How to Get a Business License

Differentiating between federal, state, and local business licenses.

Generally, you need a federal business license of some sort, if a federal agency regulates your industry. Some of these seem obvious. Firearms dealers need a license from the Bureau of Alcohol, Tobacco, Firearms, and Explosives. If your business ships cargo overseas, you’ll need a license from the Federal Maritime Commission.

The U.S. Small Business Administration (SBA) provides industry-specific federal licensing requirements, including those for agriculture, fish and wildlife, radio and TV broadcasting, and more.

Most other business licensing occurs on the state, county, and city levels. Some states and cities have very stringent licensing rules, while others are more relaxed. Oftentimes, business license requirements are linked to whether the state charges income and sales taxes, but this is not a hard-and-fast rule.   

“States tend to regulate a broader range of activities than the federal government,” the SBA states. “For example, business activities that are commonly regulated locally include auctions, construction, dry cleaning, farming, plumbing, restaurants, retail, and vending machines.”

It’s important to pay attention to licensing rules as time goes on and your company expands.

“Some licenses and permits expire after a set period of time,” the SBA continues. “Keep close track of when you need to renew them—it’s often easier to renew than it is to apply for a new one.”

The SBA has guides that indicate which federal and state business license requirements apply to your company. Research requirements on your state and local governments’ websites.

Many companies decide where to open, based on local licensing rules. You may want to think about relocating based on these regulations.

Types Of licenses.

The term “business license” itself is misleading, because there’s no one business license that every company needs.

If your business opens up a physical location in some cities, you may need to display a paper business license in your window. In many other places, this isn’t needed.

If required by your state or city, you probably need a business license if your business has a physical location, serves food, sells items, or has employees. However, you might need one even if you’re just a freelance worker.

Federal agencies

You probably need to get licenses on the federal, state, and local levels if your business works in industries including: 

• Agriculture
• Alcohol
• Aviation
• Broadcasting
• Firearms
• Fisheries
• Maritime transportation
• Mining
• Nuclear energy
• Transportation
• Wildlife 

It’s also worth it to hire a lawyer or consultant to help you navigate these regulations.

State agencies

Some states require all businesses to get an operating license every year, which typically comes with a small fee. You may need a professional license for businesses that require certain types of certification, like therapists, mechanics, doctors, real estate agents, and more. 

There may also be a separate application and filing fee when you first form your business. Check with your Secretary of State office to see what the specific requirements are for the state in which you live. 

Local agencies

Local cities and counties often have their own business license requirements, as well. Like a state, you may need an operating license regardless of what kind of business you have. There may also be building permits, health permits, seller’s permits (for both in person and online sales) alcohol permits, and zoning regulations to navigate depending on what type of business you run.

Other permits you might need.

Along with licenses to do business, your company might need to acquire various other permits and licenses before you make your first sale or send out your first invoice. A restaurant, for example, has to get a permit from the local health department.

If your state has sales tax and you sell goods, you’ll need to get a sales tax permit from your state’s tax agency. You’ll also need to check local zoning laws for the location of your business and ensure that you have the proper operation and building permits.

You should also obtain a Federal Employer ID Number (EIN) from the Internal Revenue Service, which is free with an online application. You don’t need one if you are structured as a sole proprietor—but it might be advantageous.

How to apply for a business license.

The most important step in applying for a business license is research. Look into federal, state, and local business license laws based on your company’s industry, structure, and number of employees.

Once you know what licenses and permits you need, gather the appropriate materials (like entity documents or your EIN) and submit the applications. In most cases, all of this can be done online. At this point, you’ll have to pay the necessary fees.

You’ll probably need to wait for approval before you can start doing business. Once you get the go-ahead from the authorities, open your doors.

You’ll likely have to reapply for licenses over time, so pay attention to expiration dates—and you’ll probably need to get new permits if you change locations, hire more employees, or move into a new field.

Here’s an in-depth explanation of how to get the proper small business licenses (and keep them current).

Step 1: Form your business entity.

Before applying for a license, you need to form your business entity with your state. The exact process depends on the type of business structure you choose. Common options include:

• Sole proprietorship
• Partnership
• Limited Liability Company (LLC)
• Corporation (there are multiple tax designations to choose from, such as S corp or C corp)

Each type has different requirements, limitations, and tax responsibilities. If you’re unsure of the best option, a tax advisor could help you choose the best entity type for your new business. 

Step 2: Get an Employer Identification Number from the IRS.

An employer identification number (or EIN) is like a Social Security number for your business. You apply online through the IRS or via mail or fax. Your assigned EIN is what you use for things like filling out W-9s for clients you work with and filing federal taxes. In order to successfully apply for an EIN, you’ll need an existing taxpayer ID, which can be a Social Security number, individual taxpayer identification number, or another EIN.

Step 3: Choose relevant licenses.

Once your business is established, identify all of the licenses you’ll need to apply for. Here’s where to look for each type of license.

• Federal business licenses – Check the SBA’s list of regulated industries to see if your business falls into any of those categories.
• State business licenses – Look online or call your Secretary of State’s office or other small business state agency. They’ll point out anything you need in terms of both operating licenses as well as professional licenses based on the services you provide.
• Local business licenses – Check your city or county government’s website to check on permits, business licenses, and other requirements. This information can often be found with the tax assessor’s office.

Because there are so many regulations that vary based on jurisdiction, it may be worth hiring a lawyer or other professional who can help you make sure you’ve accounted for all the licenses and permits relevant to your business. Make sure they have experience in your jurisdiction and regularly work with business owners. That way you can feel confident that their expertise covers all your needs.

Step 4: Fill out the appropriate applications.

Now that you have the proper list of business licenses and permits you need, it’s time to start the paperwork. Some may be available online, while others may require you to print and mail in your application.

Keep an eye on your business mailbox to watch for any correspondence from these governing agencies. You could receive physical copies of your new permits, or you may be asked to provide follow-up information on parts of your application. Respond to these requests as soon as possible.

Step 5: Pay business license filing fees.

All business licenses come with some type of fee. The pricing scale may be structured based on different things, like your business type or gross revenue. You’ll need to submit payment in order to get approved. The good news is that license fees should count as a business expense, which can lower your taxable income.

Step 6: Renew annually

Completing your initial business license and permit applications isn’t the end of the road. Most require you to renew annually, which typically comes with a bit of extra paperwork and another fee. Renewal fees may be less expensive than your initial filing fee, depending on the jurisdiction.

How much does a business license cost?

The cost of a business license ranges from location to location. In some areas, it might even be free. However, you should expect to pay $25 to $75 in fees. In some larger cities, applying for a license might cost $100 or more.

These fees add up, as does the time and energy required to research and apply for business licenses. However, the alternative is breaking the law, which comes with heavy fines. It’s far better to stay within the lines of regulators when your entire business is on the line.
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