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Session 6: Business License & Permits

OBJECTIVE: Choose a suitable and available name for business and then research which licenses and permits will be required. This session reinforces the need for finding a lawyer whose practice is focused on business and then discovering what licenses and permits are required for your specific business.

      Licenses and permits

First Things First

While some of the issues regarding licenses, permits, and business names can be handled alone, some matters (including establishing your business and brand names) may require the help of a lawyer. So before you start, it's a good idea to line up a lawyer whose practice is focused on business. A good way to find a lawyer is to ask for recommendations from your accountant or business acquaintances. If you're not sure about needing help on an issue, ask your lawyer about it first. Your investment in legal fees now can help you avoid much bigger problems at a later date.

If you're buying a business, keep in mind that all licenses and permits will also need to be acquired. For details, please visit our session 12, buying a business, in the Building My Own Business course.

Licenses & Permits

Local Licenses and Permits Do I need any licenses?
The answer is most likely "yes". Without this, you may be conducting business illegally. Just about all businesses need a county or city license. There may be local, county, state, and or federal licensing requirements, depending on the type of business you select. The fees associated with getting a license are typically minimal, if any.

Local Licenses and Permits:

  • Your local licensing requirements can and will vary. Some examples of these variations are the following:
  • You may need a zoning compliance permit before you can open for business. Make sure the space you own or lease is properly zoned for the specific type of business you select.
  • You may need a special license if you're conducting business out of your house, a beauty salon for example. Please see session 3 Home based businesses to see which businesses work best out of the home.
  • Are you planning on remodeling your space? You may need to get a permit, so you will want to check the building codes first.

John Powers Attorney-at-Law John Powers
Attorney-at-Law
Play Video
You're the former mayor of La Habra Heights in California. Do you have any comments on what issues a starting business person needs to check out at city hall?
State Licenses and Permits:
There are certain businesses and professions that require a state license. State licenses are often required for the following occupations:

  • accountants
  • appraisers
  • auctioneers
  • barbers
  • bill collectors
  • building contractors
  • cosmetologists
  • private security guards
  • private investigators
  • real estate agents

Your state may require you to have special licenses if you sell certain products such as firearms, gasoline, liquor, lottery tickets, etc. You can check with your local and state government to see if your business will require any special licenses. For listings of state websites see our "Resources" section below.

Federal Licenses and Permits: For a very small number of businesses, federal licensing is a requirement. In businesses that are highly regulated by the government, federal licensing is typically required. Examples include

  • Broadcasting
  • Drug manufacturing
  • Ground transportation
  • Investment advising
  • Manufacturing tobacco, alcohol, or firearms
  • Preparing meat products
  • Selling firearms

Where do I go to get a license?
The best place to start is your local city hall or courthouse. See the city clerk, who should be able to direct you. You can also phone the city or county clerk's office with questions, or look in your local phone book under municipal government offices. Try a search online for "Your city hall" on Google or Yahoo local searches to find the Web site for your local city hall.

How about working from home?
Investigate local zoning ordinances covering home based businesses. Some residential neighborhoods have strict zoning restrictions that may prevent you from doing business out of your home. Yet, it may be possible to get a variance or conditional-use permit. In many areas, attitudes toward home based businesses are becoming more supportive, making it easier to obtain a variance. Condominiums and planned communities may have bylaws that could affect your ability to do business out of your home.

Resources:

Business Name or DBA (Doing Business As)

What is a DBA?
A "DBA" (also known as Doing Business As, or as a Fictitious Business Name) is the legal name, other than the owner's name, you decide to give your business.

Establishing a DBA Do I need to have a DBA?
The answer is probably "yes," and you definitely want to take the time to find out. Most states require that you get a DBA. Sole proprietors and general partnerships operating their businesses under fictitious and or assumed names may need to apply for a DBA certificate in the county where the business is physically located. You will not be able to enforce any contracts you sign under your business name unless the name legally belongs to you. Another important point is, unless you register your DBA, other businesses will not know that you exist and may take the name.

What are the benefits to establishing a DBA?
Here are some of the more important benefits to establishing a DBA:

  • Operate and advertise under your business name.
  • Prevent other businesses from using the name within your state.
  • Operate with a bank account under your business name.
  • Accept checks written out to your business name.
  • Gain a more professional image.

Stan Henslee CPA Stan Henslee
CPA
Play Video
What other business topics would you recommend for someone going into business without business training?
What is the process of getting a DBA?
Contact or visit your local county clerk's office and ask about the specific requirements and fees. There typically is a small registration fee. The county clerk's office will often conduct a complimentary name search for the intended business name to make sure it's not already taken. There are several online resources available to conduct searches on your intended business name as well.

Some states may require you to place a fictitious name notice in a local newspaper for specified period of time. The costs for this are usually small, and the newspaper may even file the necessary papers with the county. Consider checking with different local newspapers to see what they offer.

For the majority of states, corporations are not required to file fictitious business names unless they do business under names other than their own. The incorporation documents have the same effect that fictitious names filed for partnerships and sole proprietorships do.

Banking Under Your Business Name
The vast majority of banks will not allow you to open a bank account unless you have shown them proof of a filed DBA. It is important to have a business bank account so that you can accept payments written out to your company name. You may consider checking with different banks to see the differences in services they will offer you and the requirements they have to set up a business account.

Trademark Business Name Should I Trademark My Business Name?
You are not required by law to do this but registering your name as a trademark is always a good idea. It provides you with protection in case another business tries to use your business name or a name that is likely to be confused with your business name. It may be smart to file an application for a federal trademark if your company is doing business in several states. Run a search with the government or through a service to determine if your name is taken.

Resources:

  • U.S. Patents and Trademark Office
  • How to Name Your Business - What's in a business name? Plenty. Not only must your name reflect your brand and be memorable, there are also a host of legal issues to consider. Here's how to choose a name that'll best suit your business.

Seller's Permit

What is a seller's permit?
Sometimes a seller's permit is called a "certificate of resale" or a "certificate of authority." This permit lets you collect sales tax from your customers, which you in turn pay to the state. Keep in mind that a seller's permit is different from a business license. Are you engaging in retail sales? If the answer is "yes", then you probably need to register for and get a sales tax license or a seller's permit. You still would need this permit if you are also selling goods that are exempt from state sales tax. If you are selling both products and services, it is important you keep sales organized separately. Sales of services are not usually taxed in most states. Sales tax is imposed at the retail level and will vary depending on your state.

Where do I get a seller's permit?
You can register for a sellers permit through state's Board of Equalization, Sales Tax Commission, or Franchise Tax Board. The following is a useful link from the Irs.gov website to help you locate the appropriate offices in your state.
IRS.gov - Register Seller's permit

Employer Identification Number (EIN)

Eddy Chavey Independent Web Designer Eddy Chavey
Independent Web Designer
Play Video
What would you recommend to those starting out a business that still has a day job?
What is the importance of an EIN?
An Employer Identification Number (EIN), also known as a federal tax ID, is similar to a social security number for your business. This nine-digit number is important because it allows you to identify your business on important government forms and official documents. Oftentimes, wholesale distributors require either a federal tax ID or a seller's permit from a retailer.

Do I need an EIN?
You are required to have an EIN in some, but not all circumstances. We recommend you get an EIN instead of using your social security number. It is safer to give out your EIN than it is to give out your personal social security number. There is no fee for receiving this from the IRS. A benefit to having an EIN is that it can help you establish credibility with whom you do business.

An EIN is required if

  • Your business has employees.
  • Your business is a Corporation or a Partnership.
  • You file any of these tax returns: Employment, Excise or Alcohol, Tobacco and Firearms.
  • You withhold taxes on income, other than wages, paid to a nonresident alien.
  • You have a Keogh plan.
  • You are involved with: trusts, IRAs, exempt organization business income tax returns, estates, real estate mortgage investment conduits, nonprofit organizations, farmers' cooperatives or plan administrators.

If you provide health insurance for your employees, you may need a National Standard Employer Identifier (NSEI) for your electronic health transactions.

Useful Web site - aspe.hhs.gov/admnsimp/faqemp.htm

How do I apply for an EIN?
Fortunately the Internal Revenue Service makes it very easy to apply. You can apply by phone, fax, mail, or online. Please have a look at the links to the IRS website below. It is important to note that your business may also need to acquire a tax identification number from your states department of revenue or taxation.

Resources:

Business License and Permits Checklist:

Permit Checklist:

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Suggested Activities

  1. Research your intended business name to make sure it is not taken.
  2. Determine if it will be to your benefit to pursue a trademark for your business.

Top Ten Do's and Don'ts

THE TOP TEN DO'S
  1. Determine if you need a zoning compliance permit.
  2. Verify with your health insurance carrier if you need a National Standard Employer Identifier.
  3. Check on the zoning laws for your business location.
  4. Check if you need a special license to do business out of your home
  5. Check to see that the business name you have chosen is not already taken.
  6. Get a DBA by going to your local county clerk's office.
  7. Get a business license and a federal tax ID number.
  8. Open a business banking account in your business name.
  9. Get a seller's permit if you need one.
  10. Consider registering your trademark.
THE TOP TEN DON'TS
  1. Go into business without a business license.
  2. Start building without a building permit.
  3. Proceed without first consulting with a business attorney.
  4. Use your social security number as your tax ID number. Get an EIN number instead.
  5. Choose a business name without first checking to see if it is taken.
  6. Begin business without verifying zoning requirements.
  7. Operate under your business name until you have successfully filed for you DBA.
  8. Forget to check if your business requires state and/or federal licensing.
  9. Use your personal checking account for your business.
  10. Fail to collect sales taxes when required.

Business Plan for Session 6: Licenses and permits

We heartily recommend that you download the individual business plan template for this session and complete it now:

Section 6: Licenses, Permits and Business Names
doc MS Word

Instructions on filling in the business plan template:

  1. Each box has a permanent title in CAPITAL LETTERS.
  2. Below each title is a sentence starting with an "Insert here" sentence. This will suggest information to insert. The boxes will expand as you take up more room so use all the space you need.
  3. After completing each box, delete the "Insert here" sentence, which will leave only the permanent title of the box and the information you have inserted.
We suggest that you fill in each section of the business plan
as you proceed through the course.

The full template for all sessions 1-15 can also be downloaded into your computer as a single document:

Section 1-15: (Full Business Plan Template)
doc MS Word

Include sufficient research findings and background materials. Make it interesting by the use of background data, your biography, charts, demographics and research data. When your business plan is completed, print off and assemble the 15 sections.

Many other business plan formats are available in libraries, bookstores and online.

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