If you are about to run a small business, you definitely should be aware of business licenses and permits which legalize your business operation in a jurisdiction.
Obtaining business licenses is one of the initial steps for starting a business. The requirements are different across jurisdictions. They also depend on business entity types and the business industry. Let’s define the term and see how to obtain a business license with BBCIncorp.
Table of Contents
1. What is a business license?
Entering a business in a jurisdiction requires a company to obtain a business license in most cases. A business license is the legal document issued by the government of the jurisdiction to grant the company the right to operate there.
Whether your company is a physical or online based business, a home-based or large scale one, you still need to get the licenses to legally run your business in the jurisdiction. Each place of legal domicile has different requirements in terms of business licenses and permits.
A company may be required to acquire more than one license or permit. Types of business licenses which your company must get may also depend on the business nature, products the company sells and the local government regulations.
Business licenses can be obtained after the registration of your business entity.
2. Why does your business need to obtain business licenses?
There are multiple reasons why businesses must obtain required licenses and permits.
Compliance requirement. Acquiring business licenses and permits is required by the government to collect the revenue, manage the business locations, and impose the restrictions in specific areas.
The acquisition of business licenses allows the local authorities to know what your company is doing. Therefore, they can impose specific regulations to prevent harmful actions to the public and other businesses. In addition, the government can track and collect the revenue by requiring business licenses from businesses for public benefits such as fundraising for schools, libraries, and disadvantaged groups.
Evidence of credibility. Becoming licensed is also a way to benefit your small business because it is a proof of your lawful business identity and credibility. Customers are more confident to deal with a licensed business to avoid frauds and legal issues.
Base for other procedures. Moreover, a business license makes it more convenient for your company to do some procedures such as opening bank accounts, business loans or merchant accounts, etc.
Sector-specific proof of approval. Business licenses are also used to regulate certain types of businesses that can operate certain types of sectors. For example, most governments forbid home-based businesses to manufacture fireworks, explosive or medical products, drugs, etc.
3. What are types of business licenses and permits?
Depending on the jurisdiction in which your business operates, type of business licenses and permits required by the government will vary.
In the US, the requirements are even different across the borders within the country. Typically, your business may be subject to obtaining business licenses or permits from three tiers of authority – State level, Federal level, and Local level.
In general, licenses and permits are classified into some main categories based on business industries, occupations, products, business operations, locations and other factors.
3.1 Business operating licenses
When a company engages its business in a territory, it must apply for a business operating license to grant the permit for doing business in the place. The licenses are issued by the country or city you are asking for the authorization of your business operations.
For instance, if your company operates in Singapore and Vietnam, you must apply for business operating licenses in both countries depending on their own regulations.
3.2 Planning and zoning permits
A planning and zoning permit grants your company the right to start your business in a geographical jurisdiction. Each location is usually zoned for certain types of business. For instance, a place which is planned and used for residential purposes is not meant for building a factory.
If there is a similar business currently operating in the place, you are most likely to have the permission to open your business there. You just need to make sure that your company meets the codes regulated by the local government and does not disrupt the character of the neighborhood.
3.3 Industry-specific licenses and permits
A jurisdiction may require your business to get a license for starting business in some specific business sectors. The regulations vary across country borders. Here are general guidelines for your business in determining if your company needs to apply for any of these licenses and permits.
Industry specifications. Most places require businesses to comply with licensing requirements to legally specify the operating industries. Below are key business sectors subject to business license application:
- Travel agency
- Medical care
- Beauty salons and spas
- Child care
- Cleaning and janitorial services
- Food and alcohol
- Pest control
Professional and occupational licenses or permits. For certain types of professions, you have to obtain a professional or occupational business license or permit for conducting the business. It is a way to prove that you have enough expertise to work in the field. To be more specific, if you want to start an accounting business, you must be a certified accountant. Or if you want to open a dentist office, you must get the dentist license.
Here are main professions that needs to be licensed:
- Real estate brokers
- Insurance agents
- Private security guards
- Private investigators
The department agencies will make sure that you are qualified for the business you are planning to operate. They will issue the licenses or permits to legalize the business. You will not be allowed to do the business if you don’t pass the licensing authorization.
Permits or licenses for selling specific products or services. For some products such as liquor, lottery tickets, gasoline or firearms, most countries require businesses to get additional licenses and permits before starting the business.
3.4 DBA (doing business as) license or permit
There are some companies which don’t operate under the official name but a trade name, fictitious name or assumed name. In this case, the companies must apply for a permit to use that name.
3.5 Other types
Environmental licenses. In some territories, they apply certain requirements to minimize the impact of industrialization to the environment such as air or water. For example, the Ireland Environmental Protection Agency (EPA) requires specified industrial and agricultural activities to obtain Industrial Emissions (IE) licenses.
Safety permits and licenses. For some businesses, the local governments will require the safety licenses for the operations. The licenses are to make sure the companies follow the standards to ensure the safety of customers, workers and the surroundings. The licenses are mainly compulsory to food supply companies, companies which sell flammable products and industries which are most at risk of workplace accidents.
4. How do you obtain a business license or permit?
Getting a business license should be made as the priority in to-do list for starting a business. For most jurisdictions, there are four main steps to get business licenses or permits. The detailed process can be different depending on the requirements across the country borders.
Determine what types of business licenses your company must acquire. When you have chosen the place where you are going to be operating your business and the business activity, it’s the time to determine types of business licenses you need to apply for. You can take a careful look at the official website of the chosen territory to make it clear. Or you can contact or visit the authority of the place to get the detailed instructions.
A single jurisdiction often requires multiple business licenses issued by different departments or parties. Keep track of the requirements to ensure lawful business operations.
Prepare documents for business license filing. After the determination of required business licenses and permits, you should compile carefully all appropriate documents needed for the application process.
Below are main documents for a business license application:
- A brief description of your business including
- the physical location
- the industry
- the planned activities
- Duplicates of certified corporate records such as
- certificate of incorporation
- corporate bylaws
- A proof stating your compliances with the jurisdiction’s requirements regarding the tax compliances and other legal regulations
For specific industries, your business must provide some specific qualifications demonstrating the expertise in the business sector such as educational or professional qualifications of owners and key employees.
File business licenses or permits. After preparing all documents you need, you can start to fill out and submit the application following the instructions given by the authorities. Each jurisdiction has its own system to proceed the filing. You can apply online or physically depending on the place’s requirements.
Maintain the licensed registration. Business licenses and permits usually have validation periods. They will expire after one year or three year or a certain period. It’s important to keep track of the periods to maintain or apply for a new one to keep your business operating lawfully.
Failing to obtain required licenses and permits may result in monetary penalties, criminal penalties or discontinuance of your business.
Recommended reading for common business licenses in Hong Kong, Singapore, the State of Delaware (US)
The process of business licensing is complicated and troublesome for most entrepreneurs because there is not only one license needed to get but two or more. A business operation without business licenses and permits is considered as illegal behavior. As a start-up business owner, it is advised to make a comprehensive understanding of the matter.
One thing you should keep in mind is that each jurisdiction has its own rules and regulations in terms of what types of business licenses and permits your business must get. Here is just a general guideline. Consult your legal expert or your trusted corporate service provider to know exactly what type of business license you should apply for.