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Navigating the Different Types of Business Licenses

By Lindsey Rudy

Published on 9 Jun 2023 7 min read

We all know that we need a license to drive a car or fly a plane. These things are obvious and most of us fondly remember the day we got our driver’s license. Depending on the state, many aspects of conducting business also require a license. But sometimes new business owners may not know which licenses they require.

Conducting business without the proper license can cause a lot of problems, from lawsuits to fines and even criminal penalties. This means it’s important to understand all the licensing requirements in your industry before getting started with a new business.

In this article, we’ll help you figure out if you need a business license and how you can go about obtaining one with the least amount of difficulty or cost.

What Is a Business License?

A business license is any type of license or permit that may be required by a federal, state, or local government in order to conduct business. For example, offering certain services or selling certain products may require certain licenses and permits. Licenses and permits can vary by state and even by city or county.

There is a distinction between a license and a permit. Licenses are issued by a government agency and allow you to do things that are otherwise not allowed. A permit, on the other hand, is simply permission to do something. For example, you can drive a car with a license and are not allowed to legally do so without one. By contrast, a building permit just gives you permission to construct a building in that one instance. 

License and permits are sometimes used interchangeably, but there are times when they have distinct legal meanings.

Do You Need a Business License?

This will depend on what type of business you are conducting. Businesses that provide a professional service of some kind are most likely required to have a license. For example, a hair stylist or tax advisor will require a license to legally offer their services.

Selling certain products may also require specialized licenses and permits. For example, selling alcohol, you always require a liquor license.

How to Know What Type of Business License You Need?

Business licenses can come from the different levels of government and range from federal to local. Mentioned below are the various types of licenses that will help you understand the kind of business license you need.

6 Common Types of Business Licenses 

1. Federal Business Licenses

Most small businesses won’t require federal licensing, but there are certain industries that fall into this category, and operating without a proper license is a violation of federal law.

Some industries that require federal licensing are:

• Selling alcohol, tobacco, or firearms 
• Meat packing or processing
• Drug manufacturing (not supplements)
• Transportation services such as trucking or logistics
• Television or radio broadcasting
• Investment advice or certain financial services

These are just a few examples, but more areas may require federal licensing. Each industry generally has its own federal agency where businesses go to obtain a license.

For example, a business involved in meat packing or processing would have to go to the Food and Drug Administration or FDA. Those involved in trucking and transportation would need to be licensed through the Department of Transportation or DOT.

To obtain these licenses, a business would first need to be registered as a proper entity, such as an LLC. They would then contact the appropriate federal agency to begin the licensing procedure. Some federal license applications can be rather involved and take many weeks or even months to complete.

2. State Business Licenses

Below the federal level, the next level of licensing comes from the individual states. Since every state has its own laws, the licensing requirements also vary from state to state. Some have strict licensing in certain areas while others may have no licensing at all.

Most licensing at the state level is handled through the Secretary of State’s office. However, there may be other agencies within the state which are responsible for specific licenses or industries.

Every state has an official website that will have a link to its portal for businesses seeking licenses or license information. This is the best place to start when seeking any state-required permits or licensing for your business.

Before obtaining any license, you’ll need to have your business registered as a legitimate entity before applying for a license.

One common license in most states is a state tax permit. This allows the state to collect sales tax. 

3. Local Business Licenses

The next level of business licensing can come from the local level. This could be the individual city you do business in or the county where your business is located. Similar to the states, each city and county has its own licensing requirements and these vary across the country.

Your county clerk’s office or city hall is generally the best place to start looking if you need a local business license of any kind.

Generally, anyone who runs a physical store within the city will need a local license to do so. Home businesses can vary and many areas do not require a license if you are not servicing customers at the location. 

Operating Licenses

An operating license is a license issued by a local, federal, or state agency. It is a blanket license which means all permits, inspections, evaluations, and other functions have been performed so that the entity is allowed to do business at the location and for the specified purpose listed in the license.

An operating license essentially declares the legality of a business’s operations. These are generally at the state and local level and may involve many different agencies, each essentially “signing off” on their approval.

For example, a restaurant that serves alcohol will have several licenses and permits that must be arranged before it can operate legally.

Operating licenses can vary from area to area and there are exemptions for certain specific situations or organizations.

Zoning and Land Use Permits

Zoning and land use permits essentially give permission to conduct a certain type of business activity on that land or in that specific area. For example, local ordinances do not permit businesses in residential areas. You would need a zoning permit if you plan on opening a business in a specific area.

Land use permits are similar but are for pieces of land. For example, if you want to build a factory on a piece of land, you would need a zoning permit and a land use permit.

Building Permits

Building permits can be used by both businesses and individuals. These allow the holder to begin construction of approved buildings or additions to an existing structure. For example, if a cafe wanted to build an outdoor patio to serve guests, it would need a building permit from the local government before any construction can be initiated. 

A building permit also sometimes refers to a local government allowing certain activities to take place within a building, although this is technically a zoning issue. But people sometimes use the terms interchangeably.

Health Licenses and Permits

Certain businesses may require health inspections, licensing, and permits in order to conduct business. Food and medical services are common industries that require this type of licensing and permits.

Commercial Signage Licenses

Most local areas have zoning and other rules regarding signage. For example, you can’t just hang any sign of your business and call it a day. The size and type of sign are often regulated and you will likely need a license or permit to begin construction and place a sign.

Fire Inspections and Permits

This is another local area permit that any structure open to the public is required to have and follow fire and safety regulations. Once inspected, the business will receive a permit to allow public access to the building.

Different activities within the structure may involve different permits being required. So, it’s important to check with local fire officials what is required for your type of business.

4. Professional Licenses

Anyone offering professional services may require a license. Sometimes these are given by government agencies, while at other times they are handled by professional organizations within the industry.

5. Home-Based Business Licenses

Generally, a home business doesn’t require extra licensing. Although, most states require home-based businesses to have a sales tax license so they can collect taxes.

6. Sales Tax Licenses

A sales tax license is issued by the state and it’s a way for them to track businesses selling within the state and collect sales taxes. Most states allow you to apply for this online through the state’s website.

Registering Your Business Is The First Step Toward Licensing

Before getting almost any business license you’ll first need to be registered as a business entity. With Doola, this process couldn’t be easier. Doola helps you in forming a sole proprietorship or any other business entity. We also offer expert bookkeeping services to help you manage your business finances and stay in compliance with all regulations.

Contact Doola today and learn how our small business services can help you succeed.

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