Starting and running your own business can be a very enriching and exciting venture—as long as it’s done right. Individuals who want to start home-based businesses are often so eager to get underway that they forget to get all the requisite licenses and permits to legally operate.
Forgetting to do this can cause major problems in the future and the last thing you want is to get your business up and successfully running, only to have it suddenly shut down because you lack a necessary permit. It’s well worth the (required) time and (minor) investment to make sure you have all your business licensing squared away right from the start.
Specific licensing, permit, and zoning regulations vary based on the locality, so it’s important to check with the Small Business Administration (SBA) to obtain specific requirements for your state. However, the basic licensing and permit requirements are fairly consistent from one state to another. Here are the five you need to know about.
- Check off all your regulatory boxes to ensure you can operate your home-based business legally.
- Licenses and permits are issued by government agencies but permits tend to be more restrictive than licenses, which are more long-term in nature.
- You’ll need a business license regardless of the type of company you operate.
- Permits for professional services and for health and safety may be required if you offer certain services, such as advisory services or if you have flammable products in your home.
- You are responsible for a sign permit if you intend to advertise on your property and you may need a separate sales tax license if it’s not included in your business license.
License vs. Permit
Before you start anything, you’ll probably want to understand how the licensing and permitting process works. Many people often mix the two up and their definitions are often blurred, but licenses and permits are actually two different things.
Licenses are issued by government agencies. They are a type of legal contract that allows holders to conduct actions that are otherwise prohibited to those without them, such as driving a car or running a business. Driving a car without a license is illegal and running a business and providing people with professional services is forbidden. These actions are regulated by the issuing government, normally at the state level. The corresponding agencies are responsible for issuing these licenses.
A permit, on the other hand, is a legal document that gives you permission to do something. For instance, if you have a license to run a cafe, your state and/or municipality may require you to get a building permit, which confirms that the building you intend to occupy is suited for your business. You’ll also need a food service permit if you have a kitchen from which you intend to serve food to your customers.
If you’re still unsure of the differences between the two, take a look at the following table:
|Licenses vs. Permits: What’s the Difference?|
|Expiration and Validity||Longer-term or permanent||Temporary and require frequent renewal|
|Limitations and Restrictions||Very few, if any||More restrictive than licenses|
|Style and Condition||Often permanent and may come in card form||Less permanent, such as a paper or sticker|
1. General Business License
Any business, including home-based businesses, must obtain a local city or county business license. This is a basic license that allows the holder to engage in business activities within the local jurisdiction. If your city or county doesn’t have a specific business licensing department, you can obtain information on obtaining a basic business license at your local tax office.
In addition to obtaining a general business license, ensure that your business complies with local zoning ordinances. Sometimes this is certified when you apply for your license, but in other areas, you need to double-check with the city or county zoning department.
Neighborhoods also tend to have restrictions on the operation of home businesses. You tend to find this in the form of homeowners associations (HOAs). If your business does not meet local zoning ordinances or neighborhood requirements, it is possible to obtain an exception or variance, but go through the proper channels to do so.
A license may be designated as a business tax certificate, reseller’s certificate, or license.
2. Professional License
Certain home-based businesses require state or federal professional licensing or certification. This includes ventures like daycare centers, hairstyling salons, legal services, or financial advisory services.
The best way to ensure you get the proper documents is to contact your state business office. You can also visit the official state website to obtain a list of all occupations or businesses that require professional licensing.
3. Health and Safety Permits
Depending on the type of business you intend to operate, you may need to get an inspection and a permit from the local fire department. This is commonly required if customers or clients actually come to your home to conduct business. It’s not usually necessary if your home-based business only provides goods or services online—unless you keep an inventory of potentially flammable products at your home.
Environmental licenses or health department permits are less common for home-based businesses. These documents are most generally required for businesses that engage in the wholesale or retail sale of food and beverage products. In any event, it’s easy enough to check with state environmental protection agencies or local health departments to find out if your business requires any type of environmental inspection or permit.
Operating a business without a proper sales tax license is a criminal violation in some jurisdictions.
4. Sign Permit
If you plan on putting out a sign where you live to advertise your business, make certain that you are in compliance with all local ordinances. Nearly all cities or counties have specific sign ordinances in effect that govern the size, type, and location of business signs. The lighting of signs is also usually restricted. Many HOAs, condos, and apartment complexes have their own restrictions on commercial signs.
If you own your home, look over your deed and check with your HOA if you have one. If you rent, it’s always a good idea to get permission from your landlord before you put out any signage.
5. Sales Tax License
A sales tax license may be part of the general business license in some areas. But a separate sales tax license is required in other areas in addition to a local business license.
Not sure if you need a separate tax license? The local department from which you obtain a business license can tell you if you must obtain a separate sales tax license and where to get it at either the state or local level. Make sure that you have this covered before you open your business.
While the licenses and permits listed above are needed by almost all home-based businesses, the following are some of the other documents you may need. Whether these are required depends entirely on the type of business you intend to run.
- VAT Tax License: If you sell goods and services to foreign consumers, you may be required to get a special license for the reporting and payment of value-added taxes. You may also use a payment service that collects the tax for you.
- Health Department Permit: This special permit is for anyone who runs a food-based business, such as a catering service. It outlines food handling, preparation, and storage.
- Employer Identification Number (EIN): This is required at the federal level. The EIN acts like a Social Security number, which you need if you aren’t operating as a sole proprietorship. This allows you to file your taxes under your business name. If you have employees, you can use this number for payroll purposes.
Remember, this isn’t an exhaustive list. Be sure to check with your state and local agencies to ensure you have the proper documents to run your business. You can also contact the SBA for additional resources.
Do You Need to Register a Home-Based Business?
You need to register most home-based businesses at the local, state, and federal levels. Begin by registering at the state level, which entails providing the appropriate agency with the pertinent details like the kind of business you intend to operate. You’ll also need to register it with the local government, which will provide you with any necessary permits needed so you can begin operations. You will have to register with the IRS for taxation purposes.
How Do I Register My Home Business?
Register your business with the appropriate state agency in order to get your business license so you can begin operations. Check with the local and county agencies to see which permits, if any, that you need to run your home-based business. You’ll also have to get a taxpayer identification number (in some cases, you can use your Social Security number) so you can file your business taxes with the iRS.
What Are the Licenses Required to Open a Home Business?
Almost all businesses require a general business license in order to operate, whether that’s from an office or from home. Certain businesses need professional licenses, such as those that offer professional services like daycare, hairstyling, and financial advice. You may require a separate sales tax license if your state doesn’t include it with your business license. Be sure to enquire whether you need one when you apply for your business license.