A Startup's Guide to Business Licenses and Permits

Summary: Business licenses and permits keep your startup in compliance, avoiding future legal troubles. Government resources can help you understand and adhere to licensing requirements.

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Most of us are aware of common business licensing laws -- whether it's a license to sell alcohol and food, or a permit to expand your business premises. But business licensing is a lot more complex and broad than it first appears. For example, did you know that if you choose to quit your day job and set up a home-based business, you will need a permit from your local government to do so?

Unfortunately, business license and permit violations occur all the time -- leading to costly penalties, tax problems, and even the closure of your operation.

So if you are starting a company, be sure not to overlook federal, state, and local licensing requirements for your business or industry. Fortunately, there are plenty of tools and resources you can use to ensure you are compliant from the get-go:

Get the Right License and Permit in One Simple Step

Every business has different licensing and permit requirements depending on its location and industry, so it can be difficult to know where to start.

There are actually companies that make a living out of selling business license application packages. But these can be costly and are usually unnecessary. Much of the information you need to quickly understand and take care of your regulatory obligations is freely available in the public domain.

The Small Business Administration (SBA) has developed Permit Me, an online tool to help small business owners understand their regulatory requirements by matching basic information about business type and location to the state and local permits, licenses, and registrations needed to run a business in your locality. (If you don't see your industry listed, just select General Licensing.)

What About Federal Licenses?

If you operate a business that is regulated by the federal government, you will need to be aware of federal licensing requirements such as those that govern alcohol, tobacco, firearms, broadcasting, transportation, and so on.

Permit Me also points to other business and employer requirements that are specific to your industry, such as what workplace posters you need to display, the types of business insurance you need, and so on.

What About Tax Permits?

While the IRS doesn't license your business, it does require that certain businesses register to receive a federal tax identification number. (For more information on whether or not you need an EIN, see Getting a Tax Identification Number.) You must also register with state and local government agencies for applicable tax permits, such as a sales tax license, income tax withholding, and unemployment insurance tax. Permit Me can point you to your local state revenue office for more information.

Licensing and Permit Guidance for Home-Based Businesses

Home-based businesses often commit permit violations, simply because one size does not fit all. For starters you will need a Home Occupation Permit just to do business out of your home. And depending on your business type, whether you operate an online business, an in-home childcare facility or are involved with at-home food production, you are going to need a permit. The SBA's Licensing Requirements for Home Based Businesses offers more guidance on these regulations.

If you live in a community managed by a homeowner's association (HOA), it's a good idea to check whether it can restrict your business activities. The SBA addresses this issue as well, in Can a Homeowners' Association Ban Your Home-Based Business?

Managing and Maintaining your License or Permit

As with most areas of business law, licenses and permits need to be managed and maintained. The SBA offers some useful advice:

• When signing up for a license, permit, or registration, keep track of those that need to be renewed on a regular basis and keep a calendar of renewal dates.
• Keep copies of all licensing applications and forms in your business records.
• Make sure you follow rules for displaying your licenses or permits. Most states and localities require businesses to prominently display their business licenses so customers can see them.
• If you want to expand your business, whether it be expanding your building or launching a new product or service, you may need additional business licenses.

Additional Resources

• SBA.gov's Business Law & Regulations guide provides an overview of business laws and regulations.
• Contact a Government Agency provides information on how to comply with government agencies.

Small Business Matters is brought to you by SBA.gov to provide helpful and easy-to-understand tips for small and home businesses, including direct links to resources that help business owners to navigate the government maze.

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Business Takeaways:

1. Business license and permit violations can lead to costly penalties and even business closure.
2. SBA.gov provides comprehensive business license and permit information and forms.
3. Once you have your license or permit, you need to maintain it. Keep track of when it needs to be renewed, display it as required, and keep copies in a safe place.

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