How to get a business license in your state

When starting a business, one of the first tasks to handle is finding out which business licenses and permits you need and applying for them. Depending on your business and where it operates, you may need a general business license, permits tied to your location or industry, and professional or occupational licenses. If you don’t follow the requirements, your business could incur fines or even be shut down. Here’s a detailed look at what a business license is, when you need one, and how to apply.

What is a business license?

A business license is a government-issued document from a city, county, state, or federal agency. It gives a business legal permission to operate in a geographic area and provides proof of compliance with regulatory standards.

Licensing exists at the local, state, and federal levels, and many businesses need more than one. City and county licensing requirements are the most common, while only a small number of states require a general state-level license that every business must have. Licensing requirements also depend on the type of business you have.

The format of a business license depends on the issuing agency and the type of license. In general, the business license document shows the business name, license number, jurisdiction, issue date, and expiration date.

A business license limits legal risk by keeping your company compliant with local laws. It can also signal legitimacy to customers and help your business gain access to funding. Lenders may require a copy of your business license with a financing application.

Do you need a business license?

Most businesses need at least one license or permit, usually at the city or county level. A state business license may be required, although most states have no general state-level business license.

Licensing requirements typically depend on where you operate, what you sell, and your industry. Here are the most common situations when you need a business license:

• You operate from a physical location. If your business has an office, storefront, or any other type of physical presence, it most likely needs a license and possibly zoning approval for your specific commercial use.
• You sell goods. Your business likely needs a seller’s permit, also known as a sales tax permit or sales tax license, to collect and pay sales tax. You don’t need a seller’s permit if you only operate and sell goods in one of the five states with no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. If you’re in Alaska, note that some Alaskan municipalities have their own local sales tax.
• You work in a licensed profession. Examples include accountants, contractors, cosmetologists, and therapists. If you’re in a licensed profession, you’ll normally need both an occupational license from a state board and a business license.
• You’re in a regulated industry. Many industries include their own licensing or permit requirements, including food service, childcare, and transportation.
• You’re hiring employees. You’ll need to register your business with your state for income tax withholding and unemployment insurance, and pay the required unemployment taxes. Most states also require businesses with employees to have workers’ compensation insurance.
• You’re expanding into a new city or state. A business license is only valid within a specific jurisdiction. If you expand into a new area, you’ll need to check the licensing requirements there, as well.

In most jurisdictions, you need a business license before you begin operating. It’s a prerequisite, and not something to get later. You can typically get a general business license once you have a business address and an EIN. If you’ve been operating without a license, apply right away. You may need to pay a penalty, but it’s better than being audited for an unlicensed business later.

Does an LLC need a business license?

Yes, in most cases. When you form an LLC, you register the business, but that’s not the same as licensing it. An LLC still needs to meet any applicable local, state, or industry licensing requirements.

Does a sole proprietor need a business license?

Yes, sole proprietors need to meet the same licensing requirements as any other business. Licensing requirements depend on the location and activity, not the business structure.

By default, a sole proprietorship operates under the owner’s legal name. If you want to do business under any other name, you typically need to file a DBA (Doing Business As) with either your county clerk or your state’s Secretary of State. A DBA isn’t a business license and only provides legal permission to operate under that name.

Do freelancers and home-based businesses need a business license?

Yes, freelancers and home-based businesses often need a business license. Many cities require business licenses from any business operating within their jurisdiction, regardless of the size and nature of the business. Even client work from a laptop could trigger a licensing requirement depending on where you live.

If you work from home, zoning laws may impact your business. These laws restrict commercial activity in residential zones. You may need a home occupation permit giving you permission to run a business from your primary residence. Home occupation permits normally include conditions, such as limits on client traffic and how much of your home the business can occupy.

Types of business licenses

Here are the main types of business licenses, permits, and registrations:

• General business license: A general business license, also known as a business privilege license or business tax registration certificate, authorizes a business to legally operate. Most are issued at the city or county level, but a handful of states also issue general business licenses. A seller’s permit, which authorizes a business to collect and pay sales tax, falls into this category.
• DBA registration: A “Doing Business As,” or DBA for short, allows you to do business under a different name than the one you’ve registered. It acts as a sort of legal nickname for your company, which can help you rebrand without having to go through the time-consuming and expensive process of legally changing your business name.
• Permits: Depending on where you do business and what kind of business it is, you may need special permits. For example, any business using a commercial space typically needs a zoning permit, and home-based businesses need home occupation permits. Commercial construction and renovations require a building permit. Any businesses that need to meet sanitation standards, like food service, require a health permit.
• Professional and occupational licenses: Many service-based businesses, like law firms, accounting firms, therapists, salons, and even landscaping companies may require licenses to operate. These are regulated primarily at the state level, although some trades also require local registration.
• Federal licenses for regulated industries: Examples include alcohol production, importing, and wholesale, which is regulated by the Alcohol and Tobacco Tax and Trade Bureau (retail alcohol sales are licensed at the state level), firearms, aviation, agriculture, and broadcasting.

For many businesses, a general business license is just a starting point. A single restaurant may need a general license, a seller’s permit, a health permit, and a liquor license.

How to get a business license

Although it may sound daunting, getting a business license can be straightforward if you’re prepared. You may want to enlist the help of a small business accountant to make sure you check all the boxes, but in general, following these steps will help you figure out how to get a business license and which ones you need. 

1. Form your business entity

Business formation is the legal start of your business. There are several structures available, including a sole proprietorship, general partnership, limited liability company (LLC), corporation, or nonprofit corporation. Note that choosing and forming a business structure, which is what you do when starting an LLC, isn’t the same as applying for a business license or permit.

2. Apply for an Employer Identification Number (EIN)

An employer identification number (EIN) is a nine-digit tax ID number used by the IRS to identify your business. You can apply for an EIN for free online through the IRS website, or you can fill out the SS-4 form and either mail or fax it to the IRS. If you have a business accountant, they can likely fill out the forms for you.

3. Determine what licenses you need (if any)

These requirements vary widely depending on your location and industry. Here’s how to figure what licenses you need:

• Check with your city, county, or state for general licensing requirements.
• Review whether your business is in a regulated industry or involves a profession with specific licensing requirements.
• Find out if you need a seller’s permit for sales tax.

Your local Small Business Administration (SBA) can be an excellent resource for this, and the SBA also provides license and permit guidance online. Other helpful resources include local county or city clerks, your state’s Department of Revenue and Secretary of State, and state one-stop business portals. If you want professional assistance, a business lawyer or accountant could explain which licenses your business needs.

4. Apply for the licenses

Business license applications can generally be completed online with your city, state, or federal agencies. Applications normally ask for the following:

• Legal business name
• Type of business entity
• Formation date
• Business address
• Industry
• EIN

5. Renew the license as needed

Just like your driver’s license, business licenses expire after a set amount of time. Keep on top of renewal dates to make sure your business continues functioning legally, and remember that some government agencies may need a long lead time to renew licenses due to staff shortages or other issues. 

Business license requirements by state

Licensing requirements vary by state because only a small number of states, including Alaska, Alabama, Delaware, Nevada, and Washington, require state-level general business licenses. In most states, cities and counties handle general business licensing. In either case, states have their own rules for occupational licenses and regulated industries, and businesses in need of specific licenses typically need to apply through a state board.

Below, you’ll find a list of resources for each state. In addition, your state’s Secretary of State website likely provides necessary information on what state business licenses you need.

How much does a business license cost?

General business licenses commonly run from around $15 to a few hundred dollars, with fees varying by location and industry. Fees tend to run higher in large cities and regulated industries. Some jurisdictions use a sliding scale based on revenue or headcount, which keeps licensing costs lower for small businesses. In regulated industries, businesses may need multiple licenses, each with its own fee. 

Business licenses also renew on a set schedule and have renewal fees. Most jurisdictions have annual renewals, but some have business licenses that renew every two years. Renewal fees are normally in line with what the license originally cost.

If you want to figure out the cost of starting up a business, Nav’s business formation marketplace provides cost details on registering a business with your state.

Business license vs. LLC vs. permits

Business licenses, LLCs, and permits are sometimes used interchangeably, but they serve different purposes:

• Registering an entity creates the business. You pick your business type, such as an LLC or corporation, file paperwork with your state, and get documents that make your business official. You only need to do this once when you start your business, although most states require a report and fee every one or two years to keep the registration active.
• A license permits the business to operate. You usually get a business license from your city or county government. It provides general permission to operate in that area, and you need to renew it, typically every one to two years.
• Permits authorize specific activities. For example, if you run a restaurant, you need a health permit to serve food and possibly a separate permit if you want to offer seating outside. If you want to renovate your storefront, you will likely need a building permit. Some permits require renewal, while others are tied to a single project.

To reiterate, an LLC is not a business license. When you form an LLC, you’ve registered your business with the state. Registration alone doesn’t permit you to operate your business. You need a business license for that.

What happens if you operate without a business license

Operating a business without a license carries financial, legal, and reputational risks. Cities may issue fines and penalties to unlicensed businesses. These fines often accrue daily and can be backdated to cover the entire period your business should’ve had a license. You could even receive a stop-work order or experience a forced closure of your business.

Not having a business license can also lead to issues with professional contracts. Corporate and government clients frequently verify business licenses when onboarding a new business partner. Your business may not be able to enforce its own contracts legally. For example, if you’re dealing with a nonpaying client, running an unlicensed business could prevent you from suing to collect on the payment.

Licensing affects banking and financing options, as well. A financial institution could request proof of your business license when you try to open a business bank account or apply for a business loan. In this situation, business licenses serve a somewhat similar purpose to business credit scores: They provide proof that your business is legitimate.

The bottom line

Nearly every business needs at least one license. For most, it starts with a license at the city or county level and a seller’s permit, but exact requirements depend on your activity and location.

Getting licensed is part of the same foundation that lenders look at alongside your business credit. Nav Prime helps with the latter, providing insights, credit reports, and the option of getting a monthly tradeline to build your business credit. Nav is not a lender or a credit bureau. Credit information is provided by third-party sources.

Frequently asked questions