How to Apply for a Small Business License

One of the very first things to do when starting a small business is to register to do business legally in your state. While every company must be registered, the types of small business licenses and permits vary depending on the location and type of your business.

In some places, you may not need to apply for a business license until you reach a specific revenue threshold. In other areas, you might need to register your business before you sell anything. However, there are benefits to obtaining your license. For instance, this process also allows you to claim tax deductions. It also makes you seem more professional and gives your business more credibility, which can be crucial when you're looking for new partners or financing.

In this article, we'll be covering how to get your business correctly licensed. Let's get legal.

Sole Proprietorship or LLC?

The first step in registering your business is to determine what business structure you'd like to file as a sole proprietorship or a limited liability corporation (LLC). These are the two most popular small business structures, and there are positives and negatives with each to take into account. Typically, the benefits of a sole proprietorship include its simplicity and low cost. In contrast, the benefits of LLCs include their flexibility and liability protections. The best business structure for you will depend on your business' specific circumstances.

The sole proprietorship is the purest business form under which one can operate a business because a sole proprietorship is not a separate legal entity. Instead, it refers to the person who owns the company and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner, or it can do business under a fictitious name or DBA (Doing Business As).

The sole proprietorship is popular due to its simplicity, ease of setup, and small cost. All it takes for a sole proprietor to be ready for business is to register their name and secure local licenses. One disadvantage, however, is that the owner of a sole proprietorship remains personally liable for all the business's debts. So if your business runs into financial trouble, creditors can bring lawsuits against the business owner. In other words, if your business runs out of money and you have debts to pay, they can come after your house and personal assets.

An LLC is slightly different because, with an LLC structure, the business owners are not personally liable for the company's debts or liabilities. An LLC can be formed by a sole business owner, or by a group of partners who are starting a business together.

The sole proprietorship is popular due to its simplicity, ease of setup, and small cost. All it takes for a sole proprietor to be ready for business is to register their name and secure local licenses. One disadvantage, however, is that the owner of a sole proprietorship remains personally liable for all the business's debts. So if your business runs into financial trouble, creditors can bring lawsuits against the business owner. In other words, if your business runs out of money and you have debts to pay, they can come after your house and personal assets.

An LLC is slightly different because, with an LLC structure, the business owners are not personally liable for the company's debts or liabilities. An LLC can be formed by a sole business owner, or by a group of partners who are starting a business together.

Forming an LLC is a little more involved than forming a sole proprietorship, but still a relatively simple process. First, you'll want to name your LLC, and be sure to check your unique proposed name before going to file. Also, you'll need to choose a registered agent. A registered agent could be you if you're a single-member LLC, or one of your business partners if there are multiple members of the LLC. Keep in mind that the IRS considers single-member LLCs as sole proprietors when it comes to taxation.

What Information Do I Need File My Business?

Once you have determined your business structure, you'll need to prepare the necessary documents and information about your business to register for a license.

Aside from the business name and location, you'll also need details about your business' organization, structure, and directors. For example, a new LLC that is registering for its license will need to submit its Articles of Organization, which is a simple document that describes the basics of your LLC. It includes business information like the company name, address, member names, and the registered agent. A new LLC will also need to submit an Operating Agreement, describing the structure of your company's financial and functional decisions. It defines how critical business decisions are made, as well as each member's duties, powers, and responsibilities.

Specific types of businesses require additional business licenses beyond the one needed to form the company. For example, an electrician may need a contractor's license, and a nail salon may need a business license from the department of health. Each state also sets these requirements. To find out what licenses and permits are required in your state, visit the SBA website. This resource can tell business owners what licenses they need to obtain and where they should go to register. In many cases, business owners can apply for their licenses online.

If your business is online, such as an e-commerce site, or if you are working from home, there is a chance you will have to go through a zoning review. A zoning review is verifying that you can run a business from your home. You wouldn't want a noisy business in the apartment next door, or someone across the street shipping packages all day, so specific regulations are required. There are several things you should keep in mind, such as your area's zoning laws and restrictions. However, if you aren't going to be disturbing your neighbors or increasing traffic to and from your household, you shouldn't have to worry.

What Does It Cost to File your Business?

The cost of applying for a business license varies by state and by how you're registering your business. For example, LLC filing fees range from $50 to $500, and among all states, the average cost to file is $127.

It is best to search for filing fees yourself as they are subject to change—searching, "small business filing fees (insert your state" should help you find the answer.

Registering your business should be a relatively straightforward process, provided you have all the proper information. If you're unsure about any aspect of getting your business registered, it's always a good idea to use the SBA website (sba.gov) as a resource. Small Business Mentor can also help assist you with this process.