Before we look at the various business permits and licenses a company may need to consider, it’s worth to develop an un­der­stand­ing of the dif­fer­ence between an en­tre­pre­neur and a business owner. An en­tre­pre­neur is similar to a business owner in that both commonly start a business by them­selves. But the main dif­fer­ence is that en­tre­pre­neurs often launch their busi­ness­es based on an in­no­v­a­tive idea or service. The term orig­i­nates from the French “en­tre­pren­dre” which means “to undertake”. A good example is a person who develops a unique software product and attracts funding to launch a start-up. Business owners, on the other hand, could be anyone selling goods or services. A sole pro­pri­etor selling used books on Amazon is a good example of a business owner. The element of risk can be smaller for business owners because their ideas have often been tried and tested. The risks can be higher for en­tre­pre­neurs, but so are the rewards.

One doesn’t exclude the other though. You could start out as a business owner, for example operating a café, and later turn it into a franchise, taking on an en­tre­pre­neur­ial role.

De­f­i­n­i­tion

An en­tre­pre­neur is a person who starts a business carrying the full risks and re­spon­si­bil­i­ties for their start-up. Many en­tre­pre­neurs also operate multiple start-ups. The idea is that an en­tre­pre­neur solves a specific problem by de­vel­op­ing an in­no­v­a­tive solution.

But ir­re­spec­tive of the legal structure you choose, if you’re selling certain goods such as food, sup­ple­ments or alcohol, or provide services such as a day care, you must apply for a business license.

What are business permits?

Business permits are issued by state au­thor­i­ties to ensure that business operators comply with local laws. Pro­ce­dures to secure them can vary according to the state you operate your company from. Im­por­tant­ly, the state has the right to shut down any business that is not compliant with the law, i.e. where a business owner fails to show a valid permit.

Not every company owner will need to apply for a business license. If, for example, you’re a sole pro­pri­etor providing digital design services, you won’t need a special permit to conduct your business. However, if, for example, you sell food sup­ple­ments, the state will require your business to apply for a permit because sup­ple­ments can po­ten­tial­ly pose a risk to human health.

There are two ex­cep­tions: the District of Columbia and Penn­syl­va­nia, both of which require even small business owners to register online for a general business license. Many US cities require companies to register their business name (“doing business as”). If you’re using a fic­ti­tious name, you may be required to obtain a permit from your city for it.

The dif­fer­ence between a business license versus a permit

Although licenses and permits are very similar in nature, i.e. they give a business per­mis­sion to carry out a service or sell a certain product, there are subtle dif­fer­ences. A license is a more general term and gives a licensee per­mis­sion to carry out a certain intent. Licenses can also be given to people with spe­cial­ist skills, for example, psy­chol­o­gists usually need to qualify to obtain a state license to practice pro­fes­sion­al­ly. Permits, on the other hand, are related to safety standards. A restau­rant may need to obtain a permit to serve alcohol and food. Many busi­ness­es will have to obtain both, for example, a beauty salon must apply for a health permit and employ licensed prac­ti­tion­ers.

When do you need to apply for a business license?

Where your business ac­tiv­i­ties are overseen by federal or state agencies, you need to register for a business license. In many cases, you will be required to comply with federal laws as well as state reg­u­la­tions. You can search your state’s board of pro­fes­sion­al practice to find out if your business ac­tiv­i­ties require a license or permit.

Business ac­tiv­i­ties that require a license or permit, and cor­re­spond­ing federal and state agencies to obtain them from are shown in the table below.

Type of business Re­spon­si­ble federal agency
Agri­cul­ture – any ac­tiv­i­ties that involve animals or plants, animal products or their transport US De­part­ment of Agri­cul­ture
Alcohol – if you make, sell or import alcohol Alcohol and Tobacco Tax and Trade Bureau
Aviation – any business involving operation of aircraft or trans­port­ing goods via aircraft Federal Aviation Ad­min­is­tra­tion
Beauty and hair salons – any business providing skin or hair treat­ments Local Health Authority
Childcare – where a business provides day care from home or a spe­cial­ist facility US De­part­ment of Health and Human Services - Child Care Office
Com­mer­cial fishing National Oceanic and At­mos­pher­ic Ad­min­is­tra­tion Fisheries Service
Firearms – if you sell or import firearms or related products Bureau of Alcohol, Tobacco, Firearms and Ex­plo­sives
Fish and wildlife – a business that deals with fish or wildlife products US Fish and Wildlife Service
Food – home-based food busi­ness­es need to speak to their local health authority whilst those operating a food facility need to register with the Food and Drug Ad­min­is­tra­tion Local Health Authority and/or Food and Drug Ad­min­is­tra­tion
Gaming and casino – fa­cil­i­ties where gambling or gaming ac­tiv­i­ties take place Local Gaming Control
Maritime transport – if your business provides trans­porta­tion or cargo delivery by ship Federal Maritime Com­mis­sion
Mining – any company involved in drilling for gas or mining for natural resources Bureau of Safety and En­vi­ron­men­tal En­force­ment
Motor vehicle sales De­part­ment of Motor Vehicles
Nuclear energy – busi­ness­es that produce nuclear energy US Nuclear Reg­u­la­to­ry Com­mis­sion
Psy­chol­o­gy – a person that launches their own psy­chol­o­gy practice or related services Local State Board of Psy­chol­o­gy
Radio or TV broad­cast­ing Federal Com­mu­ni­ca­tions Com­mis­sion
Logistics – any business operating large vehicles US De­part­ment of Trans­porta­tion

Local business licenses

In addition to federal and state licenses, many cities in the US will have their own reg­u­la­tions and re­quire­ments. This is the case for special events, farmer’s markets, de­vel­op­ment projects and planning proposals, among others. For example, if you plan on making changes to property you own, you will need to apply for a permit from your city or local council.

Im­por­tant­ly, it doesn’t matter whether you conduct your business from your home or outside of it. Business and pro­fes­sion­al licenses are required depending on the type of activity your company carries out, not nec­es­sar­i­ly its place of business. However, reg­u­la­tions vary widely by location. There are, however, special licenses for your place of work, for example, food proces­sors will need a special permit to verify they are operating under sanitary con­di­tions.

What does a business license or permit cost?

The cost of a business license or permit depends on the type of license you are applying for and the state in which your business operates. Average business licensing costs can range from $50 up to $500. Liquor licenses are sig­nif­i­cant­ly more expensive ranging from $3,000 to $12,000. The fees to become a licensed psy­chol­o­gist range from $500 to $1,000 for the reg­is­tra­tion alone. There are also fees to sit exams. Meanwhile, a health permit for a food operator can cost between $800 to $5,000.

Many permits will also require renewal after a year or a set amount of time.

How do you apply for a permit or license?

Ap­pli­ca­tion pro­ce­dures will depend on the type of permit you’re applying for and whether you are pro­cess­ing your request online or offline. This will be largely dictated by the authority you’re applying to. Let’s look at an example.

Say you’re importing Swiss chocolate to the US to sell through your online business. Because they are food products they fall under the ju­ris­dic­tion of the US Food and Drug Ad­min­is­tra­tion (FDA). You must take the following steps:

  • Give prior notice to the FDA by filling out the relevant forms.
  • Ensure that any foods you import meet the following com­pli­ance stip­u­la­tions.
  • The FDA will verify that the foods you’re importing are safe to consume, sanitary, wholesome and pure, and contain English labels at the time of import. They may also take a sample from your chocolate and analyze it to ensure it is safe for eating. The FDA can withhold imports that don’t meet its re­quire­ments.

To speed up the import of food products, the FDA launched the Voluntary Qualified Importer Program (VQIP), which importers can apply for to avoid hold-ups at entry point.

When applying for a permit make sure to fill out all the required sections, submit any forms on deadline and pay all relevant fees. Otherwise, it may take longer for your request to be processed by the au­thor­i­ties.

Starting your own business is a chal­leng­ing endeavor, but if you un­der­stand the in­di­vid­ual steps involved and are well-prepared, the process can often be a little more fric­tion­less.

Click here for important legal dis­claimers.

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