Helping you keep your business in order is our business at Remitly. This means making sure that you’re equipped with all of the knowledge necessary to legally operate your business wherever you are. In the US, this means having a business license.
In this article, we’ll help you understand what a business license is and why it’s important. We’ll also break down the different costs by state and outline how to apply for the business license that’s right for you.
Understanding business licenses and costs
A business license is an official document that is issued by the government that gives a business legal permission to operate within a certain jurisdiction. A business license can be issued by the local, state, or federal government.
Business licenses are a way for the government to track and regulate business activity. They’re often required for a business to operate legally.
Overview and importance of business licenses
Regardless of your business model, licenses are important because they ensure that businesses are operating legally and safely. They’re also a way for governments to collect revenue through fees and taxes.
Licenses also protect the public by ensuring that businesses are following all the applicable rules and guidelines. This is especially relevant in some industries like healthcare and food service.
Benefits for small business owners
While larger, established businesses may have the time and resources to deal with legal complications, we know that small businesses often do not.
Business licenses can be particularly helpful to small business owners and entrepreneurs by outlining local, state, and federal regulations and ensuring that your business is in compliance. These may include zoning laws, health and safety standards, and tax requirements.
Having and maintaining the correct business license can protect your business from unnecessary fees, penalties, and legal action. Correct licensure will also demonstrate professionalism and credibility to your customers. Save yourself time, energy, and money by informing yourself about business licenses.
In general, you should be prepared to spend about $50 to $500 on a business license. The cost of your business license will vary depending on a few different factors:
- Business type
The size and makeup of your business can affect the cost of the license. Whether you’re a sole proprietorship, an LLC, or a corporation can influence the cost. - Industry
Some industries require special licenses that can increase or change the cost of licensing. These are usually industries with specific standards of service, like food service or healthcare. - Permits
In addition to business licenses, you might need to purchase additional permits to partake in some business activities. For example, selling alcohol or firearms might require a special permit.
Types of business licenses and fees
General business licenses vs. specific business licenses
General business licenses are basic permits required by the federal, state, or local government for a business to operate within a certain jurisdiction. These business licenses will ensure that businesses are following all laws, regulations, and zoning ordinances. These licenses are generally required for all businesses regardless of their industry.
Specific business licenses are additional licenses required for businesses that are in specific industries or conduct specific activities. Some industries are more regulated than others. For example, food service, childcare, and healthcare are industries that will typically require specific licenses. Activities such as selling alcohol or firearms could also require specific licenses.
Specific business licenses are usually tied to professions that require niche knowledge. For example, businesses that employ doctors, lawyers, architects, or tradesmen will likely require specific licenses.
Federal licenses and permits
Most small businesses will not require a federal business license in the US. You only need to look into federal business licensing if your business involves the activities in the list below. You can find more information with the related federal agencies listed.
- Investment advising: Securities and Exchange Commission (SEC)
- Drug manufacturing: Food and Drug Administration (FDA)
- Preparing meat products: Food and Drug Administration (FDA)
- Broadcasting: Federal Communications Commission (FCC)
- Ground transportation: Department of Transportation (DOT)
- Selling alcohol, tobacco, or firearms: Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)
The federal government strictly monitors these activities by providing regulations to keep business owners, employees, and customers safe. Failure to meet these requirements could result in the shutting down of your business or other consequences.
Local and state licensing requirements
On the local and state levels, requirements for business licenses vary. More information about starting a small business in the US, including local requirements, can be found on the U.S. Small Business Administration website.
Business license costs by state
There’s no flat rate for starting a business in the US. The cost of a business will depend on both the state in which you register your business and the type of work your business conducts. A recent poll conducted by SimplifyLLC ranked US states based on how cheap or expensive it is to start a business there.
Factors considered were basic business costs, like licensing and business filing fees; the cost of space and utilities; and the cost of labor based on average annual income. We’ve also included the cost of applying for a state-level Articles of Incorporation or Articles of Organization.
Top five least expensive states to start a business:
- Utah – $59
- South Dakota – $150
- Colorado – $50
- Wyoming – $100
- Montana – $35
Top five most expensive states to start a business:
- California – $100
- New York – $125
- Hawaii – $50
- Tennessee – $300
- Massachusetts – $275
Explore the full results and all 50 states ranked by viewing the complete study.
How to apply for a business license
Step-by-step application process
Although the steps to apply for a business license vary from state to state, the general process is the same. In order to make your business official, follow the steps below:
- Choose a business structure. Start by deciding how you want to structure your business. A few popular options are sole proprietorship, LLC, and corporation.
- Register your business name and apply for a license. Contact the relevant government agency to register your business name and pay the fees associated with receiving a license.
- Obtain an Employer Identification Number (EIN). If you’re a sole proprietor, your business will share your social security number (SSN) for legal identification. If you’ve registered any other type of business, you’ll have to apply for an employer identification number (EIN) for your company through the Internal Revenue Service (IRS).
Essential documents and requirements
To apply for a business license in any given state, you’ll likely need the following:
- Government-issued ID
- Social Security Number (SSN)
- Completed application form
- Payment of related fee
Each state deals with the business formation process differently. Typically, you have the option of completing the process in person, by mail, or online.
Managing business license renewals and compliance
Importance of renewals in maintaining compliance
If a business does not correctly renew licenses and permits, it can result in fees and financial penalties that are typically far more expensive than the renewal itself. In addition, if a business license or permit is not up-to-date, you’ll have to stop business transactions until it is renewed properly.
The purpose of renewing a business license on a regular basis is both to indicate that the business is still operational and to provide an avenue for the government to communicate any relevant changes to business owners.
Regulatory changes affecting the renewal process
When regulatory changes happen, it is the responsibility of businesses to keep on top of the changes and to respond to them accordingly. This is important to avoid non-compliance, financial losses, and service interruptions.
Regulatory changes often require businesses to adjust how they operate in order to maintain their license. Here are some hypothetical examples of regulatory changes:
- State laws about online data protection have become more strict. You operate an online clothing boutique. In order to renew your business license, you’ll have to ensure that you obtain explicit consent from all users to capture their data. This means adding a consent check-box to your check-out process when customers provide their name, shipping address, and email.
- Federal laws have changed to limit the number of overtime hours that employees can work in a week. You operate a small ice cream shop that stays open late on hot summer days. Before applying for the renewal of your business license, you have to update each employee’s contract to include a clause that reflects the new overtime hours limit.
- Local laws were updated to require that all business vehicles be equipped with a first aid kit and emergency warning triangles. You operate a limousine company with a fleet of ten vehicles. Each will need to be outfitted with the appropriate supplies for your business to be in compliance.
Although some of these changes might seem small, your business could be audited at any time. As the expiry dates for your licenses and permits approach, check in with the governing agencies to review the processes and any changes, and prepare for a smooth renewal.
Tips for timely license renewal
If you’re running a small business, you probably have a very long to-do list. Streamline the license renewal process to ensure that your business is in compliance by following these tips:
- Plan proactively. Keep track of your license expiration dates and renewal requirements. This will allow you to start the renewal process far in advance to ensure there is no lapse in your business licenses and permits.
- Keep accurate records. Pick a filing method that works for you and be meticulous about it. Having records of licenses, payments, and past renewals that are easy to access and updated will make the process easier.
- Stay informed of regulatory changes. Visit the websites of regulatory authorities to take note of any changes. Often, you can subscribe to newsletters that will alert you of any updates.
- Delegate or outsource when necessary. Assign licensing to a specific team member who is organized and responsible. If you find licensing challenging or the status of your business has changed, consider seeking professional legal advice or outsourcing your licensing to a service.
- Keep communication organized. If you’ve outsourced renewal or assigned it to someone else, maintain open lines of communication before, during, and after the renewal process. Be clear about requirements, expectations, and deadlines.
FAQs
Does North Carolina require a business license?
This is a tricky question, but the answer is probably yes. North Carolina does not offer a general business license at the state level, but don’t let this fool you. In order to legally operate a business in North Carolina, you’ll still need to register with the North Carolina Department of Revenue (NCDOR) for tax purposes. You might also need a Certificate of Assumed Name from the North Carolina Secretary of State to operate your business under a specific name different from your legal name. You’ll also need to check in about licensing based on your city and county. For free services regarding starting a business in North Carolina, contact Business Link North Carolina.
What license is best for a small business?
If you plan to run your business on your own, consider a sole proprietorship. If you already have a small team of people or plan to hire employees in the future, an LLC might be right for you.
How much does it cost to get a business license in the US?
Costs vary by state. Plan to spend up to $500 to obtain all of your licenses and permits.