Home Business Start-Up: Obtaining Business License and Permits

Starting a business is not as easy as just thinking of a business concept and opening your doors to the customers immediately. It involves a lot of things. Before you can start conducting your business, there are a few things that you have to do such as obtaining the required business license and permits.

Each city or local government agencies may have different laws or ordinances when operating business in their locality. It is best to visit the city hall or county registrar and verify their requirements. Nowadays, it is much simpler because you can actually verify this information from their websites.

In general, below are the most common business license and permits that you have to obtain when starting your home-based business.

Filing For Incorporation

Although a lof of businesses started out as sole proprietorship or partnership, there are some business who would prefer to start as a corporation right at the start-up phase due to various reasons such as limiting the liability or raising more funds. If you decide to operate your business as a separate entity such as operating as an LLC or corporation then you need to file your incorporation documents to the state of your choice. In general, you should consult an attorney before you file your incorporation to ensure that every legal aspects of your business are covered.

Fictitious Name Statement or DBA (Doing Business As)

If you are running a business under a name different from your legal name, you are required to file a fictitious name statement or (DBA) and register your business name with your local registrar recorder clerk (or the agency responsible for the registration process). For a sole proprietorship or partnership, the legal name is the personal name of the business owner or owners while for state registered entity such as  a corporation or LLC, the legal name is the name on the filed articles. Once you filed your business name, some local agency requires you to publish a statement in a local newspaper of general circulation. As an example, if your business is based in Los Angeles County, you are required to file a DBA at the County of Los Angeles Registrar Recorder.

Examples:

• Individuals: If your name is John Smith and your business name is Happy Party Supplies, your DBA will have this info: John Smith DBA Happy Party supplies.
• Corporate: Corporate companies who are doing business with another business name such as a franchisee. Example is KLM Foods Corporation DBA McDonald’s Restaurant.

If you operate your business as a corporation and the business name is the same as the corporate name, then you do not have to file a separate DBA for that.

Sellers Permit

If you’re selling a product, whether it’s for resale or wholesale, you may be required to obtain a seller”s permit especially if your business is located in a state where a sales tax is imposed. The permit has a resale number, which allows you to buy merchandise wholesale without having to pay sales taxes — as long as you resell it.  It can also be used to waive sales tax on items used in your product. As an example, for California businesses, you can obtain your sellers permit by contacting the State Board of Equalization.

Health Permits

If you are running a home-based business that has something to do with the health of others, you are required to obtain a health permit. An example is a catering business that sells any food items including pre-packaged foods, a health permit must be filed before the business license can be issued.

Business License

If your operating a business, whether it’s a home-based or located in a commercial area, you are required to file a business license to your local government agency. The city may fined you for operating a business without a license and in some cases, they can order to cease your business operation until you obtain the business license and pay the fines. It should be noted that having a DBA does not constitute having a business license. Usually, the business licenses are obtained from the city and in some cases where the city in unincorporated, the county may handle the issuance of the business license.

Zoning Requirements

When operating a business at home, make sure that you check the zoning requirements at your local government agency as well. Your business must meet the zoning requirement and restrictions of the local agency. Depending on the type of business, some agencies may not allow you to operate your home based business due to some issues such as health, fire safety, too much commercial vehicle traffic in the neighborhood, etc. For home-based business, the fire department may also visit to make sure that you follow the fire safety codes in your home.

For example, if your city does not allow you to operate a mechanic shop in your garage and you did it anyways because you were unaware of the ordinance, your city can cease your business operation and levy fines.

Obtaining an EIN (Employee Identification Number)

• Federal EIN - If you are running a business as a sole proprietor, you have an option of using your social security number when filing your taxes if you do not have any employees. Once you start hiring employees, you will need to have an EIN. In most cases, even if you are operating as a sole proprietorship, it is still better to obtain an EIN so that you can use it to open bank and credit card accounts using the EIN instead of your social security number. For any other form of business, you will need to obtain a federal EIN regardless of the number of employees that you have. To obtain an EIN, you need to complete form SS-4 and file it to the IRS.
• State EIN – you may be required to file a state EIN as well if you are hiring employees and if your state imposes an income tax.