A s you embark on the exciting journey of starting your own business, one of your many responsibilities is obtaining the proper business licenses and permits. While the phrases are frequently used interchangeably, business licenses and business permits serve different functions in ensuring that your startup operates legally and successfully. The following guide explains the differences between business licenses and permits and the ones you'll need to start your company.
What Is a Business License?
Think of a business license as your official permission slip from the state government authorizing you to operate in a specific location. It’s like a driver’s license for your business—a green light to conduct business legally. Before getting your license, you’ll need to demonstrate competency in your field and familiarity with relevant laws and regulations. Having a license verifies you’ve met the minimum operating requirements and can now focus on building your dream.
What Is a Business Permit?
A business permit, typically issued by a state or federal agency after an inspection, ensures your startup adheres to your industry’s safety and health standards. It certifies that your business operates according to industry benchmarks, safeguarding your employees, customers, and the public. A permit can also boost trust with potential clients and partners, signifying your legitimacy and commitment to following regulations.
What Licenses and Permits are Needed to Start a Business?
To ensure compliance with local and federal regulations, it’s crucial to thoroughly research and understand the specific licensing and permit requirements for your business structure and activities. The permits and licenses you need will depend on a unique blend of factors.
Industry
Regulations differ vastly across industries. A bakery needs a health department permit for safe food handling and inspections, while a software company likely won’t. Construction companies will need permits for various projects, while a freelance writer might not require any permits.
Location
Requirements vary by state, county, and even city. A business in Newark, New Jersey, may have local ordinances that are not required in San Francisco, California. Always check with your local government for the latest regulations.
Business Structure
Sole proprietorships might have fewer licensing hurdles than limited liability companies (LLCs) or corporations. Depending on your structure, you may need additional professional licenses for specific roles within your company, such as a contractor’s license for construction companies.
Business Activities
Beyond your core business activities, consider any additional services you provide. A bakery selling custom cakes might need an extra permit for decorating services, while a graphic designer creating logos for clients might need a business tax license.
A data breach can weaken a starting enterprise, eroding trust, incurring hefty fines, and leading to legal trouble.
Seven Common Types of Business Licenses and Permits
The particular permits or licenses you need will vary depending on your location and industry. Some of the most commonly encountered licenses and permits for startups include:
- General business license. This is often the first license obtained, authorizing basic business operations within a specific location.
- Seller’s permit. If you sell physical products, you’ll most likely need a seller’s permit, also known as a sales tax permit, to collect and pay sales tax.
- Home occupation permit. Working from home often requires a specific permit to ensure your residential activity complies with zoning regulations.
- Business signage permit. This allows you to display your business name and logo outside your place of business.
- Zoning permits. Depending on your location and business activity, you might need a zoning permit to ensure your operation complies with the designated land use.
- Building permits. Any construction or major renovations on your business premises will likely require a building permit.
- Environmental permits. Businesses that generate waste, discharge pollutants, or handle hazardous materials may need environmental permits from state or federal agencies.
Beyond these general licenses and permits, some industries have additional licensing requirements. For instance, healthcare providers, lawyers, and plumbers require specific professional licenses to practice.
Licensing and Permitting Differences Between States
Business license and permit requirements vary significantly from state to state, impacting startups in specific industries. Here are some key areas where you might encounter differences:
- Tech and e-commerce. Startup-heavy industries like tech or e-commerce might have specific state-level requirements. For example, California has a Data Brokers Registration Act requiring businesses that collect consumer data to register with the state Attorney General’s office, a regulation not present in all states.
- Licensed professionals. Licensing requirements for certain professionals, such as engineers or financial advisors, might vary by state. Some states require certifications or registrations, while others don’t.
- Home-based businesses. Regulations for home-based businesses can differ. Some states might have a more streamlined process for home office permits, while others have strict zoning restrictions impacting home businesses. To be sure your company has all the essential paperwork to operate, you should look into the licenses and permits that your state requires. Most states have a small business agency or chamber of commerce that offers state-specific information to entrepreneurs.
A Note on Federal Permits
While most businesses won’t need federal permits, some industries operate under the federal government’s watchful eye. These are typically heavily regulated sectors like:
- Broadcasting and transportation—think of radio stations that need FCC licenses or airlines that require Federal Aviation Administration (FAA) permits.
- Manufacturing and distribution—if you’re making food, drugs, or medical devices, you might need a permit from the Food and Drug Administration (FDA).
- Businesses with an environmental impact—businesses generating hazardous waste or handling specific materials may need permits from the Environmental Protection Agency (EPA).
- Alcohol and tobacco—producing, importing, or distributing these products require a license from the Alcohol and Tobacco Tax and Trade Bureau (TTB).
- Farming and livestock—businesses involved in agriculture may need permits from the Department of Agriculture for certain activities.
To avoid potential fines, penalties, or legal issues caused by operating without the proper documentation, it is critical to research, understand, and stay current on your industry's specific regulations and requirements, just as it is with state requirements.
Prepare Your Company for Success
Recognizing the distinctions between business licenses and permits and determining which are required matters when starting a business. It assures that you comply with all local, state, and federal regulations. A proactive approach, which includes thoroughly researching essential paperwork and regulations, will help you avoid legal complications and heavy penalties while also laying a solid foundation for your company's future success.
Disclaimer: Bizee and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
