Solved! What Are the 8 Different Types of Business Licenses?
Depending on a business’s industry and location, the owner may be required to obtain a business license to legally operate. Here’s an overview of the types of business licenses and permits and when one is needed.
Q: I’m thinking about starting a professional contracting business, but I’m not sure what I need to do in terms of licensing and registration with my state. What types of business licenses might I need, and how do I go about getting them?
A: For many business owners, navigating the intricate landscape of legal obligations and regulatory compliance includes obtaining the right business licenses and permits. Many types of businesses, whether a local sole proprietorship or a national corporation, require specific permissions to operate legally. This is especially true for professional trades such as roofing, plumbing, and electrical, where work completed incorrectly could result in safety hazards for homeowners. For many trades, a general contractor license is required—but the requirements vary depending on where the business is located.
If a license is required for a business owner’s specific location, industry, or type of company, operating without one can lead to potential fines, penalties, and even forcible business closure. That’s why it’s important for business owners to understand the most common types of business licenses and which businesses may need them.
Many cities and states require business owners to carry a general business license, though the specifics can vary from location to location.
The requirements for general business licenses depend on the jurisdiction a business operates in. Certain states may impose more stringent rules about specific licenses based on the nature of the business. Additionally, local city or county governments often have their own set of requirements and may require licenses such as fire department permits, health department licenses, and signage permits, among others.
Business owners will want to research and understand these multilevel prerequisites to ensure complete compliance. Fortunately, resources are available to aid in this process. Business owners can consult with their local chamber of commerce offices or visit official government websites to determine the exact licensure they’ll need based on their geographic location and business activity. Owners who use such resources will be in a better position to ensure they have the correct licenses and permits for small businesses to allow them to operate legally.
Some industries, such as plumbing and electrical, also require businesses to carry a professional license to legally perform services.
Industries that have a substantial impact on public safety and well-being—for instance, plumbing and electrical—are typically required to hold a federal business license to legally render services. These professional licenses are indicative of a business’s adherence to the elevated standards of safety and proficiency that are mandated by governmental authorities. The following common trade industries require a professional license to operate legally:
- Construction work (interior and exterior)
- Electrical work
- HVAC installation and repair
- Insulation work
- Plumbing work
- Roofing and siding
A sales tax license may also be needed for businesses who sell goods or who offer certain services that require the business to collect sales tax.
If a business is required by local or state law to collect sales tax, the owner will often need to obtain a sales tax license. This requirement applies to both traditional brick-and-mortar establishments and businesses that operate on e-commerce platforms and other online sales channels.
Acquiring a sales tax license involves registering with the appropriate state business license agency—frequently the state’s Department of Revenue or taxation agency. Following registration, business owners are granted a sales tax permit that allows them to legally collect sales tax from customers, which is subsequently remitted to the government.
Sales tax regulations can vary across state and local jurisdictions, so understanding the specific criteria in one’s operational locality is crucial. For instance, sales tax licensing requirements may be based on a specific sales threshold, whether that particular state requires a specific service to be taxed, and the rate of sales tax in the state or locality.
A “doing business as” (DBA) license is needed for sole proprietorships or partnerships to legally operate under a brand name rather than the owner’s name.
A “doing business as” (DBA) license enables individuals and business partners to legally operate and conduct business under a fictitious brand name, rather than under the personal name of the business owner, facilitating a more professional and marketable brand presentation.
Independent contractors, who are typically treated as sole proprietors unless they register as a single-member LLC or corporation, stand to benefit significantly from obtaining a DBA license. It allows them to carve out a distinct professional identity, facilitating not only brand building but also enhancing credibility in the market. Having a DBA can also streamline the process of opening a business bank account under the chosen business name, fostering a clear financial demarcation between personal and business funds.
Aside from a DBA, independent contractors might find that their local city or county necessitates a basic business license for legal operation. The requirement can vary substantially based on the jurisdiction and the nature of the services offered by the contractor. It is often advised that independent contractors conduct a meticulous review of the specific regulations and licensing requirements in their region to ensure full compliance. This involves consulting local government websites or reaching out to relevant local chambers of commerce for guidance.
Businesses may need a zoning permit in order to operate in certain areas or regions.
In addition to a local business license, business owners may also need a permit to operate in certain areas and ensure compliance with community standards and regulations. These are often issued in connection with specific operational aspects, such as adherence to local land-use regulations. Securing a zoning permit, for example, enables a business to operate in specific zones, such as commercial or residential areas, as dictated by local regulations.
A permit is not the same as a license for business, which typically serves as a broad approval for operating legally. It’s advisable for business owners to research and adhere to the necessary licensing and permitting requirements in their operating regions to ensure smooth, lawful operations.
If the business has a physical location, a commercial building permit ensures the building is up to code; an additional building permit may also be required if the business owner plans on modifying the building to house the business.
For businesses operating from a physical location, obtaining a commercial building permit is often the first step in setting up shop. This license ensures that the existing infrastructure meets the legal and safety standards defined by local governing bodies, including aspects such as fire safety, structural integrity, and adherence to zoning laws.
If the business owner intends to modify the building—be it expanding the space, changing the internal layout, or enhancing accessibility features—they generally need to obtain an additional building permit. This allows authorities to review and approve the proposed changes and ensure they align with safety and zoning regulations. Certain modifications may sometimes require specialized permits if they involve plumbing, electrical wiring, or HVAC systems.
Local municipalities may require a home-based business license to ensure that a business run out of the owner’s home won’t interfere with traffic or contribute excessive noise to the neighborhood.
In many local jurisdictions, running a business from home may require the owner to acquire a specific home-based business license. The license stipulates guidelines that the home-based business owner needs to adhere to. This might include restrictions on the kind of business activities that can be undertaken, the allowable noise levels, and even regulations on the number of client visits per day.
Furthermore, there could be specifications regarding the utilization of home space for business purposes, effectively dividing the business area from the living quarters to maintain a professional environment while abiding by safety regulations. Parking regulations might be enforced to prevent added stress on the neighborhood’s traffic dynamics.
Business owners may need to get a sign permit to legally display signage outside their business.
For owners who intend to display a sign promoting their business, a sign permit makes sure the signage conforms to local regulations. These policies might dictate various attributes including its size, location, materials, lighting, and even the content portrayed, all to maintain a certain standard of safety, aesthetics, and environment in the business vicinity. Adherence to these regulations can help avoid disputes with nearby entities.
A business registration service can help business owners identify the types of licenses they need and ensure they are operating legally in their state.
A business registration service can be a powerful ally in the process of obtaining a company license and sharing business license examples to help the owner understand what the process entails. These providers can offer guidance on the varied requirements and help business owners understand the different types of licenses they’ll need based on their industry, structure, and geographic location. LegalZoom, for example, helps business owners find all the types of licenses and permits they need by cutting out the guesswork. BizFilings offers a similar service.
One common query business owners have is regarding business license costs. While these can vary widely depending on various factors, including the nature of the business and the regulatory requirements of the specific locale, business registration services can provide a detailed breakdown of all potential costs, ultimately helping business owners create an accurate budget. These services can also provide information on the cost of small-business insurance to help protect the business owner from liability.
Experts from business registration services often recommend the owner apply for a business license well before the planned launch of the business. This forward-thinking approach ensures that business owners have ample time to rectify any issues that might arise.
While the time frame of the business licensing process can fluctuate based on the complexity of the business and the efficiency of the local government agencies involved, business registration services can facilitate a smoother and potentially quicker process, leveraging their expertise to avoid common pitfalls and delays.
Finally, these services aid in accurately completing and filing all required documents within stipulated timelines, keeping abreast of legislative changes, and providing timely updates on regulatory compliance, effectively taking the guesswork out of the equation. They can also provide the business owner with their business license number if needed without the owner needing to use a business license lookup service.
By working with a business registration service, entrepreneurs can ensure a legally compliant and smooth start to their venture. Just like a business owner would look for the best small-business insurance company for their insurance needs, it’s wise for them to choose a business registration service with a reputable background and proven expertise to guide the business toward the right path from the outset. Whether an entrepreneur chooses to hire a business registration service or go it alone, it’s vital that they understand exactly what types of business licenses are required for them to operate their business within the law.