Business Licenses and Permits: What You Might Need to Operate Legally

Even a small home-based business may need a license or permit to operate legally. Requirements depend on what your business does, where it’s located and how it’s structured. Operating without the right licenses can lead to fines, penalties or even being forced to stop operating, so it’s worth checking before you start selling.

Why licenses and permits matter

Licenses and permits help governments ensure businesses meet health, safety, zoning, professional and tax requirements. Having the proper licenses also protects your business, builds credibility with customers and may be required to open a business bank account, sign a lease or get insurance.

Requirements vary widely, so there’s no single list that applies to every business. You may need licenses or permits from local, state and federal agencies.

Local licenses

Many cities and counties require a general business license or business tax registration for businesses operating within their boundaries. This applies to many home-based businesses as well as storefronts.

Check your city or county government’s website, or call the local business licensing office, to learn what’s required. Requirements often depend on your business type and location. If your business operates in multiple cities, you may need licenses in each.

Local governments may also require other permits, such as building permits for renovations, signage permits for business signs and permits for operating in certain locations.

State requirements

States regulate many professions and industries, requiring specific licenses to ensure practitioners meet standards of training and competence. Common examples include cosmetology and barbering, contracting and construction, real estate, child care, health care professions, accounting, legal services, insurance and financial services. Licensing requirements may include education, exams, experience and ongoing continuing education.

If you sell taxable goods or services, you may need a sales tax permit, sometimes called a seller’s permit, from your state’s tax agency. This allows you to collect sales tax from customers and remit it to the state. Requirements vary by state, and some states don’t have a general sales tax. If you sell online to customers in other states, you may also need to collect sales tax in states where you meet certain sales thresholds.

If you hire employees, you’ll need to register with your state for payroll taxes and unemployment insurance.

Depending on your business structure, you may also need to register your business entity, such as an LLC or corporation, with your state.

Federal licenses and permits

Most small businesses don’t need a federal license, but some activities regulated by federal agencies do. These include selling alcohol, firearms and ammunition, certain agricultural products, aviation, broadcasting, commercial fishing, maritime transportation, mining and drilling, and transporting hazardous materials. The SBA’s website lists federally regulated activities and the agencies that oversee them.

Home-based businesses

If you run your business from home, check your local zoning rules. Some areas require a home occupation permit, and many limit certain activities, such as the number of customer visits, signs, employees working at your home, parking or noise. Some types of businesses may not be allowed in residential zones at all.

If you rent your home, review your lease, since some leases restrict business activities. If you live in a community with a homeowners association, check its rules as well.

Also check with your insurance agent, since standard homeowners or renters policies often limit coverage for business activities.

Other permits to check

Health permits are typically required for food businesses, including restaurants, food trucks, caterers and in some cases home-based food businesses. Many states have cottage food laws that allow certain low-risk foods to be made at home and sold directly to consumers, often with specific rules and limits.

Fire department permits may be required for certain locations or activities, especially businesses open to the public. Environmental permits may be required for businesses that affect air, water or waste.

A doing business as registration, also called a DBA, fictitious name or assumed name, is typically required if you operate under a name other than your own legal name or your business entity’s legal name. Requirements vary by state and county.

Keep licenses current

Many licenses and permits must be renewed periodically, often annually, and some require continuing education or inspections. Keep track of renewal dates and requirements to avoid lapses. Display licenses where required, such as in your place of business.

Where to start

The SBA’s website has a guide to licenses and permits that walks you through federal, state and local requirements. Your state’s business portal or secretary of state website often provides information on state requirements. Your local Small Business Development Center can help you figure out what applies to your specific business at no cost.

Taking the time to get the right licenses and permits from the start helps you avoid problems later and lets you focus on growing your business with confidence.