There are many things you need to take care of before you can open an online business. One crucial step that people tend to overlook is obtaining a business license.
While the process of preparing a business license can be confusing at times, you shouldn’t let it stop you from reaching your goal of opening an eCommerce store.
Read on to find out how to get a business license and the types of permits you will need.
- 1 What is a business license? Do you need one?
- 2 Other types of business licenses you may need to sell online
- 3 How to apply for a business license
- 4 conclusion
What is a business license? Do you need one?
All types of companies must have the appropriate licenses so that they can operate legally. In the eyes of the government, there is not much distinction between a normal physical store and an online store.
A business license is a government-issued certificate that allows people to run a business and usually must be paid for. In this way, the government can supervise companies operating within the specified jurisdiction.
Having a license protects your business from fines. Without a license, your state or city can stop your business until it meets all the requirements to have one.
That is why applying for a business license is one of the first things you should do. However, you may not need a business license in several specific areas until you reach a certain income threshold. In other words, make sure you stay informed about local laws.
Licenses are essential for the growth of your eCommerce. Having a legitimate business will help you acquire loans and partnerships more easily. Besides that, it allows you to claim some expenses like tax deductions.
Business license vs. seller’s permit
You may have also heard about the seller’s permit, also known as a sales tax permit or a sales and use tax permit.
Generally, if your goods and services qualify for sales tax, you must obtain a seller’s permit. With it, you can collect and remit taxes to your end customers.
While you have to pay to get a business license, it is free to obtain a seller’s permit. If you are looking to sell in a particular location for a shorter period, some states also provide temporary seller permits that last 90 days.
A seller’s permit also allows you to buy products from suppliers or manufacturers without paying taxes. If you have a resale certificate, you can start to wholesale or retail things online.
If you distribute to different states, you should know the sales tax nexus. This is determined by the total income you generate in each state with which you have a business or connection.
What business licenses and permits do you need?
Depending on the location, size, and nature of your online business, you may need some or all of the following licenses:
- Federal business licenses. This license is required if you sell something under the supervision of government agencies such as the Food and Drug Administration (FDA). Tobacco and alcoholic beverages, for example, are products that fall into this category.
- State business licenses. Generally, the state requires licenses for specific industries, such as a contractor’s license or an accountant’s license.
- Local business licenses. These include zoning permits, occupancy permits, and other licenses regulated by the city or country.
It is important to note that the rules on business licenses vary from state to state. For more information, visit the Small Business Administration (SBA) website.
The same applies if you sell internationally, as you will need to ensure that your business practices comply with the local laws of your destination country.
Business license requirements are not limited to just those selling in physical locations. Even if you run an online business from home, there are some rules that you must follow.
Many states, for example, require a home occupancy permit. You may also need a manufacturing permit if you are purchasing products yourself.
Read More about: Display the Last Updated Date of Your Posts in WordPress
Can you sell products without a license?
If you sell a limited number of products on your own, such as crafts or artwork, you do not need to purchase any licenses or permits.
However, if you engage in regular business activity without registering for the proper licenses, your online business is breaking the law and operating illegally.
As a result, you will receive a fine, the severity of which depends on the laws of your state and the business model.
Even if you try to apply for a license after such an incident, there is a chance that the government will not grant your application, prompting you to stop your operations.
Also, your business will lose its reputation. Dissatisfied customers can even generate lawsuits because you can no longer fulfill their orders.
What about online services?
Whether you sell products or provide services online, it is necessary to have a tax license. Be sure to check the tax rules in your state.
If they impose taxes on services, the cost will be approximately the same as for other taxable products.
Generally, you will also need a seller’s permit. Be careful with any other special licenses you may need.
For example, if your business works in the food industry, you may also need a food service permit, a health permit, and a manufacturer’s permit if you are producing food on your own.
You May also be interested in: How to Choose the Best Domain Name
Other types of business licenses you may need to sell online
Here are a few more types of business licenses that you should be familiar with.
Commercial operation license
To register your business online, you will need to submit an application and pay a small fee to a licensing division.
If you live in the US, remember that each state promulgates different regulations. You will need to check with your local City Hall or Secretary of State website to determine the requirements.
Generally, you must renew your business licenses annually or every two years. Remember to check the licensing authority’s website periodically to make sure your business still meets the requirements or else you could end up paying some fines.
Employer permits and licenses
If you don’t have employees and you are a sole proprietor, you can use your Social Security number for tax identification purposes.
However, if you hire employees, your business requires a federal Employer Identification Number (EIN) . This tax identification number identifies your company as a tax entity, ensuring that your company collects payroll tax and is compliant.
You can apply for an EIN on the International Revenue Service website.
Also, your business may need to apply for unemployment insurance and workers’ compensation. These permits are crucial to protect your workers.
Doing Business As License (DBA)
If you plan to operate your business under a different name than yours, you will need a DBA license. This license makes it clear to the government and customers who are behind the business.
In Los Angeles, California, for example, having a DBA is required to start a business.
A DBA is also required to open a business bank account and establish contracts.
If you want to file a DBA, go to the nearest county court. The cost of the form varies between $ 25 and $ 100.
An occupational license regulates various professions that require training and maximum competence since both infrastructure and people’s well-being depend on them.
This type of license affects several fields: from real estate, plumbing, medical services, financial planning, construction, transportation to food preparation.
To identify if you need such a business license, consult the National Occupational License Database.
Record of weights and measures
Businesses that involve weighing objects in their selling activities may require weights and measures permits.
Since the rules regarding this type of business permit are specific within each state and city, be sure to check with the appropriate authority.
How to apply for a business license
To apply for a business license, you will need to speak with your city planning representatives and apply for a zoning permit.
The relevant branches in your state and city will then conduct a zoning review of your business location. More complex licenses, such as physical and online combined business situations, may require in-depth inspections.
Therefore, you will need to ensure that you can operate your business without violating local zoning restrictions.
There are several requirements that you must meet before opening your business. These include a legal structure: sole proprietorship or limited liability corporation, a detailed record of business activities, a sales tax permit, and other necessary licenses.
You can fill out the form online or collect it manually. Once finished, you must send them to the corresponding department.
Generally, your license should be ready in a couple of days or weeks.
Licensing a business is critical to the success of your eCommerce, as it saves you from unwanted legal problems.
Other business permits that you will need for your eCommerce business are a seller’s license, a reseller’s permit, a tax license, etc. For home-based businesses, it is imperative to obtain a home occupancy permit.
Now that you know all about the licenses and permits required to start a business, nothing is stopping you from establishing one. Good luck developing your eCommerce store!