What Licenses and Permits are Required to Start a Business

Starting a new business requires you to deal with a lot of paperwork. Aside from registering the business and raising capital, you may be required to obtain local, state and federal licenses and permits depending on the type, scale and location of your business.

Let’s say you want to open a restaurant that serves alcohol, has an outdoor patio and a private parking lot. Depending on the location of your business premises, you may need a license to open a restaurant, a permit to build an outdoor patio, and a parking permit.

There will be a fee associated with each of those three applications and you may have to visit three different government organizations to get them.

The licenses and permits required may also change with the legality of your business. So don’t expect the requirements to be any less just because you incorporated your business.

Most new entrepreneurs tend to underestimate the importance of business licenses and permits and often skip this step altogether. However, by obtaining the necessary licenses and permits upfront, you can continue business operations without fear of getting fined.

The difference between licenses and permits

A “permit” is basically a document which gives authorization to do something and “license” is just a synonym of it. They are more or less the same, however, there are some slight differences.

Confusion may arise in situations like; you need a license to get a gun but a permit to carry it concealed, and you need a license to sell liquor but a health permit to own a restaurant.

While some licenses such as the driving license requires you to pass a test to ensure that the person receiving the license is capable of doing the activity, a business license doesn’t require any type of examination.

Individuals with certain occupations are also given licenses after a test such as doctors, auto-mechanics and plumbers.

Licenses may also be sold by other individuals and companies. For example, a company may issue a license to an individual to use the intellectual property in exchange for something.

Permits are also a type of license that regulates safety and are given only after a thorough inspection.

Types of licenses and permits

City

In U.S and most other countries, cities issue zoning permits, health permits, construction permits and etc.

State

Some state licenses are only issued to businesses. For example, you may have to obtain a state tax permit if your business sells products or services that are subject to state sales tax.

Other state licenses are issued to individuals in certain occupations such as electricians, plumbers, auto-mechanics, building constructors, real estate brokers and etc.

In addition to them, people who provide personal services such as barbers and nurses are also required to be licensed. You may have to pass a state examination to obtain such a license.

Contact the state secretary of your state to get a complete list of occupations that have to be licensed.

Federal

Your business would require federal licenses and permits only if it involves in manufacturing alcohol, transporting farm animals among states, or selling firearms. If so, you may need to get in touch with the Federal Trade Commission to see what your requirements are.

Some other businesses that require federal licenses are meat processing, TV & Radio stations, and investment advisory businesses.

Common licenses and permits

Business license

A business license allows you to conduct business in a specific area. Contact the city’s business license department to obtain it.

Once the license application is filed, the city zoning department will inspect your area to see whether or not it’s zoned for the purpose you want to use it for and check whether the required parking space is available.

You are not allowed to conduct business in an area that is not zoned for the type of business you run. The only options left are either to find another location or to get a conditional-use permit, also known as a variance.

Variances are easy to obtain. You just need to present your case before the city planning commission and show them that your business wouldn’t harm the area in any way.

For home-based businesses however, the zoning regulations are strict to prevent business use of homes in residential neighborhoods. But its still possible for you to get a variance.

Construction permit

You will need to obtain a construction permit from the municipal council if you plan to construct a building or structure on a piece of land.

Land use permit

If you are using a facility of some sort such as an office, storefront or factory, you will need to obtain a land use permit.

Parking permit

You will need to obtain a parking permit from the city government in order to secure street parking in your area for each of your company vehicles. But if you are planning to construct a parking lot, you will need a land use and construction permit from the local municipal council.

Signage and building exterior permit

New entrepreneurs don’t know about this but most cities have rules regarding the size and placement of your signage and the look and feel of your building’s exterior. You may be required to obtain this permit if you use bright colors in the building exterior.

Alcohol permit

If you want to sell alcohol, both your business and its employees may need to obtain a liquor license at the state level. However, if you are manufacturing alcohol, you may need a liquor license at the federal level.

Health permit

You will need a health permit from the local city health department if you plan on selling food to customers and retailers either as a restaurant or whole-seller.

This permit will cost around $25 but that may change depending on the size of your business and the type of equipment you use. Naturally, the health department will want to inspect the business premises before they issue the permit.

Disposal license

Most counties and municipals have rules and regulations regarding water and air pollution by businesses. You may need to obtain some kind of permit if there is a need to dispose a lot of waste from your business premises through public drains and etc.

You may also require a permit to release chemicals through public drains and another permit for pre-disposal storage of those chemicals.

Same goes for releasing gases.

Sales tax license

The sales tax license is also known as the certificate of authority or seller’s permit. Any home-based business that sells taxable products or services must pay sales taxes.

The tax amount differs from one state to another so be familiar with the rules in your state and locale. If you are a retailer you must collect state sales tax on each sale you make.

This license is important because some states consider it a criminal offense to collect sales tax without the license.

Conclusion

Most entrepreneurs, especially first-timers, tend to underestimate and skip the process of obtaining the necessary business licenses and permits. This however leads to unexpected fines in the future and makes you wide open to legal liability when something goes wrong.

Identifying exactly what licenses and permits are required for your particular business and obtaining them can be a very complicated and time-consuming task, especially if the industry of the business is still new. I understand this very well.

However, it’s your responsibility as the business owner to make sure that all the required licenses and permits are in place and up-to-date in order to avoid trouble in the future.

Visit sba.gov for more information.

Were you able to get the necessary licenses and permits for your business? Tell us about your experience in the comment section below.