Many businesses require licenses and permits to operate. Depending on the na- ture of the business, licenses and permits may be required at the federal, state, and/or local levels. There are three ways for those leading a business to deter-mine the licenses and permits that are necessary. The first is to ask someone who is running a similar business, and they will usually be able to point you in the right direction. The second is to contact the secretary of state’s office in the state where the business will be launched. In most cases, they’ll be able to help you identify the federal, state, and local licenses that you’ll need. The third is to use one of the search tools available online. An example is the SBA’s Permit Me search tool, available at www.sba.gov/licenses-and-permits. This very useful search tool allows you to search by zip code and type of business for the licenses and permits that are needed to open a particular business.
The number-one rule is that if you’re uncertain, ask. Severe penalties can be levied if you start running a business without the proper licenses in place. The following is an overview of the licenses and permits that are required in the United States at the federal, state, and local levels for business organizations.
1. Federal licenses and Permits
Most businesses do not require a federal license to operate, although some do. Table 7.5 contains a partial list of the business activities that require a federal li- cense or permit, along with the federal agency to contact and its website address. Seemingly simple businesses sometimes require more licenses and permits than one might think. For example, if you prepare tax returns for others you are re- quired by the IRS to register and obtain a tax preparer tax identification number (PTIN). Similarly, if you make beer that is sold, you’ll need a federal permit and a state liquor license. You do not need a federal permit or a state liquor license if you make beer strictly for personal consumption.
2. State licenses and Permits
In most states, there are three different categories of licenses and permits that you may need to operate a business. Most states have start-up guides that walk you through the steps of setting up a business in the state. For example, the guide for starting a business in Oregon, called the Startup Toolkit, is avail- able at www.oregon.gov/business/Pages/toolkit.aspx. It provides step-by-step instructions for starting a business in Oregon.
Business registration requirements Some states require all new busi- nesses to register with the state. For example, the State of Oklahoma requires new businesses to complete a document titled “Oklahoma Business Registration Application” prior to commencing business. The purpose of the document is to (1) register the business, (2) place the business on the radar screen of the tax authorities, and (3) make sure the business is aware of and complies with cer- tain regulations, such as the need to withhold state and federal taxes from the paychecks of employees. The best way to determine if your state has a similar document is to ask a business owner or contact your secretary of state’s office.
Sales Tax Permits Most states and communities require businesses that sell goods, and in some cases services, to collect sales tax and submit the tax to the proper state authorities. If you’re obligated to collect sales tax, you must get a permit from your state. Most states have online portals that make it easy to obtain a sales tax permit. For example, if you are opening a business in Texas, you can obtain your Texas Sales Tax Permit at www.window.state. tx.us/taxpermit/.
Professional and Occupational licenses and Permits In all states, there are laws that require people in certain professions to pass a state ex- amination and maintain a professional license to conduct business. Examples include barbers, chiropractors, nurses, tattoo artists, land surveyors, and real estate agents. There are also certain businesses that require a state occupa- tional license or permit to operate. Examples include plumbers, daycare cen- ters, trucking companies, and insurance agencies.
3. Local licenses and Permits
On the local level, there are two categories of licenses and permits that may be needed.
The first is a permit to operate a certain type of business. Examples include child care, barber shops and salons, automotive repair, and hotels and motels. Many cities have quirky requirements, so it’s important to check, prior to launch- ing a business, if a specific permit is required. For example, in Atlanta you need a permit to operate a business that involves billiard or pool rooms. In Baltimore, you need a permit to operate a dance academy.
The second category is permits for engaging in certain types of activities. Examples include the following:
■ Building permit: Typically required if you are constructing or modifying your place of business
■ Health permit: Normally required if you are involved in preparing or selling food
■ Signage permit: May be required to erect a sign
■ Street vendor permit: May be required for anyone wanting to sell food products or merchandise on a city street
■ Sidewalk café permit: May be required if tables and chairs are placed in a city right-of-way
■ Alarm permit: Sometimes required if you have installed a burglar or fire alarm
■ Fire permit: May be required if a business sells or stores highly flammable material or handles hazardous substances
In addition to obtaining the proper licenses and permits, if you plan to use a fictitious name for your business, you’ll need to obtain a fictitious business name permit (also called dba or doing business as). A fictitious business name permit allows a business to legally operate under a fictitious name, like Gold Coast Sea Food or Red Rock Bakery. Selecting a name for a business and obtaining a fictitious business name permit if needed is an important task, not only to comply with the law but because a business’s name is a critical part of its identity and its branding strategy. It’s also one of the first things that people associate with a business. Appendix 7.1 contains a set of guidelines and sug- gestions for picking a business’s name. As illustrated in the appendix, it is im- portant that a business choose a name that facilitates rather than hinders how it wants to differentiate itself in the marketplace.
Finally, all businesses, other than sole proprietorships that do not have employees, are required to obtain a Federal Employee Identification Number (normally called the Employer Identification Number or EIN). The easiest and quickest way to obtain an EIN is to go to www.irs.com and click on Apply for an EIN Online. A business’s EIN is similar to an individual’s social security num- ber. It is used by the IRS to track the business for tax compliance purposes.
Source: Barringer Bruce R, Ireland R Duane (2015), Entrepreneurship: successfully launching new ventures, Pearson; 5th edition.