When you’re ready to start your new business, it’s easy to want to dive into it. But before you can put up the “Open” sign and say hello to your first customer, there are a few important steps you need to take. One of the most important is obtaining the necessary business licenses under federal, state, and local laws. You should seek professional advice if you have any questions about your business licensing.
Government agencies issue many types of business licenses. It can be difficult to know where to start. Learn about six different types of business licenses and find out where and how to get them.
What kind of commercial license do I need?
Government agencies at the federal, state, and local levels issue business licenses, while professional organizations provide certifications and associations.
A business license shows that the company meets the rules required to obtain a license. These regulations are in place to protect both your business and your customers from liability or harm.
Business licenses are essential tools for businesses in almost any industry. Operating without the proper license can result in fines and penalties, closure of your business, or even criminal charges. Knowing what licenses you need and how to secure them is essential.
There are six of the most common types of commercial licenses. Understanding how they work will help you determine which ones your business might need. You should seek professional advice if you have any questions about your business licensing.
1. Federal Business Licenses
Most businesses will not need a federal license. However, if you manufacture or sell federally regulated products, you may need to obtain a license from the appropriate federal agency before you start.
Many of these licenses only apply to large companies. But if you operate in any of the following industries, consider contacting the appropriate agency to learn more about federal trade requirements.
To obtain a federal business license, visit the appropriate agency’s website. Most offer online applications so you can apply quickly.
2. State Trade Licenses
Although not all businesses need to register with the federal government, many do require state licenses. States issue business licenses to industries ranging from construction to pet care services. Check with your secretary of state’s office or the state’s Department of Commerce to confirm if you need a license. Your state likely provides online resources that list requirements for state licensing.
State business license documents typically ask you for information such as:
- Company deposit: Start by registering your business with your state’s Department of Commerce. If you want to start a partnership, limited liability company (PDF), or corporation, you may need to file additional documents.
- Tax Identification Number: All applicants need a tax identification number (TIN). If you have a partnership, LLC, or corporation, you need an Employer Identification Number (EIN) from the IRS. If you are a sole proprietor (PDF), you may be able to use your Social Security Number (SSN) or apply for an EIN.
- Annual subscription : Each state has a fee structure for operational licenses and most require you to renew your license annually.
3. Local business licenses
In some cases, you may also need county or city business licenses. For example, local agencies often issue licenses to businesses that serve food or alcohol.
Although licensing rules vary by city and county, some common local business licenses include:
- Operating license
- Building permit
- Zoning and Land Use Permit
- Health licenses and permits
- Signaling licenses
To find out if you need a local license, check with your city and county offices or try contacting your local Department of Commerce.
4. Professional licenses
Many states also require professional licenses and certifications to work in certain fields. These licenses prove that you or your employees have the necessary knowledge and experience for the position. Industries that typically require professional licenses include:
- Insurance agents
- security guards
- Real estate agents
Obtaining a professional license may take longer than obtaining a commercial license and may depend on whether you have any or all of the following:
- A diploma or certificate: Some licenses require you to obtain a bachelor’s degree, graduate degree, or professional certification.
- Professional experience: In some fields, you must work for a year or more before you can get certified.
- Take an exam: You may need to pass a standard exam to get your license. These tests can be written or practical.
- Pay fees: Most professional licenses last two years or more. You may have to pay a fee and submit an application each time you renew your license.
Check with your professional association to find out more about the rules.
5. Sales tax licenses
Most states and many localities impose a sales tax on goods and certain services. If you plan to sell property, you will likely need to charge sales tax and apply for a state tax license.
Check with your state’s tax office to determine if you need a sales tax certificate and how to apply for one. Like many other business licenses, state tax licenses are only valid for one year. This means that you must renew yours every year to keep it up to date.
Keeping track of recurring tax payments can be a challenge. Business banking services like QuickPay and wire transfers can help you manage your outgoing payments and renewals.
6. Home Business Licenses
If you are a consultant or freelancer, you can run your small business from home. It’s easy to assume that you don’t need any special documents to start this type of business, but that’s not the case.
Some home businesses require a home occupation permit. This type of permit confirms that your business will not affect local traffic or create noise. It also states that you will not cause environmental problems. County and city agencies usually offer these permits, so check with your local office to get one.
When should I apply for a business license?
Some agencies may be able to issue licenses within 24 hours, but others may require days or weeks for processing. You should seek professional advice if you have any questions about your business licensing.
As a small business owner, you also need to pay attention to your license expiration dates. Many commercial licenses are valid for between one and five years, so you must renew them periodically. Check with the appropriate agency for timelines and expected waiting periods.
Whether you’re still in the planning stages or ready to launch your business any day now, we’ve got you covered. Chat with an investment banker and find out how your business can start banking with us today.
For Informational/Educational Purposes Only: The opinions expressed in this article may differ from those of other JPMorgan Chase & Co employees and departments. The opinions and strategies described may not be appropriate for everyone and may not are not intended to constitute specific advice/recommendations for any individual. You should carefully consider your needs and goals before making any decisions and consult with the appropriate professional(s). Prospects and past performance are not indicative of future results.
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