selling as a business. If you go through the IRS’s criteria and find that your account qualifies as a business, then you’ll have to go through the proper channels to get licensing.
How to Get a Business License
The requirements for getting a business license will depend on several factors, such as:
- The type of business
- Its location
- The specific industry
However, there are general steps that everyone can take to get one.
Create Your Company
You can’t apply for a business license if you don’t already have a company set up. Most people choose between a sole proprietorship, partnership, corporation, or limited liability company (LLC), with the last option being a popular one.
Don’t know which to choose? Then you can speak to our experts for assistance. You can also use our free business registration service to get up and running.
Do keep in mind that the entity type you pick will affect the permits and licenses you’ll need. It’ll affect your tax responsibilities too.
Apply for an Employer Identification Number (EIN)
Sole proprietorships with no employees are one of the only businesses that don’t need EINs. In all other cases, you’ll have to apply for one with the IRS.
The good news is that this process is free to do. So there’s no harm in getting an EIN for your company, especially if don’t have employees now but plan on hiring later.
Determine What Licenses You Need
In an earlier section, we discussed which types of licenses are available. If you need more help, you can either speak to a law professional or contact your local Small Business Administration (SBA) office.
Apply for Your Business Licenses
Typically, you’ll find information on your local government’s website. Not only that, but you can also download the forms or complete them online.
Either way, you’ll need the following information:
- Business name
- Business address
- Owner’s personal information
- Type of business
- Business structure
- Estimated annual revenue
- Number of employees (if applicable)
You can then submit these forms to your city or county’s business licensing department. The application fee can vary widely, with some as low as $50 or as high as several hundred dollars. Do note that you’ll have to pay to renew your license annually too.
Make Sure You’re Properly Licensed
The answer to the question, “Do I need a business license?” is “It depends.” Those selling items as a hobby (especially under platforms like Etsy and Amazon) probably won’t need a business license. But if you’re planning on making a profit, then it’s likely you will.
Of course, every jurisdiction is different, as is every industry. The best thing to do before you get started is to do thorough research and consult with professionals if needed.
Sign up with Business Anywhere now to take advantage of our free business registration service. We can also assist with registered agent services, and get you a virtual mailbox, so you can do business from anywhere!
