Small business owners are no strangers to government regulations. There are many requirements that businesses must be aware of and comply with, including business license and permit rules.
Most businesses must obtain licenses or permits, so it is important for each business to know which ones it needs. Business operations are regulated at the federal, state, and local levels. Each may have its own licensing and permitting requirements—and fees—depending on the particular business’s activities, industry, and location.
Failure to comply with these regulations can lead to serious consequences, including forced closure in some circumstances. To operate legally and avoid risks, owners must identify and obtain all licenses and permits required for their business.
Licenses Versus Permits: Understanding the Difference
Licenses and permits can be issued at the local, state, and federal government levels. Although the terms are sometimes used interchangeably, licenses and permits are not identical.
Licenses
The US Chamber of Commerce explains that a government agency issues a license as permission to do something or use something.[1] For example, the Department of Motor Vehicles issues driver’s licenses. Licenses are also issued to professionals such as doctors, lawyers, cosmeticians, plumbers, and electricians.
Licenses generally have terms and conditions attached to them. Typically, the government only issues a license after the applicant has taken a test that demonstrates their aptitude in a particular area and their understanding of applicable rules and regulations. Licenses are granted indefinitely (subject to renewal) but may be canceled if the license holder breaks the rules.
Permits
Permits can be thought of as a type of license that allows a business to engage in a specific activity often related to public safety. Governments may issue permits after an inspection, such as a health department inspection of a restaurant or a fire department inspection of a commercial space. The issuance of the permit shows that the business is compliant with the relevant laws or local ordinances.
Not all permits require an inspection. Some, including a sales (i.e., seller’s) permit, may simply involve registering with the appropriate government agency (e.g., the Taxation and Revenue Department) and obtaining an identification number for sales tax payments. Like licenses, permits can be revoked for violations of terms.
Determining License and Permit Requirements
Most small businesses need to acquire a combination of licenses and permits from both state and federal agencies.[2] Actual requirements vary by the type of business, its location, and government rules.
If your business activities involve an industry that the federal government regulates, such as agriculture, alcoholic beverages, aviation, fish and wildlife, and mining and drilling, you will need to obtain a license or permit from the relevant federal agency. However, you may need to get a license or permit from a state agency if your business activities are among the wider scope of industries regulated by the states, such as construction, dry cleaning, restaurants, and retail stores. The sale of alcoholic beverages and some other business activities may be regulated at both the federal and state levels.
Some licenses and permits must be obtained from local government entities, such as the city or county. General business and operating licenses, health and environmental permits, and signage licenses or permits are among the local government certificates a business may require.
How to Apply for Business Licenses and Permits
After determining which licenses and permits you need, the next step is to submit applications to the correct agencies. Along with sending paperwork, you may need to pay a fee.
Business licensing and permitting fees differ across states and industries. The cost may vary widely: for example, the US Department of Agriculture charges $120 for an Animal Welfare Act (AWA) license that lasts three years,[3] but the Bureau of Land Management has a filing fee of $10,900 for permits to drill on federal oil and gas leases, valid for two years or until the lease expires.[4] Most states charge around $50 to $200 for a new business license[5].
Business License and Permit Compliance
Noncompliance with license and permit requirements could lead to civil fines, criminal charges, and the closing of your business. Home-based businesses should assume unless informed otherwise that they are subject to the same regulations as brick-and-mortar businesses.
Failure to renew a business license on time could lead to a small late fee, while on the other end of the spectrum, a doctor caught practicing medicine without a license could be criminally prosecuted and have their business shuttered. It is in your best interest to handle licenses and permits by the book. Once you receive the proper authorizations to operate, it is important to keep a list of renewal dates, since it is usually easier to renew a license or permit than to apply for a new one.
To make sure your business starts out with all the right licenses and permits—and remains in compliance—consider working with a local attorney on research, applications, management, and renewals. Do not let a failure to acquire the necessary license or permit derail your business plan. Get in touch with our small business lawyers to find out how we can help.
[1] Starting a Business? A Guide to Business Licenses and Permits, US Chamber of Com. (Feb. 25, 2019), https://www.uschamber.com/co/start/startup/business-licenses-and-permit-guide.
[2] US Small Bus. Admin., Apply for licenses and permits (May 26, 2023), https://www.sba.gov/business-guide/launch-your-business/apply-licenses-permits.
[3] USDA, Animal and Plant Health Inspection Serv., Licensing Rule (Mar. 6, 2023), https://www.aphis.usda.gov/aphis/ourfocus/animalwelfare/sa_regulated_businesses/licensing-rule/licensing-rule.
[4] Bureau of Land Mgmt., Annual Statutorily Required Increase in Filing Fee for Processing Fiscal Year 2022; Applications for Permit To Drill, 86 Fed. Reg. 58095 (Oct. 20, 2021), https://www.govinfo.gov/content/pkg/FR-2021-10-20/pdf/2021-22777.pdf.
[5] Dana Miranda et al., How to get a Business License in 5 Steps, Forbes Advisor (May 3, 2023) https://www.forbes.com/advisor/business/how-to-get-a-business-license/.
