Business Licenses: Which Type Do You Need?

Believe it or not, many small business owners neglect to obtain the necessary licenses that allow them to legally operate their business in the city or town in which they live. This is a serious mistake.

Failure to become properly licensed can have a variety of consequences, so it is imperative that all small business owners learn the regulations in their location so that they can meet every requirement.

Which business licenses you need will depend on your location as well as the type of business that you own. Because there is such a variety of requirements from location to location, it is impossible to provide a list that would apply to every business owner.

Instead, below are some of the most commonly required business licenses. You will need to do some research to find out which apply to your location and your business.

State Business License

Depending on the state in which you live, you may need to obtain a state business license as well as a city license.

There is likely to be a fee due each year as well as a federal tax that will be applied based on your revenue.

Without one…

If your location requires this license and you do not have one that means that you are operating your business illegally. You could be charged with a crime – or even be forced to close your doors.

Also, the federal tax that would have been due each year will now be due along with penalties and interest.

City or Town Business License

You may also need a city or town license. As with the state license, a fee will be due each year and a tax is likely to be charged based on the amount of your revenue.

Without one…

The consequences of operating your business without a required city or town license would be similar to those of operating without a state license.

Professional License

For some professions, such as doctors, lawyers, CPAs and others, a professional license is also required.

This license proves that you have met a minimum standard set by your peers or a governing body.

Without one…

It is going to be difficult for you to get a job in your professional field without this license. While every hiring body SHOULD check each potential hire, some do not.

If you do manage to get a job without a license you can be subject to felony charges and face serious civil liability should you make an error that causes any type of harm to a client or patient.

DBA (Doing Business As) Name

If you plan to do business under a different name than the name that appears on your business license, you will need to apply for a DBA name. Most locations charge a small, one-time fee for this.

Usually, no additional taxes would be due.

State Employer ID

If you have employees, you may need a state employer ID.

Without one…

You face fines and other penalties for having employees without the required ID numbers.

Federal Tax ID

If you have employees or plan to file business taxes (which is just about every small business) then you will need a federal tax ID number.

There is no cost associated with obtaining the number.

Without one…

As with the state ID, if it is required and you don’t have it, there could be serious consequences. Also, most banks will not allow you to open a business checking account or credit card without a federal tax ID number.

It doesn’t take a lot of time to obtain all of the business licenses required. You will, however, need to do a little research to find out which apply to you. Then, act quickly to obtain them.

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