Business Licenses and Permits

There are two major types of business licenses that may be required. These are also divided into jurisdiction – local, State and Federal.

Existence and Activity Licenses

The two types are based on existence and activity. A license to operate as a medical professional, for instance, requires the appropriate license, no matter what the activity – a licensed physician doesn't have to obtain a separate license for anything that falls under the scope of his or her practice. However, anyone operating a medical business (that treats patients) must be licensed to practice medicine. This is an existence based license. It would include business such as plumbers, electricians, lawyers and other professionals who require licensing to operate in their profession. Generally, if your business uses a known profession in the name, an existence license will have to be obtained.

And activity license gives permission to do a particular activity in commerce. This may be added to a basic license – for instance, a physician who wishes to take X-rays in their office might need an additional license – or may be a completely separate undertaking, unrelated to the basic license. Anyone who wishes to transport goods in interstate commerce has to obtain the proper inspections and permits on their vehicles. The interstate transport of goods requires an activity license for anyone wishing to participate.

Jurisdictions

Permits are usually obtained at the local level – either city or county. A local permit may be needed each time an activity occurs (such as putting on a fireworks show) or may be general (operating a vending machine within city limits). Professional licenses are issued at the State level and valid throughout the State. Some States recognize the professional licenses of other States (the legal term is reciprocity).

Federal licenses and permits are also required for certain activities that are regulated on the Federal level. These may include transportation (import and export), manufacturing of regulated materials and some investment services.

Business owners are responsible for knowing which permits and licenses they need to operate. Severe penalties and possible criminal charges can result from a failure to obtain proper licensing. All levels of government must be questioned – sometimes an activity will require more than one type of license from more than one agency.

Basic Licenses

Not all of these licenses (or permits) are required, and others might be in some jurisdictions, but these are the most common:

• Basic Business License – often needed along with a DBA to open a business in a city. Outside of city limits, check with county authorities.
  
  
• Federal Tax Identification Number (EIN) – issued by the IRS for business tax purposes.
  
  
• Zoning permits – required for new construction and often required for a change in type of business (ie. from agricultural to manufacturing).
  
  
• Fire Marshal Inspection – Usually required at the city or county level. Also in this category are permits for the number of occupants allowed, as in a nightclub.
  
  
• Health Department Permit – required for operations that sell food or consumables (even pet food). This may be both local and State.
  
  
• Sales Tax license – required in States that collect sales tax if the business has retail sales of taxed items.
  
  
• Specific licenses for restricted products – these are State level licenses for liquor sales, gun sales, lottery or gaming, and other restricted or inspected products (like gasoline). Manufacturing drugs or explosives will need both State and Federal licensing.
  
  
• Professional licenses are granted at the State level for physicians, lawyers, accountants and others.
  
  
• Federal licensing is required for particular activities:
  
  
  • Interstate transportation (in some cases, intrastate is also regulated)
    
    
  • Broadcasting (FCC)
    
    
  • Manufacture or production of meats, dairy and other foodstuffs (Dept of Agriculture)
    
    
  • Handling of radioactive materials (NRC)
    
    
  • Manufacture or use of explosives, drugs or regulated chemicals (ATF)
    
    
  • Investment vehicles (SEC)
    
    
  • Import or export of some restricted materials or business with some countries (Customs or State Department)

Proper licensing and permitting can seem like a burdensome chore, but it is better to have a permit that isn't needed than to operate without one that is. Renewal and inspection is also part of the process, as well as keeping up with required continuing education.

Start a Business

• Choosing a Business Structure
• FREE Corporate Name Search
• Register a Business Name
• Business Licenses and Permits
• Obtain Federal Tax ID
• Register With State Revenue
• Starting a Business Checklist
• Free DBA Guide