Difference in Business License & Registering a Business

By Heather Frances J.D.

Starting a business can be complicated. In addition to hiring employees, finding a location and establishing clientele, new business owners must also ensure they properly register with government authorities and obtain all necessary government licenses. Without the proper registration and licensing, a business can face fines and penalties. Registration and licensing requirements vary between states and localities.

Business Registration

Business registration requirements often depend on the structure of the business. For example, sole proprietorships and general partnerships frequently do not have to register with state commerce authorities, but limited liability partnerships, limited liability companies, corporations and other business structures that limit the owner's personal liability typically must register. Registering a business generally involves filing state-specific forms along with the business’s founding documents, such as articles of incorporation.

Name Registration

If a business owner is not going to operate his business under his own name, some states require him to register his “doing business as” name with state or county authorities. Registration requirements vary between states, but may involve filing a form and paying a filing fee. Businesses may be required to renew their name registration periodically to keep the registration active.

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Tax Registration

Businesses must also register with state and local tax authorities. For federal taxes, some businesses must obtain an Employer Identification Number from the Internal Revenue Service. If the business is a sole proprietorship, the owner’s Social Security number acts as the EIN since the business’s taxes are filed on the owner’s tax return, but if the business is another type of entity, the IRS will assign the business a new number for use on business tax returns. States generally require businesses to register with the state taxing authority to pay payroll taxes, sales taxes or any other state or local taxes.

Licenses

Many localities require some type of license or permit for businesses that serve the public. For example, a city may require a health inspection permit for businesses that serve food. Small business owners can use the listing available on the U.S. Small Business Administration’s website or local government websites to determine which licenses they need. The business may need to obtain a federal license if it is involved in activities supervised and regulated by a federal agency, such as agricultural production, aviation or firearms. Many types of businesses also require some professional or occupational license or permit from a state government, such as nurses, beauticians and lawyers.

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References

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How to Get a Sole Proprietorship

For an independent entrepreneur, a sole proprietorship is a common business structure because it is relatively simple to set up and allows for a great deal of flexibility in management. As a sole proprietor, you are personally liable for the business, but you also retain all of the business's profits. Although there are some similarities for all sole proprietorships, business formation is determined by state law where the sole proprietorship is formed.

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Putting a Sole Proprietorship on Paper

One of the advantages to operating a business as a sole proprietorship is the lack of formal organizing requirements. A photographer, personal trainer or anyone who runs a one-person operation can start doing business as a sole proprietor without necessarily filing any paperwork with the government. Operating a business this way can be disadvantageous, however, when the proprietor wants to prove the existence of the business as a distinguishable entity. When an owner wants to open a credit account, set up services in the name of the business or otherwise separate business operations from his personal affairs, it helps to have some written documentation that verifies the company's status.

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