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Which Licenses and Permits are Required to Establish a Small Business?

Each state has unique prerequisites, but here’s a brief overview:

Typically, businesses will require a license from your local city or town. This is usually obtained through your local City Hall.

Contact them and inquire about obtaining a business license. Essentially, you complete some straightforward paperwork and pay the associated fee. You’ll typically need your EIN, or your Social Security number if you’re a Sole Proprietor.

The cost is usually reasonable, perhaps $50-$150 depending on your location.

Some businesses, such as freelance writers, designers, programmers, virtual assistants, etc., may not require a business license. It’s best to check with your local City Hall to be certain.

1. Investigate state and local prerequisites

Start by investigating the state and local prerequisites for running a business in your area.

Simply perform a Google search like:

What business licenses or permits do I need in the State of California?

Prerequisites may differ depending on the type of business and its location. Consult your city, county, and state government websites for information on business licenses, permits, and other requirements.

Actionable Advice:
Investigate the prerequisites in your specific area to ensure compliance with local regulations.

2. Establish your business structure

The type of business entity you select will influence the permits and licenses you need. A sole proprietorship may have different requirements than a limited liability company (LLC) or corporation. Investigate the requirements based on your chosen business structure.

Actionable Advice:
Select a business entity and investigate the specific requirements for that entity. More on that below in this article.

3. Determine federal requirements

Some businesses may require federal licenses or permits. This is particularly true for heavily regulated businesses, such as those in healthcare or transportation. Investigate the requirements for your specific industry at the federal level.

Actionable Advice:
Investigate federal requirements for your specific industry and business.

4. Acquire a tax ID number

A tax identification number (TIN), also known as an employer identification number (EIN), is required for most businesses. This number is used for tax purposes and is necessary for hiring employees and opening a business bank account.

Actionable Advice:
Apply for a TIN/EIN through the IRS website here.

5. Apply for a business license

Most businesses require a license to operate legally. The specific license required depends on the type of business and location. Some common types of licenses include a general business license, professional license, and home occupation permit.

Actionable Advice:
Apply for the necessary business license(s) through your city or county government. Give them a call and ask how to proceed.

6. Obtain permits for specific activities

Certain business activities may require specific permits. For example, if you plan to sell alcohol or tobacco products, you will need to obtain a permit from your state government. Other activities that may require permits include building construction or renovation, food service, and hazardous materials handling.

Actionable Advice:
Investigate the specific permits required for your business activities and obtain them as needed.

7. Adhere to zoning laws

Zoning laws dictate how land in a specific area can be used. If your business does not comply with local zoning laws, you may face fines or legal action. Check with your city or county government to ensure your business is zoned properly.

Actionable Advice:
Investigate zoning laws in your area and ensure your business is compliant.

Opening a Business Checking Account – is this necessary before obtaining permits/licenses?

Typically, a business checking account should be opened before obtaining your licenses and permits.

This is because you will need to pay for licenses/permits (and perhaps other expenses early on) and you don’t want to use your personal funds for these things because maintaining a separation between your personal and business finances is crucial.

You should always aim to keep your personal and your business finances separate – for a variety of reasons (mostly tax purposes and liability purposes). Having the business banking account established first allows you to do this easily.

In some cases, a bank might require your to get a business license and permit before you can open a business checking account. However, most banks will allow you to open a business checking account even if you don’t have a business license and permit yet.

You will also want to choose and form a business entity such as an LLC, etc.

Selecting and forming a business entity is a crucial step in starting a business. There are several options available, including sole proprietorship, partnership, LLC, and corporation. Each has its own pros and cons in terms of liability, taxes, and management structure. Investigate each option and select the one that best fits your business needs. Try this page – there’s a lot of valuable info here on LLCs, S-Corps, Sole Proprietorships, and more that will give you a head start on how to choose the right business entity.

Actionable Advice:
Investigate the various types of business entities and select the one that best suits your business needs. Form the entity according to state regulations.

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