You might hear the terms “business license” and “business permit” used interchangeably. Although they are similar in that a company may need them to conduct business in a particular area, they aren’t exactly the same.
Business licenses and permits help ensure that companies operate lawfully and safely. Generally speaking, a business license gives a company the legal authority to operate a business in a specified area while a permit provides permission (typically based on meeting certain safety requirements) to carry out specific activities at a location.
Operating without the appropriate licenses or permits could put a business and its owners at risk of lawsuits, criminal charges, fines and penalties, suspension of operations, or even the administrative dissolution of their business entity.
Let’s go a little deeper into licenses and permits to discuss some of the common types, why they’re important, how to obtain them, and frequently asked questions.
What is a Business License?
Government agencies at the federal, state, and local levels issue licenses to companies or individuals to give them the legal authority to operate a business in a particular area. Businesses must register for licenses with the proper government authorities that have jurisdiction over and regulate their type of business operations, and they must comply with all rules and regulations required to maintain their licenses.
Most businesses won’t need a federal license. However, exceptions exist for those who engage in activities such as:
- Manufacturing, importing, or exporting alcoholic beverages or selling them wholesale
- Importing or transporting agricultural products (animals, animal products, or plants) across state lines
- Operating a radio or television broadcasting business
- Operating or performing maintenance on aircraft
- Manufacturing, selling, or importing firearms, ammunition, or explosives
- Conducting activities involving wildlife (including importing or exporting wild animals or products derived from them)
- Fishing on a commercial basis
- Transporting people or cargo by sea
Some states and local jurisdictions require a basic business license, and some licenses are applicable to specific industries, for example:
- Childcare facility
- Restaurant
- Farm
- Retail store
- Retail liquor sales
- Brewery
- Winery
- Construction
- Plumbing
- Home improvement contractor
- Real estate
- Home inspection
- Architecture firm
- Hospitality
- Pet shop
- Travel agency
There are also professional licenses that individuals providing a professional service may need to obtain:
- Chiropractor
- Accounting
- Architect
- Therapist
- Appraiser
- Cosmetology
These and other types of professionals often must achieve a degree or certification to confirm they meet specific standards in their field to secure a license.
What is a Permit?
A business permit implies a business has passed an inspection or test of some kind to grant it permission to carry out activities at its location. States and local governments issue permits depending on what activities they regulate.
Examples of permits include:
- Zoning permit – This permit allows a property owner to use land in a certain way — i.e., for commercial purposes.
- Fire department permit – This permit deems a building is safe and meets fire code requirements.
- Sign permit – This permit allows the installation or removal of signage—in compliance with building codes and zoning ordinances—on the property.
- Health department permit – This permit allows a business to make or sell food products.
- Building permit – This permit is provides permission to create a new construction building or make alterations to an existing structure.
- Electrical permit – This permit provides permission to install wiring or do other work on electrical systems.
- Home occupation permit – This permit allows a business to be operated from a person’s home.
What About Sales & Use Tax Registration?
Many states and local jurisdictions impose a sales and use tax on taxable goods and services. To collect and remit sales tax to the appropriate government agency, a company must apply for sales and use tax license (which might be referred to by another name, such as Sales and Use Tax Permit, Seller’s Permit, Sales and Use Tax Registration, or Sales Tax Certificate). Even out-of-state businesses selling to customers in the state may need one!
How to Obtain a License or Permit
It’s critical for business owners to research the licenses and permits they will need at the federal, state, and local levels, and learn which agencies they must contact to obtain them.
Licensing agencies’ registration and permit authorities’ application processes and requirements vary from area to area and by type of license or permit. Typically, there is a fee for the license or permit and a registration or application filing fee.
Business owners can contact the appropriate government offices or an attorney to learn what licenses and permits they need, what steps they must take, the costs, and renewal requirements. Or, to save a lot of time, money, and hassle, they can let CorpNet take the reins and navigate the process for them.
CorpNet Can Help
Take the mystery and time-consuming work out of researching and registering for the business licenses and permits your company needs. We’ll do all the legwork and provide all the information and applications you need to stay compliant.
Top FAQs for Small Business Licenses and Permits
Is a business license the same as a permit?
Although a business may need various licenses and permits to operate legally, a business license and a permit are different. A business license confirms a company has complied with the federal, state, or city rules and regulations for legal operation. Other business licenses refer to the specialty or profession of the owner or staff, for example, accountants, doctors, attorneys, and certain trade businesses such as electricians.
Permits, on the other hand, usually imply the business has passed an inspection or test of some sort, such as health or zoning.
What information do you need to provide to get a business license or permit?
Applications and requirements vary by location, but business owners can expect to provide the following information on their application.
Business owners many need to provide additional details as well:
- Reason for application – Is this a new business? Are you changing of address for an existing business, changing of ownership, or needing a secondary license to an existing business?
- Business structure – Such as a Sole Proprietorship, Partnership, Corporation (C Corporation or S Corporation), or Limited Liability Company (Single-Member or Multi-Member LLC).
- Ownership information – Owners’ names, titles, percentage of ownership, phone numbers, residential addresses, and email addresses – for a Sole Proprietorship, the sole proprietor’s information; for an LLC, the information about the member(s) with ownership; for a Partnership, the partners’ information; for a Corporation, the owners’ names (individuals or another corporation).
- Driver’s license number and social security number of the owner, or one of the partners, or officers of a Corporation.
- Business name – The name used for conducting business. This would be the company’s Doing Business As (DBA) if the business has a fictitious name.
- Business EIN – The company’s federal tax ID number
- Type of business – Describing the activity of the business.
- Business address – The location where the business activity is to be conducted.
- Business phone number
- Mailing address – If different from the business address.
Do you need a business license to incorporate?
Businesses in any state will likely need some type of business license to conduct business. However, a business owner can start the incorporation process with the state before acquiring the appropriate licenses. Moreover, to apply for licenses and permits in a business entity’s name, the entity must be formed first.
That said, some states may require you to obtain a business license to open a business bank account depending on the type of business being conducted.
Is an LLC a business license?
No. A Limited Liability Company (LLC) is a business structure formed under specific state statutes. It is not the same as a business license described above.
What happens if you’re running a business and don’t have a business license?
A business discovered operating without the required licenses can be fined, forced to close, and become vulnerable to lawsuits. The same consequences apply for businesses that let their business licenses lapse. A business failing to renew licenses may have to pay late fees or be turned down entirely, depending on the department issuing the license. Without a license, a customer can decide to sue your company for fraud, if he or she is not satisfied with the product or service.
Do I need a business license or seller’s permit?
A business license is separate from a seller’s permit. A business license grants a company legal permission to operate, and a seller’s permit identifies a business as one that collects sales tax on products and/or services. As long as a company does business in a state that collects sales tax, it will need a seller’s permit from the tax authority in that state if it’s selling products or services. The basic rule about collecting sales tax depends on whether the business has a physical, economic, or other presence (i.e., a nexus) in a state. Some cities and counties also have a sales tax.
Can you own a business without a license?
In most cases, you cannot own a business without some type of license. However, freelancers who operate under their own name and report earnings on personal income tax forms often do not need a license.
Is it illegal to have a business without a license?
Depending on the location and type of business, operating without the appropriate licenses could be considered fraudulent activity and puts the company (and potentially its owners) at risk of lawsuits.
Can you file taxes without a business license?
Yes, a business license isn’t required to file a tax return.
