Setting up an online business is exciting, but it’s essential that you consider whether or not you need a business license so you don’t get yourself in trouble.
If you’ve arrived here, then you won’t have to worry. Being proactive is the first step, ensuring that you abide by the law and get your business off to a good start.
We’re going to discuss the main types of business licenses you’ll need in the US for your online business. We’ll also talk about where you can get a business license from and how much it will cost.
Do You Need A Business License?
If you’ve come here to get a straight answer, then the answer is yes. eCommerce business licenses allow authorities to monitor businesses for tax and accountability reasons. We’ll discuss more of this in our article and guide to getting a business license below.
Table of Contents
1. Types of Business Licenses
There are different business licenses you can buy, but for the purpose of this article we’ll be focusing on the main three:
- State-issued business licenses
- Federal licenses
- Doing Business As name (DBA)
2. Which Business Licenses Do You Need?
If you’re selling products or services online or offline, you’ll need some kind of business license. How many licenses and which type of license depends on the industry you’re trading in, your business size, and location.
The rules around business licensing differ from state to state in the US. There isn’t a catch-all answer here, so you’ll need to find the right regulations for your city.
You’ll need to establish where your business is based or managed. In some states, it isn’t a requirement to have a business license to open a business, but in most cases you do.
If you’re running your business from your home, you’ll also need to find out whether your town requires you to have a business license.
Federal Business Licenses
If your business or industry is federally regulated, you’ll need to apply for a federal license from the relevant governing body.
Not sure whether this applies to you or not? Check out the US Small Business Administration (SBA) website for more information.
It’s much better to check these things before starting a business as opposed to burying your head in the sand. Taking a few minutes to visit a website will be much less of a headache than facing a large fine or your business being closed down.
Doing Business As name (DBA)
Unless you’re trading under your own name, most states will require businesses to obtain a DBA license.
For example, if you were trading as John Smith, you wouldn’t need a DBA. But ‘Sally’s Hairdressers’ would require one.
A DBA is easy to obtain, even if you’re running a small side business. It prevents anyone else within your state from using your business name and protects against fraud. You can also open a business bank account which can make things far easier for tax purposes.
If you want to protect your business name across your country, you’ll need a trademark. This does involve more time and paperwork, but eCommerce businesses may find this more useful. If someone in another state has the same business name as you, you’ll both be fighting for a position in Google, especially if you trade internationally.
If you have a trademark, you will only need a DBA if you want to use a different trade name.
3. How Do You Get A Business License?
Before applying for a business license, there are a few things you’re going to need:
- Business legal structure – whether your business is a sole proprietor or limited company
- Business activity – a detailed account of your business activity
- Sales tax license – this can be obtained from your state agency
Where to Apply
If you want to apply for a general business license or DBA, you’ll need to apply for this through your state. I highly recommend applying for a business license early on, even if your state doesn’t require it because you’re not currently making enough revenue.
Most towns will need you to go to your city hall to fill in the paperwork. If your business is trading online only, this will still be the case.
If you sell alcohol or your business is federally regulated, you’ll need to apply to the relevant agency for a license. Remember, check the SBA website to find which issuing body you need to contact.
4. How Much Does a Business License Cost?
State-issued business licenses usually cost somewhere in the range of $50-$400. You may find that some charge a processing fee too, but this is often no more than $25.
You’ll also need to renew your business license each year, which is often at the end of the fiscal year. Renewing a business license is usually pain-free, requiring you to do this over the phone or via mail.
DBA varies from state to state, costing anything between $10-$50. Most DBA licenses expire after 3 to 5 years, so you must remember to renew them.
5. Selling Online Without a Business License
Operating without a business license means you are running your business illegally. As you might imagine, this comes with some serious consequences that you won’t want to face.
The severity of the penalty for selling online without a business license can vary depending on state laws, including:
- Not being allowed to sell online
- Paying a fine
- Potential lawsuits
While understanding or knowing whether you need a business license for your industry can be complex, we hope this guide has cleared a few things up.
The fact of the matter is that you’ll most likely need a business license, sales tax license, and/or DBA license.
If you’re still not sure whether you need a business license or not, I recommend getting in touch with someone from your state department. This will ensure you don’t miss anything crucial, especially if you want to keep your business legit.