“Do I need a business license?”

This is a question that I get asked a lot and so I wanted to put together some information for you mamapreneurs who might be asking the same question. While no one sets out to do the wrong thing, sometimes if you don’t research a topic you can inadvertently end up making a mistake. I think this is what happens with business licenses because mamapreneurs make some assumptions about them such as they’re only selling online so they don’t need one or since they’re only offering services they don’t need one.  But those assumptions are often incorrect and not checking out the real answers could leave you in legal trouble and with large back payments and penalties to pay. None of us want that so let’s find out the real answer.

The easy answer is “YES. You do need a business license.”

In almost all cases, a business license is required to legally do business in your city and county. There is a chance that your business could be the exception from the rule but that would vary on a city by city (or state by state, etc) basis.

There are a variety of types of business licenses and not all will apply to your business. You should check with your local governing bodies to clarify exactly which licenses you need or don’t need.

• Local Business License – this is a license that you get from your city and shows that you can legally operate a business in the city; contact your City Clerk or License Commissioner to obtain; renewed annually; if it is required it in your city it is required regardless of where you sell (online only, in person, markets, etc).

• County Business License – This license often is included with a city license or a state license but you should check in your area; contact your County Clerk.

• State Business License/Privilege License – a license required by the state for the privilege to do business in the state; this license in Alabama is issued by the COUNTY Probate Judge or License Commissioner; renewed annually; if you only sell at craft shows that collect and remit the sales tax for you or you are only selling through another store or website that collects and remits tax, there’s a chance that you might not need this type of license;  licenses could vary or be required based on your specific occupation (accountants, etc) or based on the goods sold (lottery, gas, alcohol, etc); contact your Department of Revenue; more information and links to each states’ office is available on state business licenses is available on the SBA website.

• Federal Business License – this license only applies to a limited number of markets, namely maritime transportation, agriculture, alcoholic beverage manufacturer, and firearm and explosive sales; most other business types do not require a federal license; more information on federal business licenses is available on the SBA website.

• Resale Certificate – a certificate showing that you resale items to customers in your state; this is what qualifies you to buy at wholesale prices; can also be called a “Sales Tax License,” “Resellers Permit,” or “Certificate of Authority”; contact your Department of Revenue; typically obtained once and lasts throughout the lifetime of a business.

• Professional/Occupational License – a license used to regulate the practice of a particular group of professionals (i.e. license to practice medicine or license to practice accounting); contact professional licensing organizations about requirements.

• Miscellaneous Licenses – There are a variety of other licenses and permits that you might be required to have. Your local License Commissioner should be able to advise you on which of these pertain to your business. Some examples are: Alarm Permit, Building Permit, Home Occupancy Permit, Signage License, Food Handlers License, Weights and Measures Registration, etc.

“Which of those do I need?”

Depending on the laws of your city, county, and state, you could need a variety of these licenses, all of them, or none of them. The fact is, if you are running a business then you must be doing it legally and that requires letting the governing bodies know about the existence of your company. Good resources to check to find out exactly what your area requires are your local Chamber of Commerce, your local License Commissioner, or consult with a local lawyer.

Why do you need a business license?

There are a variety of reasons why you need a business license, the most important being that it keeps your business legal. But having a business license also protects the public health and safety by regulating what businesses operate in the state. Just as you can appreciate this as a consumer, you should appreciate this as a business owner.

A business license also protects you legally from lawsuits that might claim that you aren’t a legal entity. Business licenses keep track of your business for tax purposes and makes sure your business (and other businesses throughout the state) are held accountable for following the laws. Not having a business license could also leave you with very large penalties due when you are found by the governing authorities or you could be responsible for back licenses that you didn’t purchase from your business inception until present day. You could also jeopardize your ability to continue your business if you operate without a business license.

I’ll address some frequently asked questions involving business licenses in a different post but this post should give you the idea that, in general, yes you do need a business license. There are links throughout the post as well to direct you to locations where you can get more information about your particular city/county/state requirements. Or you can always contact your local License Commissioner or Secretary of State.

Please remember that I am not a financial or legal advisor. All information that I offer is based on my own experience and is not to be taken as a replacement for consulting a financial or legal professional. Remember that all advice, articles, and education that you see online pertains to a specific type of business in a specific environment and you should always consult with someone familiar with the laws, guidelines, and best practices of your industry as well as being familiar with your individual company and area.