Many home business owners fail to give attention to securing permits and licenses for their business, even if required by law. A lot of home business owners think that they can get away with operating a business with no licenses since no one goes around checking to see who has a license and who doesn’t. Plus, they can operate their business conspicuously without customers coming and going.
If you operate without the required license, however, you run the risk of discovery. Authorities may discover such unlicensed businesses by checking state tax law returns and resale licenses. If caught operating your business without the required permits and licenses, you run the risk of being fined or worse, ordered to cease the business.
In the United States, different counties have different laws: some are stricter than others. Before you start your business, check with your local government to know what permits and licenses are needed by your business. Your business may be required to have one or more of the following licenses or permits.
1. Business Licenses
Contact your local authorities (city and county governments) to determine which special permits and licenses are required to legally operate a business in your area. Some requires zoning clearance permits, sign permits, and parking permits if you expect customers to come to your place of business. Permits in some areas are based on your type of business, which most local governments classify as follows:
- Low-impact business – home business with little impact on neighborhood or the business is conducted by telephone, mail, facsimile, or computer modem; where customers are not typically received on the premises; and where no deliveries are accepted on a regular basis.
- Moderate impact – conducts business with customers on-site; where equipment, other than office equipment, exists to conduct the home business; where a company vehicle and/or company trailer exist. A moderate impact home business is a home business operated in such a manner that the average neighbor would be aware of its existence due to traffic, noise, or equipment.
- High impact – This type of home business is usually not allowed to operate within a residential neighborhood. Check also if your municipality or city requires “home occupation permit” for home-based entrepreneurs. In Maumelle, Arkansas for example, home occupation permit is required only for moderate impact home businesses (since high impact businesses are not allowed). This permit is imposed on businesses conducted from a residential zone (any business where your home address and telephone number is used) and the fee ranges from $15 to $200.
2. Health, fire and other special permits
Food-related businesses are often subject to special inspections and require a health department permit. Some states have a “commercial kitchen law” that prohibits setting-up of a food related business in your home; although some states like Iowa has a “home bakery provision” that makes a distinction on commercial food businesses and small operations like bake sales. Businesses that handle flammable materials or dangerous materials, or those that have large numbers of people on their premises may also be required to have a fire department permit. If you expect to discharge any substances into the air, sewer system, or the local waterways, you may have to obtain a special permit from agencies controlling pollution and environmental health. Day care centers also need to conform to local and state regulations as well.
3. Occupational permits
Most states require special licensing, which may require a written or oral examination, for businesses in certain categories such as:
- Occupations that involve direct physical contact with customers, such as hairdressing, cosmetology, massage, or medical treatment
- Occupations that call for special technical expertise that may be related to customer safety or health. Plumbing, electrical work, auto repairs, pest control, engineering, dry cleaning, accountants, TV repairers are some examples of home occupations that require licenses.
- Real estate agencies, insurance agencies and collection agencies also require occupational permits.
4. Sales tax permits
Those who sell products directly to the public usually must collect a sales tax. In addition to state sales taxes, there are local state taxes as well. If you sell products only to wholesalers, retailers or other middlemen, you may not be required to collect a sales tax, but must maintain tax exemption forms. Some states also require those who sell services to collect a sales tax; while many states require that you pay a bond or an advance deposit against sales taxes to be collected when you first apply for a permit. Constantly check your state’s regulations on this area, as debate on what should be covered by a sales tax are on the forefront particularly with the growth of e-commerce.
5. Federal licensing
Required for gun dealership, security and investment brokers and advisers, radio and television stations, and drug manufacturers.
Recommended Books on Licenses and Permits for Your Home Business:
- The Entrepreneur’s Guide to Business Law
- Business and Legal Forms for Photographers (Fourth Edition) (Business & Legal Forms for Photographers)
- The Small Business Start-Up Kit: A Step-by-Step Legal Guide
- Legal Guide for Starting & Running a Small Business
- Legal Forms for Starting & Running a Small Business
- How to Start a Kitchen Remodeling Business
- Small Business Legal Checklist
- Most Common Questions Asked When Starting a Business
- 21 Steps to Starting a Home Business (Part 2)
- Pros and Cons of Financing a Business