Why Do I Need A Business License?

Registering a company with the state, county or city is only the first step of creating an official business. Most companies are required to obtain licenses and permits based on their location and business activity to operate the company.

Why Do I Need A Business License?

New business owners likely find themselves swamped in paperwork. As they take time to submit various documents, they’ll discover that one of the things they need to apply for is a business license. Many new business owners are confused as to why they need a business license, as they believe that registering their business with the state is enough to begin conducting business. However, this is not the case. Owners should ensure that they do not need a business license before they start operations.

Sales Tax Licenses

One of the most common licenses that a business may need to secure is a sales tax license. These are issued by the state in which a company is conducting business. Any company that sells goods will likely need to charge a sales tax on their product. The sales tax varies significantly from state to state. There may also be sales taxes at the local level as well. There are only four states in the US that do not charge sales tax:

  • Delaware
  • Montana
  • New Hampshire
  • Oregon

Federal And Professional Licenses

There may also be business licensing requirements depending on the type of industry in which the company is involved. Numerous industries are regulated by the federal government, including aviation, agriculture, and alcohol. If an owner plans to conduct business in one of these industries, they will likely need to acquire special federal licenses and permits.

Also, those working in a professional capacity may also need to secure a business license. These licenses help protect customers, as they signal to the customer that the person performing the business is authorized to be performing the job in which you hired them to do so. Whereas many business licensing requirements exist solely for the company, professional licenses may need to be acquired not only for the company but the employees as well. Meaning, each employee who is performing the service may need to secure a license to demonstrate they are authorized to work. Examples include dentists, barbers, doctors, veterinarians, accountants, and lawyers.


The U.S. Small Business Administration states that one of the most significant reasons why businesses need to secure a license is so that the government can track their revenues. The government does so for taxation purposes. Business owners who don’t apply for the proper permits are often shocked come tax season. If a company has been operating without a business license, the IRS is sure to find out and could levy hefty fines and penalties.

In fact, in recent years, the government has made it a point to look out for those who evade business license requirements. At times, the federal government has resorted to hiring third-party collectors to go after a company who has not met their business license requirements. If a company does not secure the proper license, they will not be allowed to open any new locations. Their current place of employment may be padlocked. The federal government could also issue steep penalties and interest against the business. If these warnings do not work, the government could issue personal liens against your assets.

Requirements Vary By State

Business licensing requirements can vary significantly from state to state. It’s crucial that owners take time to look up the business licensing requirements in the states in which they plan to conduct business. Additionally, companies should also consider looking up the conditions for local municipalities as well. When it comes to securing licenses, it’s better that businesses are thorough.

Owners should also be wary of business licensing requirements when they expand from one state to another. Even though their original state may not have had strict licensing requirements, the new state in which they’re operating may. It’s essential that owners remember that just because one state does not require a license does not mean that another state will not.

Conducting An Online Business Out Of The Home

Many business owners who conduct their business online, out of the comfort of their own home, believe that they are not subject to licensing requirements. However, even these companies may be required to secure a business license. One of the most common permits necessary for those operating a business out of their home is a “Home Occupation Permit.” This is often required by city or county governments to cut down on noise or traffic that could potentially accompany a new business.

To secure a Home Occupation Permit, owners must likely agree to limit the amount of space in their home dedicated to the business, the number of customers who visit the house on a daily basis, the number of vehicles that can be at the home at any one time, and the number of employees in the company. For those conducting business online, meeting these requirements should not be a problem.

Curious About Which Licenses To Secure?

As the owner of a new company, it’s imperative that you secure the proper business licenses. Failure to do so could jeopardize your future business operations. However, how can a new business owner possibly make sure that they are meeting the licensing requirements set forth by their local, state, and federal governments?

One option that new business owners may want to consider to help meet their licensing requirements is hiring a third-party company, such as DoMyLLC. At DoMyLLC, we have extensive knowledge working in all 50 states and the District of Columbia. All a new business owner needs to do is tell us the type of industry in which they’re working and where they plan on conducting business. We can then tell then which business licenses they’ll need to secure, and could even help them in finding and completing the proper forms.

Many new owners are proud of the fact that they are starting their own business. But, this is one area in which they should not be too prideful. Investing in the services of a third-party company like DoMyLLC could help ensure that a business remains compliant with federal, state, and local regulations.

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