Do you need a business license?

May 20, 2014

When you are starting a business, it can be hard to keep up with all the legal obligations. Most small business owners want their operation to be legit, but the challenge is you may not even know which legal obligations you are missing.

At, we frequently get calls from new entrepreneurs asking just what they need to do from a legal perspective to start their business…do they need a license, do they have to register their business, and how? Here, I’ll break down the two key steps for making your business legit in the US, and they apply whether you are working from home or setting up shop in an office park or corner store.

What’s first: registering with the state

Before you can do anything else, you’ve got to register your new business with the state. In essence, this step provides a legal foundation for everything else to come. There are two different paths for registering with the state:

1. Filing a DBA for a sole proprietorship

The simplest way to register your business is to remain a sole proprietorship/partnership (the default business structure) and then register your business name via a DBA (Doing Business As). You can read more about this process here.

2. Creating a formal business structure by incorporating or forming an LLC

While more involved than the first option, this path offers the added benefit of protecting your personal assets from the liability of the business. If your business is sued or runs into some kind of financial trouble, the business will be on the hook (and not you personally). In addition, forming a corporation or LLC may lower your tax bill. If you’re interested in learning more or figuring out which business structure is right for your situation, check out the free Business Structure Wizard.

Next step: Getting your licenses in order

After your business entity is set up, it’s time to start thinking about any permits or licenses you need. While the first step sets up your legal foundation, licenses give you the right to operate your business. Whether you work from home or have an office/store, you most likely will need some kind of local license. Of course, the specific requirements will vary by your location and business type. As expected, a home contractor with employees will be more tightly regulated than a web designer.

There are numerous kinds of local permits and licenses that you will need to check out. The best way to make sure you have all your bases covered is to have a service research what you need for your business type/location. You can also contact your board of equalization offices directly; start at the state level and then move down to the county and city/town.

Here’s a summary of the potential licenses and permits you might need:

If your business is already in full swing, try to get your licensing requirements taken care of as quickly as possible. For a new business, you’ll want to get the paperwork in before you open your doors or start taking in revenue. Getting your permits and registration in order can be a relatively easy task. And, it will be far less painful to deal with the permitting upfront than having to face hefty fines (or even have your business shut down) if you are caught operating without the right paperwork.

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about the author

FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.

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