More than half a million entrepreneurs launch a business each year in the U.S., and many more are on the verge right now, gauging the market and sketching out plans. So what does it take to make the move from vision to working business? Once you've reached this stage, you'll need to plan for some of the nuts and bolts of business formation, including registering and licensing your startup.
You'll need licenses to start a business. Every business will have unique requirements, but the following checklist covers the basic types of licenses and registrations entrepreneurs need to consider in their business formation plans.
Sole proprietors or partners doing business under their own names face minimal requirements. Once you move beyond that to create a business identity, you'll need to either register a fictitious name ("doing business as"), or file the formation document for a limited liability corporation (LLC) or corporation.
LLCs are by far the most popular business structure because they are inexpensive to form, provide flexibility to the owners, and are easy to run. Establishing an LLC involves choosing an available name and filing articles of organization with the appropriate state agency, usually the secretary of state.
Business Tax Registrations
You'll need to get a federal employer identification number (EIN) to open a bank account, hire employees, and pay employment taxes. You'll also need to register for state business taxes with the department of revenue in every state where you do business. You likely need to register in any state where you have an office, have employees, collect sales tax, or have other state tax obligations. You'll also need to appoint a registered agent to receive legal documents.
State Business Licenses
You may need to register your business in every state where you do business. These filings may require periodic renewals. Some states, such as California, impose a franchise tax for the privilege of doing business in the state. There may be additional license implications for hiring across state lines, depending on the states.
Licenses to Sell Products
For states with a sales tax, you'll need to apply for a sales tax license if you are offering taxable goods. Sales tax generally applies to tangible goods and certain services. In addition, you may need specific licenses to sell regulated products such as alcohol and tobacco.
Local Licenses and Permits
In many cases, licenses to start a business include a permit or license from county and local governments where the business is based. Some localities require occupation permits for home-based businesses.
Industry and Professional Licenses
Regulated industries such as construction, childcare, real estate, and accounting have specific licensing requirements for individual practitioners and businesses. The requirements vary in every state, so it's important to check state regulations carefully. Don't assume that a license is not required in a new state based on your experiences elsewhere.
It's important to note that most registrations and licenses require periodic renewals, so you'll want to include those in your ongoing business plans. Licensing is a vital element of every business launch, but it can also be a laborious process. Many entrepreneurs would rather focus on the big picture and turn licensing over to a specialist.
Related information is available in the How to Start a Business guidebook.
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The information provided here is for general informational purposes only and not legal, insurance, financial or tax advice. The information and services ADP provides should not be deemed a substitute for the advice of a professional who can better address your specific concern and situation. Any information provided here is by nature subject to revision and may not be the most current information available on the subject matter discussed.
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