If you want to start a business, you may wonder if you need a business to operate. The answer to this question is that “it depends.” Read on to find out if you need a business license and, if so, which one you might need and how much it could potentially cost.
Does Every Business Need a Business License?
No, but whether a business needs a business license often depends on the nature of the business and where it operates. One major reason for certain business licenses is to help the government ensure consumer safety.
For example, if your business is a restaurant, you may need a special license that confirms you are aware of the health and safety requirements of preparing food for the general public. Or, if you manufacture or import firearms, you’ll need a federal license from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).
In other words, a local, state or federal government business license requirement will often exist to confirm that a particular business can operate safely. It also helps the government keep track of dangerous materials or products. A business license can also serve as a type of tax to help the government collect money.
When Do I Need to Have a Business License?
The previous section discussed how a business license may be necessary when business operations could potentially harm the general public, such as cooking food or selling firearms. But another factor in deciding if a business needs a license is where it’s located. This is due to the fact that business license requirements can originate from the federal, state and/or local levels.
Imagine you work as a freelance website designer. Most likely, there are no federal or state business license requirements that apply to you. Yet there could be one at the county, town, or city level, depending on where you live. That’s because some municipalities require all businesses operating within their jurisdictions to have a business license, no matter what kind of business the entities are in.
In this situation, the location of the business determines if a business license is needed, not whether the business engages in operations that could hurt customers or the general public.
When Do I Need to Apply for a Business License?
The exact process of obtaining a business license depends on your business and how it’s regulated, if at all. Using the web designer example from earlier, most likely you’ll need to apply for the local business license as soon as your business is operating in the relevant locality.
This means if you just moved into a city that requires the local business license, you’ll want to apply for the license as soon as you can after you move to your new home or office. If you’ve started your business while already living in the city that requires the license, you’ll want to apply for the license as part of the business start-up process.
Things can be a bit more complicated for a more regulated business. We can use a new business that manufactures and sells alcohol to consumers, such as a commercial distillery, to illustrate.
Business Licenses Required for a Distillery
The sale of alcohol is one of the most regulated business activities in the United States. Most businesses that produce alcohol will need at least three business licenses to operate as a distillery.
One license exists at the federal level and consists of a permit from the Alcohol and Tobacco Tax and Trade Bureau (TTB). You’ll need a permit from the TTB before you start manufacturing and selling alcohol in the United States.
Another business license you’ll need will likely exist at the state level. This will come from your state’s alcoholic beverage control bureau or agency. Then, you’ll probably need yet another business license from your city and/or county level that allows you to manufacture and/or sell alcohol within county or city limits.
Depending on your applicable laws, you typically apply for the state business license first, then apply for the permit from the TTB soon after. Only after you obtain both of these, will you then apply for the one from your city, county or local alcoholic beverage control department or entity.
Finally, before applying for any business license, you’ll want to already have your business entity fully formed, whether it’s a partnership, limited liability company or corporation. This is because you’ll need business formation documents as part of your TTB alcohol permit application.
You shouldn’t begin manufacturing or selling distilled spirits until you obtain all three of these business licenses. Keep in mind that this is not an exhaustive outline of business license requirements for distilleries. There could be more business license and/or regulatory requirements you need to complete.
What Type of Business Licenses Are There?
There are many types of business licenses as they exist at all levels of government in the United States and for a variety of trades and businesses. The below chart provides some examples of the types of licenses that are available and where you might find them.
| Type of Business License | Federal | State | Local |
| General Business License | No | Sometimes | Sometimes |
| DBA License | No | Yes | Sometimes |
| Sales Tax License | No | Yes | Sometimes |
| Zoning and/or Land Use Permit | No | No | Yes |
| Signage Permit | No | No | Sometimes |
| Alcohol License | Yes | Yes | Yes |
| Interstate Transportation License | Yes | Sometimes | Sometimes |
| Health Permit | No | Sometimes | Yes |
| Firearms Dealer License | Yes | Yes | Sometimes |
| Home Occupation Permit | No | No | Sometimes |
This is just a rough overview of the types of business licenses that may be needed and the level of government where you can get them. At the federal level, there is a host of business operations that will be subject to federal licensing and/or permitting, like businesses working with nuclear material or operating aircraft. Also, understand that there’s a blurring between business licenses and professional licenses.
For instance, a person who wants to work as a contractor renovating homes may need a special contractor’s license from the state or local government, indicating they have the necessary knowledge and insurance to carry out their work safely. They may also need to be bonded and pass a criminal background check. Or a lawyer will need to pass the bar exam for the state they want to practice in if they want to sell their legal services in that state.
How Much Does a Business License Cost?
It’s hard to say, as fees can vary from $25 for a sole proprietorship license in Alaska to more than $1,000 for a restaurant liquor license in Connecticut. For most business licenses, you can expect to pay up to a few hundred dollars per year for your business license.
Conclusion
If you operate a business, there’s a good chance you’ll need some type of business license. Any business license requirement will typically depend on where you work and the type of work you do. The more regulated or dangerous the work, the more likely you’ll need a business license to do it.