Small Business Taxes & ManagementTM--Copyright 2005, A/N Group, Inc.
Do you need a business license? That's a question many readers have asked. Unfortunately, there isn't a single, clear answer. It depends on how you're doing business (sole proprietorship, corporation, etc.), what business you're in, and where you're doing business. While we can't give you a simple answer, we can give you some insight that should help. The discussion below doesn't include references to federal rules. There are few requirements on the federal level and most small businesses either won't encounter them or should know about them (e.g., if you're opening an air taxi service you should know the requirements).
How You're Doing Business
The simplest situation is a sole proprietor operating a consulting business under his or her own name. For example, you provide services to businesses as a computer consultant. The only name you use for your business is Fred Flood, Computer Consultant. You probably don't need a business license (but read below).
On the other hand, if you're operating the same business as Madison Computer Consultants, that's an "assumed name" and in most states you'll have to register with the state or each county in the state in which you plan on doing business. There will probably be a fee to register in each county. You may also be required to put a notice in the local paper of record. Typical one-time fees range from $35 to $85 per county. If you're doing business in only one or two counties, this probably isn't much of a problem. If you intend to do business in a number of counties, this can quickly become a paperwork nightmare unless your state has a procedure for registering in multiple counties at once. (There's usually a "quantity discount" for multiple registrations.) Check your state's website (see our links to the Secretary of State at www.smbiz.com/sbrl041.html), your local chamber of commerce, or an attorney.
The second most likely business entity choice is an S or C (regular) corporation. The first step is to incorporate. (An S corporation starts as a regular corporation, then makes a special tax election at the federal and state level.) You'll have to file Articles of Incorporation (or similar paperwork) with the state. (Again, check your state's website.) You may be able to do it yourself, use a service, or have an attorney prepare the documentation. While it's often somewhat more expensive to incorporate, you don't have to register the name (since it's not an assumed name) with the individual counties. If you do business in another state other than the one you incorporated in, (e.g., you incorporate in New York but open an office in Massachusetts), you'll have to register as a foreign corporation in that state. In addition, if the corporation intends to do business under a different name (e.g., Madison Inc. is the legal name of the corporation, but you want to do business as Chatham Computer Consulting Co.), you'll have to go through the same steps a sole proprietor would and file in the various counties.
If you do business as an LLC or partnership, the rules vary more. In many states all that you need do is file Articles of Organization as a partnership or limited liability company with the state. Like the corporation example above, you only have to file for an assumed name if the LLC is using a name different than its legal name. But some states require a much more involved procedure. Check your state's rules.
If your state imposes a sales tax, you'll have to register to collect sales tax. That's usually pretty easy to do, but failing to do so could be costly. Many states allow you to register online. Check our state link for a quick link to your state.
State Occupation Licenses
Even if you've incorporated, are an LLC, etc. you, or the employee performing the service, may have to have a state occupation license. Some licenses are almost universally required--doctor, nurse, barber, etc.--but many more depend on state law, which can be very quirky. We've included a list of the more frequently encountered ones that aren't as obvious as doctor, lawyer, CPA, etc. Here's a sample:
Apartment information vendor and sharing agent
Appearance Enhancement (cosmetology, nail specialist, etc.)
Armored Car Carrier/Guard
Liquor Store, Bar
Motor Vehicle Damage Appraiser
Motor Vehicle Sales/Repair
Real Estate Appraiser
Real Estate Broker/salesperson
Security or Fire Alarm Installer
Some licenses require only an application and a fee; some require a test; some have specific education requirements. In general, if you can harm the general public (e.g., through food, medical care, etc.), there's a good chance you need a license. See below.
Local Occupational Licenses
In addition to a state license, you may also need a local license. These can be even more quirky than state ones. If you're selling door-to-door or from a pushcart, you may need a peddler's license. Plumber's, electrician's and contractor's licenses are usually issued by the town or county. Many localities require home improvement contractors to be licensed. Tow truck operators are often licensed locally, as are limousine and taxi services, etc. Check with your local town hall or county offices.
General Business Licenses
A town can require a business license for certain or all operations within an area. It's not unusual for a town or county to require a license to open a restaurant, bar, stable, auto repair shop or dealership, salvage yard, manufacturing operation, etc. The premises of most stores open to the public often have to be inspected for safety reasons. There may be restrictions on the storage of flammable materials, chemicals, etc. Trash containers may need a permit from the town (if you're renting a dumpster, that's most likely handled by the carter). Many towns have restrictions on signage. That is, they can restrict the size, type, distance from the road, etc. of any business signs. Make no mistake about it, local ordinances can be the most restrictive. You should be especially careful if you intend to operate out of your house.
Virtually every town has some zoning laws. Before committing to a building, be sure you can use it for the intended purpose. Retail and professional use is generally the least restrictive. Restaurants and food service businesses are usually more restrictive. Restrictions on service businesses vary depending on the use. Electronics repair will be less restrictive than auto repair. Manufacturing is usually the most restrictive. And be sure to check the definition of manufacturing. Nailing pickets onto two-by-fours to create a fence can be viewed as manufacturing. Parking availability can be subject to strict requirements.
Copyright 2005 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject.--ISSN 1089-1536
--Last Update 06/14/05