Business Licenses and Permits — Legal Requirements

No matter whether you are interested in forming a cooperative or a corporation, one of the most important steps in starting a business is the process of procuring all of the necessary licenses and permits, as required by both federal and state laws. Making sure that you identify all the necessary legal hurdles for your business start-up can be confusing and time-consuming, but it is a fundamental part of ensuring the success of your enterprise.

Federal Licensing and Permit Requirements

Federal regulations are typically concerned with the potential broad impact of your small business on society, such as its financial impact and taxes, public health and transportation requirements, and responsible business practices. First and foremost, businesses must ensure that they properly register for payment of federal taxes, including obtaining an employer identification number for purposes of tracking taxes and filing applications for your relevant corporate status, such as an S corporation or non-profit corporation.

Second, if you will be opening your business to investment by other individuals, you may need to comply with certain federal securities regulations, which make sure that business owners follow proper procedures in order to protect investors. Not all businesses with investors are required to comply with federal securities regulations, so it is important to check with a qualified corporate attorney to determine what regulations may apply to you.

Finally, federal regulations also provide special protections for certain areas of business, or the effects that businesses may have. For instance, corporations that operate across state borders must abide by certain federal transportation regulations. Restaurants and food purveyors must follow certain health regulations, while factories and extractive businesses must abide by federal environmental regulations.

State Licensing and Permits

As with federal regulations, business owners must also comply with state tax requirements, including obtaining a state employer tax ID number, following proper employment tax requirements, and providing other mandated financial benefits, such as workers’ compensation and disability.

Most states govern the administration of professional licenses, which are a necessary requirement for individuals such as lawyers, doctors, teachers, and accountants who wish to establish practices within a state. State licensing requirements may also apply to various trade professions, such as mechanics or welders.

Most state laws also govern the application and registration of formal business status, such as applying for limited liability corporation status or registering as a partnership. State agencies will typically oversee these processes and will provide the necessary documents and instructions required in order to complete registration.

Local Licensing and Permits

For many businesses, the most extensive and complicated license and permitting processes will occur at the local level, when dealing with building ordinances, zoning requirements, building codes, and any other applicable municipal laws. If you wish to alter a business space to accommodate your new enterprise, or hope to obtain parking or outdoor seating, it is likely that there may be a local rule or regulation that will require you to follow certain permitting processes in order to make such changes. Since local requirements can be different in every community and are so wide-reaching, it is important that potential business owners carefully investigate the requirements that may apply to them, including reaching out to local city and county officials to discuss applicable licensing and permitting requirements.

Last reviewed October 2024