What Is a Business License and When Do You Need One?
- Startup
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6 min. Read
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Last Updated: 11/16/2023
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Owning a business comes with responsibility, including having the appropriate licenses and permits. Obtaining a business license is an important step in any entrepreneur's journey, as it allows them to legally start a business within the jurisdiction where the business is located.
Securing the right license depends on many factors, including the type of business, where it's located, and whether you have employees. Some businesses may only be required to hold a license once they take certain actions, cross certain revenue thresholds, or reach certain milestones. To understand when and where business licenses are required, read on to learn more about how these requirements could affect your ability to operate a business.
What Is a Business License?
A business license is a legal document that permits a business to operate within a specific jurisdiction. Obtaining a business license typically involves filling out an application and paying a fee to the local government. The process can vary depending on the type of business you operate and the location, as there may be different types of business licenses required for different industries or municipalities.
Since licenses are primarily regulated at both the state and local levels, some states may require all businesses that meet certain criteria to hold a license. In other states, businesses may only be required to have a license if they are located within certain cities or if they perform certain regulated activities (such as selling insurance). In some areas, businesses may even be required to hold a general business license and an industry-specific license. It is important to research and understand the specific requirements for your business to ensure you are operating legally and in compliance with regulations.
Types of Business Licenses
Before opening a new business, it's important to understand the different types of business licenses that may be needed to operate your business legally. The most common types of business licenses include:
- General business licenses: Sometimes referred to as "operating licenses," these are the general licenses required of a business to operate legally within a given area. While not every state or locality requires a general license for every business, many do have requirements for at least some businesses.
- Professional licenses: These licenses are typically industry-specific and are required when the business plans to operate in a professional industry that is heavily regulated. Obtaining a professional license demonstrates that the business operator (or an employee of the business) has completed the necessary educational requirements and understands how to safely and professionally operate within the standards and guidelines of the industry. Professional licenses are typically required for businesses that operate in fields such as electrical, food service, health care, or insurance.
- Sales tax licenses: When businesses plan to sell goods that are taxed in a given location, the business owner must get a sales tax license to be able to legally collect sales tax from customers. This license also helps state and local governments track which businesses should be collecting sales tax so they can follow up and ensure the tax is being collected and reported accurately.
- Federal business licenses: While most business licenses are regulated at the state or local level, there are a few select industries in which businesses are required to get a federal license. If your business operations could have impacts across state lines or at a national level, you may be required to obtain a federal license. Examples would include commercial fishing, television broadcasting or media publications, mining, firearms, or import/export businesses.
- Health or environmental licenses: Some areas require special health or environmental licenses when the operations of a business could negatively impact the local environment or the health of its local citizens. For example, these licenses might apply to businesses that serve food to the public or businesses with excessive hazardous waste outputs.
- Special licenses or permits: In some cases, special licenses or permits may be required in unique circumstances. For example, a traveling carnival or convention may be required to obtain a special permit to set up for the weekend in certain cities. There may also be requirements for special use cases, such as operating a home bakery or other home-based business.
Do You Need a Business License?
Generally, a business license is necessary for most businesses, including those operating as sole proprietors, partnerships, LLCs, and corporations. Specific requirements to obtain a business license vary by state and local jurisdiction, but you will typically need to register your business name and pay a fee. Additionally, certain industries, such as food service and healthcare, may need additional licenses and permits.
Here are the business licensing requirements by state.
| State | General Business License Requirements |
|---|---|
| Alabama | Every business requires a business privilege license. |
| Alaska | All businesses require a business license. |
| Arizona | Arizona does not require a state business license, but many local offices issue licenses. |
| Arkansas | There is no state-wide business license, but businesses are required to register with the state and pay franchise taxes. Additionally, many cities issue local licenses. |
| California | California requires all businesses other than sole proprietors to register with the Secretary of State. Many cities also have local licensing requirements. |
| Colorado | There is no state-wide business license, but all businesses that sell tangible goods must get a Sales Tax License. Many local areas also have licensing requirements. |
| Connecticut | All corporations, LLCs, Partnerships, and Non-Profits must register with the Secretary of State and obtain a business license. Sole Proprietors are not required to obtain a license. |
| Delaware | All businesses are required to obtain a license from the Delaware Division of Revenue. |
| Florida | Many businesses are required to have a state-issued license to operate; many local areas have additional licensing requirements. |
| Georgia | Most operating licenses are managed at the local or county level, though some businesses do require state/professional licensing. |
| Hawaii | While there is no state operating license requirement, all corporations, partnerships, and LLCs must register with the state's Business Registration Division. Many local or industry-specific licenses also apply. |
| Idaho | Idaho does not have a state business license, but all businesses must register with the Secretary of State before conducting business. Many city, county, and professional licensing requirements may apply. |
| Illinois | There is no state business licensing requirement in Illinois, though some cities or counties may require an operating license. |
| Indiana | Indiana does not have a statewide business license, but certain regulated industry licenses are required at the state level, and many local areas have operational licensing requirements. |
| Iowa | Iowa does not have a general business license, but businesses must register with either the local county office or the Secretary of State. Additional permits are also required for certain business taxes, depending on the industry. Local licensing requirements may apply. |
| Kansas | Licenses and permits are required for some cities, counties, industries, and business types. There is no general statewide operating license. |
| Kentucky | Kentucky does not have a state-wide operating license, but certain types of businesses have licensing requirements. |
| Louisiana | Louisiana provides an online portal called "geauxBIZ" that helps business owners understand which federal, state, and local licenses and permits may be necessary for their business based on location and business type. Some businesses may be required to hold multiple licenses or permits. |
| Maine | General operating licenses are managed at the city or town level in Maine, although all corporations must register with the State of Maine Bureau of Corporations. |
| Maryland | Licenses are required for most types of businesses, including retailers and wholesalers. Licenses may also be required at the local level in some areas. |
| Massachusetts | State-issued operating licenses are not required in Massachusetts, but some industries do require a professional license issued by the state. Local areas may also have special licensing requirements. |
| Michigan | General state licenses are not required, but Michigan does regulate licenses at the state level for certain industries and professions. Local licensing rules may vary. |
| Minnesota | Most businesses do not require a license, but certain businesses with occupational or environmental impact are required to be licensed by the state. Some local areas also have licensing requirements, which can be researched by the city clerk's office. |
| Mississippi | While there are no state operating licenses, most businesses are required to register with the Secretary of State's office. Most local city/county governments also have licensing requirements managed by the city or county clerk's office. |
| Missouri | Businesses that sell taxable services or tangible personal property must register with the Missouri Department of Revenue for a sales tax license. General operating licenses are managed at the local city or county level. |
| Montana | Local city and county offices provide all business licenses in the state except for professional licenses. |
| Nebraska | There is no state operating license, but businesses will need to register with the Department of Revenue if they plan to have employees, offer retail sales, rent or lease personal property, or offer taxable services. |
| Nevada | All businesses, regardless of entity type or industry, must obtain a business license from the Secretary of State. In addition, some areas have local licensing requirements beyond the state-issued business license. |
| New Hampshire | There is no general operating license, but state-issued licenses are required from the Department of Revenue for collecting sales tax, selling tobacco products, operating in the communications industry, or operating in other professionally regulated industries. Local licenses may also be required. |
| New Jersey | Many businesses must register with the Department of Revenue in order to collect state sales tax or track employees. A license may also be required to operate in certain industries or within certain local areas. |
| New Mexico | There is no state-issued operating license, but all corporations, LLCs, and partnerships must register with the Secretary of State before beginning operations. In addition, any business with over $100,000 in sales during the previous calendar year must register with the Taxation and Revenue Department. |
| New York | There is no state operating license, but all businesses operating under a business name must register with the state. Many local authorities also have permits and licensing requirements. |
| North Carolina | There is no general operating license, but North Carolina has over 950 different regulatory, occupational, or industry permits and licenses at the state level. Also, local licenses are required in many areas of the state. |
| North Dakota | Not all businesses require a state license, but North Dakota has several licenses issued by the state Attorney General for industries like gambling or tobacco, and several other licenses issued by the Secretary of State for charitable causes or contractors. Licenses may also be required at the local city or county level. |
| Ohio | All businesses are required to obtain a license from the Ohio Secretary of State. In addition, other professional licensing or local permits or licenses may be required. |
| Oklahoma | There is no general state business license in Oklahoma, but some business types may be required to obtain occupational licenses or permits. Local city or county licenses may also be required. |
| Oregon | Oregon doesn't have a general business license, but the state does offer a searchable directory of over 1,100 other licenses, permits, and certifications that are based on industry, business type, and location. Many city and county offices have local licensing requirements. |
| Pennsylvania | All businesses must register with the Pennsylvania Department of State. Depending on industry or entity type, businesses may also need to meet several other professional or occupational licensing and registration requirements at the state level and meet local requirements. |
| Rhode Island | Most businesses are required to register with the state Division of Taxation to obtain a Permit to make sales at retail (for businesses that offer taxable goods) or to create an income tax withholding account (for businesses that have employees). Many other state-issued professional licenses and local licensing requirements may apply. |
| South Carolina | All general operating licenses are issued at the local county, city, or town level in South Carolina. |
| South Dakota | All businesses must register with the Secretary of State's office. The state also provides a 64-page guide on the various state licensing departments with additional requirements to legally operate in the state, depending on operating industry and entity type. Some local requirements may also apply. |
| Tennessee | Business licenses are handled at the county or municipal clerk’s office, but nearly all businesses are required to register for a business license if their annual gross receipts are $10,000 or more. Businesses with sales between $3,000 and $10,000 per year can apply for a minimal activity license at a reduced rate, and businesses earning less than $3,000/year are not required to obtain a license. |
| Texas | All businesses operating within the state are required to register with the Texas Secretary of State or a local county clerk's office. Some local licensing requirements may also apply. |
| Utah | All businesses operating with the state are required to register with the Utah Department of Commerce. Some local licensing requirements may also apply. |
| Vermont | All businesses operating within the state are required to register with the Vermont Secretary of State through the Online Business Service Center portal. |
| Virginia | There is no general state operating license in Virginia, but some businesses may be required to obtain professional or occupational licenses. There may also be licensing requirements at the local city or county level. |
| Washington | If your business meets one of several common requirements (such as income over $12,000 per year, selling taxable products or services, or hiring employees), you will be required to obtain a business license from the Washington Department of Revenue. |
| West Virginia | All businesses must acquire a business registration certificate from the West Virginia State Tax Department. |
| Wisconsin | All sole proprietorships, foreign LLCs or corporations, partnerships, or non-profits are required to register with the Wisconsin Department of Revenue. All domestic LLCs, domestic corporations, or other business types not registered through the Department of Revenue should use the state's One Stop Business Registration portal online to register with all applicable state agencies and obtain all necessary licenses or permits. |
| Wyoming | There is no general state operating license, but many Wyoming businesses will be required to obtain a state sales tax license. In addition, many industry-specific licenses are issued at the local city or county level. |
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Is an LLC a Business License?
Is an LLC a Business License?
When starting a business, there are many decisions to make, including what type of legal structure to choose. One option is a limited liability company (LLC). However, it's important to note that an LLC is not a business license. A business license is a separate permit issued by the state or local government that grants permission for the LLC to operate within a specific jurisdiction. Some states require only certain business structures to hold a license, so keep this in mind when choosing the structure for your business. For example, Connecticut requires all corporations, LLCs, partnerships, and nonprofits to register with the Secretary of State and obtain a business license before starting operations.
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Does a Sole Proprietor Need a Business License?
Does a Sole Proprietor Need a Business License?
As with many other aspects of business licenses, the answer depends on the state or local rules. In California, all businesses other than sole proprietors are required to register with the Secretary of State. In other states, however, sole proprietors may still be required to obtain a business operating license, especially if they conduct business in a regulated industry, such as construction or insurance.
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What Other Licenses Are Needed to Start a Business?
What Other Licenses Are Needed to Start a Business?
Starting a new business involves legal requirements beyond acquiring a general business operating license. Depending on the nature of the business, additional licenses may be required to ensure compliance with government regulations. For instance, a food business must acquire food service handling permits and certifications, while a medical practice must meet strict industry standards and obtain medical licenses. Other applicable licenses include permits for alcohol sales, building occupancy, zoning, and environmental permits. Failure to adhere to these requirements can lead to hefty fines, legal consequences, and even the forced closure of a business, so it's important to thoroughly research any and all applicable licensing requirements before opening your business.
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Do You Need a Business License to Sell Online?
Do You Need a Business License to Sell Online?
The answer to this question may vary depending on the state in which you reside. For example, if you live in California, you are required to obtain a seller's permit before conducting any online transactions. However, some states do not currently have specific requirements for online sales.
An important legal case in 2018, South Dakota v. Wayfair, changed the landscape of online sales taxation. This case resulted in the overturning of previous rulings that online retailers need not collect sales tax unless they had a physical presence in the state. This decision allows many state governments to impose sales tax on online sales, irrespective of the seller's physical location. Therefore, if you plan to sell products online, it's prudent to research the specific regulations in your state and ensure compliance to avoid potential legal issues.
Where To Get a Business License
Getting a business license is a crucial step in starting a business, and the process can vary from one place to the other. It's essential to identify the different regulating authorities involved, depending on the type of license(s) you need. The authorities responsible for issuing business licenses range from federal, state, county, or city levels.
For instance, a business dealing with food products must obtain a permit from the state health department, while a company selling alcohol requires a license from the state alcoholic beverage control department. Technology startups may require securing permission from the Federal Communications Commission (FCC). Most general business operating licenses will either be issued by the Secretary of State or by a local city or county clerk's office. In most states that require licenses, starting with the state or local government offices can be a good connection to the other regulating authorities that may issue industry-specific or use-specific licenses.
How To Get a Business License
Acquiring a business license is essential to operating your business legally and in compliance with all applicable laws. While the process may vary slightly from state to state, most licensing departments follow a similar process for requesting, tracking, and issuing business licenses.
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Understand which licenses you need: Many states now offer online portals and AI-powered tools to help you understand which licenses apply based on the type of business you plan to open and the physical location of your business within the state. If a self-help tool isn't available, having a conversation with someone from your local county clerk's office can be instrumental in understanding which licenses will be necessary to legally operate your business.
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Complete application forms: To apply for a business license, you must complete the official form that requests information on your business, including the formation date, business entity type, operating industry, address, tax ID number, key stakeholders, and other details.
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Gather the required documents: If your business operates in one of several highly regulated industries, you may be required to supply additional documentation with your application. This could include proof of an acceptable level of insurance coverage, copies of your industry credentials, or other documents. Any supplementary documentation beyond the completed application form will be listed on the application instructions.
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Pay the fee and submit your application: Nearly all business licenses require an application fee — from as little as $15 to as much as $500 or more — that helps to cover processing and administrative costs, as well as fund programs that support businesses in the area. Typically, you cannot submit your application without the required fee, so these steps go hand-in-hand. Some states also require that you submit your application and pay your fee online, so be sure you understand where and how your completed application and payment can be accepted.
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Receive and post your license: Depending on the volume of applications processed by the issuing department, it may take several weeks to process your application. Once you have received your official business license, there may be regulations concerning where and how it must be displayed to demonstrate that you are operating your business legally. Be sure to understand these requirements and post your license(s) properly to avoid fines.
How Much Is a Business License?
The fees associated with how much a business license costs will vary from state to state and your business type. In California, for example, the cost of a business license ranges from $30 to $500, depending on the type and earnings of the business. In Pennsylvania, the cost is a flat $75 for most types of businesses. Meanwhile, in New York, the cost can range from $200 to $4,500, depending on the business type and location. Businesses that plan to operate in regulated industries, such as food service or cosmetology, should expect their total licensing costs to be higher than similarly sized businesses in other industries.
How Long Does It Take To Get a Business License?
The average processing time for a business license can vary between a few days and a few months, depending on various factors such as the type of business, location, and complexity of the application. In some states, the processing time can be as quick as five days, whereas others may take up to 90 days. Delays in the process can occur if there are any errors or missing information in the application, additional permits or licenses are required, or the application requires review and approval from multiple departments. It's essential to research your state's requirements and plan accordingly to avoid delays in receiving your approved license.
Make Sure You’ve Got Everything You Need To Start Your Business
Obtaining the proper business licenses is necessary for any business that wants to operate legally. There are many factors to consider when determining which types of licenses are needed, and they can vary based on industry, location, and more. It's important to ensure all the right licenses are obtained to avoid potentially steep fines or penalties.
If you need assistance navigating the complexities of owning a business, the reputable and experienced team of professionals at Paychex can help you stay on track with licensing requirements and other business needs.
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