Unlike many other parts of the world, America is a haven for small businesses. After all, that’s The American Dream. Rags to riches. Pulling yourself up by your bootstraps. Seizing the ability to climb the economic ladder at-will.
But our love for entrepreneurs and startups isn’t just built into the country’s philosophy. Practically speaking, the U.S. is especially friendly to businesses of all kinds. In fact, you could start a business … today if you wanted to.
But first, you’ll need a business license — or a few.
Just like driving a car, possessing a firearm, adopting a pet, or buying a boat, owning a business in the United States means having the proper licenses. And the process isn’t necessarily easy to understand if you’re just getting started. In addition to a state business license, you may also be required to obtain federal licensing as well as licenses at the local city or county level.
If this sounds a bit bewildering among all the other things you’ll have to do for your new business, you’re not alone.
To clear the confusion, below we’ve outlined the basics of what you need to know to obtain the proper licensing for your business.
Does Everyone Need a Business License?
Yes. Anyone who plans to open a legitimate business — whether it’s an LLC (limited liability company), a corporation, or a sole proprietorship — needs to take the proper legal steps to operate lawfully and legitimately.
Running a business out of a building you own? You need a license. Running a business out of a rented office? You need a license. Running a business out of your garage? You need a license. Running a business with your buddy on the side? You need a license.
What’s the Reason All Businesses Have to Have Licenses?
A lot of Americans find the stipulations of government business licenses intrusive. But the truth is that business licensing is meant to keep all parties involved in your business safe and secure: you — the owners, your customers, investors in your company, and society at large.
How is “society’s safety” impacted by your business’ license status, you ask? It all has to do with lawful commercial conduct. At all levels of society — your local community and county, your state, and the nation — it’s crucial that commerce operates according to a strict set of legal standards. If this weren’t the case, there would be chaos. Businesses could rip off customers and clients without repercussion, and customers could get away with suing businesses for all their worth on faulty claims.
In the end, the United States offers its citizens numerous freedoms for entrepreneurial gain. Again, you can start a business any time. If you follow the proper procedures, no one can stop you or dissuade you from your business dreams and goals.
But all of this comes at a price: regulation. Licensing provides a way for the government to regulate businesses and keep them organized. This can only be done through the imposition of strict protocols. These protocols are meant to protect customers and clients, yes, but they’re also in place for the protection of business owners like you. Should a lawsuit be brought against your company, for example, as long as you have the proper licensing and are operating in full accordance with the law, you will have the legal protection of the government.
Essentially, obtaining the proper business licensing is like paying your dues for this protection. Through your licensing, the governments at all levels can keep track of you — and of course, regulate taxation. Those who evade licensing and taxation will inevitably be fined and might even have to close their doors. For this reason, it is absolutely essential to try your hardest to follow bureaucratic protocol. Putting forth optimal effort at filing the proper documentation — on time, and to the right offices — will pay off for your business.
How Do I Know What Type of Business License to Obtain?
In order to be in full compliance with the law, your business must have the proper licensing. But first, you must determine which licensing you need. Unfortunately, there is no simple answer to this question.
Essentially, you need to consider two factors: the type of industry you plan to establish with your business and where the location of your new enterprise will be.
The reason that the type of business you operate is so important is that what you work with on a regular basis and what you sell or provide through a service will determine what licensing you require.
As an example, let’s say you plan to open a hardware store. If flammable materials will be sold in your store and be accessible to the public, you’ll need a Fire Department permit. Similarly, if you plan to open a small bodega and sell liquor, your business will require a liquor license.
The next factor to consider is location. You’ll need to consider local licensing requirements in your city, county, and state and the licensing requirements that are mandatory through the federal government.
Generally speaking, state business laws will be the most important to follow, and when disregarded, they carry the heftiest fines and penalizations. You’ll also notice that state laws for businesses can vary quite drastically from state to state. For example, a restaurant in California will require much different licenses than the exact same restaurant would in Hawaii. Additionally, through your state, you’ll need to register your EIN or Employer Identification Number. This can be obtained through the IRS and essentially acts as a social security number for your business.
For local business laws, don’t forget to consider whether or not your business lies within the city limits. Counties may also have requirements — for example, many counties at least want you to register your business with the courthouse.
Finally, federal laws most often pertain to the selling of firearms, liquor, or other possibly dangerous products and services. It is absolutely essential to consider all aspects of your business when seeking to obtain the proper licensing.
Where Can I Go to Definitively Find Out What Licenses I Need?
Again, it all depends on the type of business you’re opening and the location. Because determining licensing even with these two factors in mind can still be confusing, you might consider a business license service to know for sure which federal, state, and local licenses you require. There is a small fee required for these services. Similarly, a lawyer on retainer can do this research for you.
Finally, if you want to do the footwork yourself, all levels of government are able to issue their own licenses. Typically speaking, each level of government will have their own website where you can go to download and submit the necessary forms. The first place to check should be your local City Hall for local licensing requirements. From there, head to the Secretary of State for state licensing requirements. And finally, the Small Business Administration is a good resource for learning about federal licensing.