Most businesses require at least one type of license or permit, whether they know it or not. But, if you “don’t know what you don’t know,” you might not know what applies.
Here’s an extreme example: if a parent and child are operating a lemonade stand, they could need:
- A business license to conduct business in their city;
- A local permit to sell lemonade on the sidewalk;
- A health permit that ensures they’re operating a healthy food and beverage service; and
- A seller’s permit that allows them to collect sales tax.
(That’s a slippery slope because there are a lot more legalities we left out to not bore you, but you get the idea).
Of course, most likely there’s no government official that would be that big of a monster to enforce the laws in that scenario, but it gives you an idea how a lot of different legalities could apply to your business. And so you don’t get too nervous, most of these licenses and permits won’t apply. But it’s worth learning about them all to be safe.
Let's go through the 4 most common licenses and permits.
Do you need a business license?
A business license is a license that some type of governmental entity requires you to get before you operate your business. Just like how you need a license to drive a vehicle, fly a plane, or sell liquor at a bar, most cities or municipalities require you to get a license to conduct business in their area. Here’s an example from one city: “Any person who engages in any business, occupation, pursuit, profession, calling, avocation, or trade within the City Limits is required to have a business license.”
Business licenses are required by law to protect your company and employees, the general public, and the environment. Obtaining the appropriate business licenses is a crucial step in starting a company, and you should identify required licenses before beginning operations.
One note: we distinguish “business licenses” from specialty licenses and permits (covered next). In a way, it’s an arbitrary distinction. But, in general, business licenses typically apply to virtually every business. Specialty licenses are more industry-specific.
Your corporation, Tick Tock Spirits, Inc, just completed formation documents and are ready to begin producing your new line of whiskey. However, before you can begin production, you must apply for the correct licenses and permits with the Alcohol and Tobacco Tax and Trade Bureau as well as the Alcohol Beverage Control Board at your state and local level. Chances are if you’re selling alcohol, you know that. But many companies like Tick Tock Spirits might overlook the fact that they also need a local business license.
Virtually every business will need at the very least a local business license. For example city governments may have language that states, “Any person who engages in any business, occupation, pursuit, profession, calling, a vocation, or trade within the city limits is required to have a business license.” This would apply to both a lemonade stand and a huge retailer.
Local & State Licenses
Here’s the easiest way to find out if local licenses apply: call your city hall(s). Call your license department for the county. Call your city hall for the city or municipality. While some people have expressed frustration with who they’ve dealt with, from my experience the vast majority of time you can get an answer on whether you need specific licenses for what your business is doing or not.
Will owned Salesly, LLC and ran the company in a small municipality outside Saint Louis, Missouri. Will operated the company completely online and had no employees. He ran the business from his home.
A local reporter did a story about Salesly and one of the city administrators in Will’s municipality read about it and saw that Will had never registered for his business license. The administrator called Will and told him he could no longer operate his business until he had a business license. This was right when Will was about to make a bunch of sales from the new publicity, so Will had close his website down until he received his business license approval two weeks later, which cost him substantial revenue.
Will could’ve avoided this by calling his city hall and determining if he needed a business license when he started his company.
There’s a lot of federal licenses you might not think about that could apply to your business. If you don’t get the license or certification you need, it could cause serious problems for your business--regardless if it were an accident or not.
The easiest first step is to Google your type of business or product and “required licenses,” “federal regulations,” and “federal laws.” For example, if you were creating a type of lawn mower, you’ try “lawnmower required licenses,” “lawnmower federal regulations,” and “lawnmower federal laws.”
Also, if you’re in a specific field, chances are you know others in that field. Ask them, especially people that have been in that field for awhile. In could save you a lot of trouble.
Finally, check out this helpful SBA link to see if anything applies.
Will had a company that sold a product, Sales 4 Kidz. The product was a game for children that taught them how to be better salespeople. William started by selling the product to friends and family and a few local daycare centers. One of the children from the daycare center who was playing the product started choking on one of the money pieces and his parents sued Will and his LLC for negligent design of the product.
The Consumer Product Safety Commission, a federal agency, found out about all of this and sued WIll as well for failing to comply with the requirements necessary for children’s games. Then WIll’s city and state, Saint Louis and Missouri, found out Will hadn’t collected sales taxes and sued Will for back taxes and punitive fees. All these agencies could do this because Will was selling goods that needed to comply with the CPSC and needed to collect sales taxes when he sold his product.
Do you Need Any Specialty Licenses or Permits?
Depending on your industry and state, you may be required to obtain a Specialty License. Specialty licenses allow states to heavily regulate certain products and must be in place to protect the safety of consumers. If you sell a product or a service, you need to identify the regulating agency and determine if a special license is required beyond a typical business license.
If your business involves any of the following products or services, you’ll need to determine whether a Specialty License is required:
- Gambling and Lottery Tickets
- Firearms, Ammunition, or explosives
- Food and Beverage
- Beauty products or services
- Construction or trades
- Children’s products
- Fish and Wildlife
- Health and Fitness
- Radio and Television
- Vending Machines
- Debt Collection
Whether you run a boutique online store selling homemade children’s pillows or multiple restaurants serving a myriad of dishes, you will need to comply with the mandated permits and licenses.
Do you need any Public Safety Permits?
If your business poses a potential safety risk, you may be required to obtain a Safety Permit. Safety risks can range from handling chemicals to serving food.
The most common safety permits are:
Not obtaining required Public Safety permits could cost you thousands in fines and penalties and ruin your company. Your business’ reputation and goodwill are directly linked to your protection of your customers. Additionally public safety permits are necessary to protect the general public.
Let’s discuss some examples of Public Safety permits. These permits are required by state and local governments and include:
Health Permit - required if your company serves food.
Anyone serving or even handling food or beverages needs a safety permit. It is the government’s seal of approval that your business isn’t posing a health risk to the general public.
Chet and Will owned a small coworking space in downtown Saint Louis. Things were going great and they decided to expand by selling coffee, lattes, and muffins off a cart near the main entrance. They didn’t think to get a health permit -- they were focused on just creating a great environment. But a health inspector was walking by the coworking space and saw a sign advertising the food and drink being sold. He knew he hadn’t inspected the site because he was the only inspector in the town.
As a result, Chet and Will’s side business had to shut down until they resolved the health permit issue, and it led to terrible press for their coworking space, giving the impression to the public that it was unsanitary.
Fire - Required if your company deals in fire hazards.
Determining what counts as a “fire hazard” is not always obvious. These permits are almost always issued at the local (county or municipal) level which makes tracking down the information a little easier.
Contact your local government or local fire department if you deal with fire, explosives, fireworks, gasoline, Christmas trees, or any flammable materials.
You should also look into this if you are holding a carnival, fair, festival, or other event that involves temporary structures (like tents).
Building - Required if your company is building something (Construction, etc.)
Building permits apply when you are improving, modifying, or altering a structure. Some local governments even extend this definition to “maintenance” of a structure. If you are doing construction work of any kind, it is best to look into whether you need a building permit.
Zoning - Required by certain “zoning restrictions” in a region to regulate where certain types of businesses can operate.
Almost every local government has “zoning” laws. This means that no matter where your business is located (yes, even your own house) there is likely a law that says what you can and cannot do in that particular zone. You cannot run a storage facility in an area that is zoned for residential use. Likewise, you can’t have a restaurant in an area that is only zoned for light industrial use.
You need to check your local government’s zoning laws before you start your business in a physical location. Even if you are only running a home-based, online business, if you plan to meet clients or store your product in your house, you need to know the zoning regulations.
Where to Start Your Search
First, check with your State and Local Governments to ensure you meet all requirements for Public Safety Permits. Regions vary, and certain locations can be much more regulated than others, so conduct thorough research.
Research your state government website or state Online Business Portal for Public Safety Permit Requirements. Additionally, contact your County Office and City Hall to inquire about certain permit requirements. Once you have obtained any necessary Public Safety permits, store them with all corporate records.
These can be much more regulated than others, so conduct thorough research.
Do you need a seller's permit?
If you sell goods or services, you may need a Seller’s Permit. This is required by law.
Without a seller’s permit, you won’t be able to collect sales taxes in states that require you to do so. But, you’ll still be required to pay the sales tax. This means you’ll be paying from your own pocket and not from the sales tax you could be collecting. Your company could also face additional fines and penalties.
Check out our guide to seller's permits and sales taxes to learn more.