America loves small business. As a society, we lionize startups and entrepreneurs. And the United States has one of the world’s most business-friendly governments, with less red tape and more flexibility than most industrialized countries.
But that doesn’t mean that small businesses are free of regulation. Just like you need a license to drive a car, you probably may a license to operate your business legally. And – to make matters confusing – you may need multiple licenses from different federal, state and local governments.
Who needs a license?
Anyone looking to open a business needs to follow the correct legal pathways in order to operate a business legitimately. That’s true whether you form a corporation, limited liability company, or even if you operate as a sole proprietorship. Even a business run out of a person’s garage still requires some form of license. While this may seem like the government is being far too intrusive, it is actually a safety measure taken in order to protect all persons involved with the venture, be it directly as customers or owners, or more indirectly as the community, county, state and nation that supports its lawful conduct in multiple ways.
What kinds of license?
To create your business you must determine which licenses are required. This is a variable that depends on several factors to operate in full compliance with the law, but the two biggest are the type of industry and the location of the enterprise.
What sort of business is being opened? If you want to open a mini mart, do you also want to sell liquor? If so, you’ll need a liquor license, at the least. If the business deals with flammable materials accessible to the public then a Fire Department permit may be needed.
It boils down to establishing what the business will either sell or work with on a daily basis, and determining which legal documents are necessary for permissible operation.
Where is the location?
The next important factor is location. Different states, counties and cities can have different regulations with requirements that vary depending on a number or factors. For example, Starbucks in Hawaii does not require its employees to have a food-handlers permit, which is to say that the State of Hawaii doesn’t require it. However, in California it is absolutely necessary for employees to have one in order to prepare and serve food. Different states, different laws. It is of the utmost importance to look into every aspect of a business in order to make sure that it is being run in a way that upholds all codes.
While state laws for business will tend to be the most important ones, and the most heavily penalized to disregard, a business owner must check all the other jurisdictions: city, county and federal. Licenses and permits can change depending if one is operating within city limits or not. Your county may require you at the least to register your business name. You will need to contend with federal laws if you want to sell liquor or firearms. There is a variety of other products and services regulated at the federal level.
Once you’ve discovered which jurisdictions have a say in your business, where do you go to obtain the licenses? All levels of government can issue licenses, whether federal, state, or local. And typically each one has a website. Most often one can go online and download the needed forms. Another option is to go into the local City Hall and pick them up.
A new business must register with the state and receive an Employer Identification Number from the IRS, which functions much as a social security number does for people.
Why do I need a license?
It’s necessary to come to terms with the ‘why’ behind the business license. This is perhaps the most important part of the whole equation. America is lucky enough to function under a government that allows many freedoms to its business owners; however, regulation is still important to keep everything safe and sound.
Licenses allow governments to impose protocols which are put in place to protect both the consumer and the provider. Legal protection for the business is provided if a law suit should arise against an establishment which is functioning in full accordance with the law. And legal protection is provided for the consumer who may be suing an establishment functioning outside of the law.
Everyone must pay their dues and that includes businesses. Business licenses are a way the government can regulate taxation on all entities conducting business. One who evades taxation will incur fines and may even be forced to close the business. This is why it’s crucial to follow all bureaucratic pathways properly and file all documents correctly–it ensures that no law suit or forced closure can ensue based on a lack of legal documentation.
So What Licenses Do I Need?
As noted above, there isn’t a simple answer to this, since it depends on the type of business you operate and the municipality in which your business operates.
One option is to use a business license service to find out exactly what local, state and federal licenses you need. These services do charge a small fee to do their research.
If you have a business attorney on retainer, you can ask them to do the research for you and apply for the required licenses.
If you prefer to do the research yourself, start with your local City Hall, who can tell you what local licenses you need. You’ll need to contact your state’s Secretary of State office to find out what state licenses are required. For federal licenses, the Small Business Administration website has helpful information.