If you’re in the initial stages of starting your online business and wonder do online businesses need a business license, the simple answer is yes.
Every type of business requires specific licenses and permits, no matter if your business is online or brick-and-mortar. However, to start an online business, you aren’t obligated to get the same licenses and permits that a traditional company must have.
In this guide, we will take you through all the business license requirements of an online business, as well as some other factors you should take into consideration as a sole proprietor.
Common License and Permit Requirements for Online Businesses
Starting your online business comes with a lengthy to-do list: creating and designing your website, registering your domain name, composing and signing various legal contracts, syncing your website to your business accounts, and loads of other tasks.
Even when you complete all the necessary steps, you’re not done yet. To keep an online business up and running, you are required to get several licenses and permits. The type of license you need depends on the location and the nature of your business.
Here are some of the most important business license and permit requirements for online businesses:
Business License
This general permit is required for every type of business, and it’s issued by your local government. It usually needs to be renewed every year, and without one, your business won’t be able to operate legally.
Home Occupation Permit
This type of permit is only required for home-based online businesses. It’s also issued by your local government, and it’s actually not intended to protect you but your neighbors. It ensures your neighbors that your online business won’t have any negative impacts on them whatsoever.
Doing Business As (DBA) License
Your assumed name is also known as a DBA – “doing business as” name. It refers to business owners who choose not to use their real name to operate their company, the name of their corporation, or their LLC (limited liability company). To avoid any legal issues, they are required to register for a DBA license.
Trade License
If you want to start an online business in trade, you might need a professional trade license, too. This depends on the type of business you want to run. For example, trade licenses are obligatory for businesses that give legal advice and companies that operate in the following fields: insurance, real estate, architecture, finance, and childcare.
Additional Legal Aspects for Online Businesses
Along with all the necessary business licenses your online business has to obtain, there are some other factors you need to take into consideration as a business owner.
Sales Tax License
If your online business sells taxable products, you are required to get a sales tax permit. Sales tax license requirements vary from state to state, so you should contact your local government to find out exactly what you need to do.
Employer Identification Number (EIN)
Every type of business is obligated to have an employer identification number, including online businesses. The EIN is distributed by the IRS, and it defines your business as an individual tax entity. Keep in mind that you have to obtain this tax license even if you don’t have any employees.
Unemployment Taxes
Employers need to pay federal and state unemployment taxes to fund unemployment compensation and benefits programs. These regulations depend on the state you live in, so make sure to check with your local government about the legal formalities.
Zoning Restrictions
A zoning permit is needed to allow you to operate your business in certain areas. Contrary to what you might think, zoning restrictions impact home-based businesses as well, especially if your clients come to your house for any type of service.
Digital Rights and Copyright Laws
As an online business owner, you need to think about your intellectual property as well. Even though your business is online, your intellectual property is still covered by various privacy laws. If you have clients, you can ask them to sign an NDA (Nondisclosure agreement).
FAQ
Can You Sell Online Without a Business License?
Whether you can sell goods without a business license depends on your location. If you are running an e-commerce business, the license you need is called a seller’s permit. With this type of permit, you are permitted to collect sales tax from your clients and customers.
On the other hand, it’s also possible to obtain a temporary seller’s permit. The effective duration of such a permit is around 90 days, and it’s especially useful if you don’t plan on selling goods for an extended period.
Can I Run an Online Business Without Registering?
As long as you do everything by the books, you are legally allowed to run an online business without registering it. If you choose to do so, then you become a sole proprietor or a sole trader.
Sole proprietors are obligated to use their legal name for their company, and instead of an EIN, they have to use their SSN (social security number).
However, to avoid any legal issues and the possibility of lawsuits, it’s highly recommended you register your online business.
What Do You Need to Obtain a Business License?
The process of obtaining a business license for your online business depends on the type of license you seek and your business location. Procuring a business license can be done in a couple of ways. You can:
- Apply for the license by yourself. This is usually done at the Department of Business and Professional Regulation
- Use a third-party online platform to do it for you
- Hire a certified lawyer to help you with the application process
The documents and information you need to prepare for the application process include the following: the business’s description, copied versions of corporate records, proof of your tax permits, proof of ownership, an application fee, etc. The fee depends on the type of business you will be conducting.
Business License vs. Seller's Permit: What's the Difference?
Any type of business should have a business license, but only e-commerce businesses require a seller’s permit. When you have a seller’s permit, you are permitted to collect sales tax. Also, getting a seller’s permit doesn’t cost anything.
What Do I Need to Get a State Business License?
To apply for a state business license, you need:
- An employer identification number
- Information about your business and your revenue
- Information about the location of your business and your contact information
The process of obtaining your business license can take anywhere a couple of days to a few months. In terms of fees, it can cost from $50 to a few hundred dollars.
Recommendations – Best Legal Aid Help
If you decide to use a legal service software program, here are some of our favorites:
LegalZoom
LegalZoom offers affordable legal aid to all businesses, including nonprofits, LLCs, corporations, and sole proprietors. Their certified lawyers will help you obtain all the business licenses and permits you need.
Pros
- Quality legal services
- Affordable pricing
- Customer support service is top-notch
- Have helped thousands of online businesses
Cons
- Features aren’t regularly updated
RocketLawyer
This legal aid software from RocketLawyer helps you create your business documents with their templates. They also help you compile all the necessary paperwork to obtain your business licenses.
Pros
- Available plans for all types of businesses
- Affordable pricing
- Copyright and patent services
Cons
- The mobile app offers fewer features
LegalNature
Another excellent option for online businesses, LegalNature, helps you compile your documents and fill out all your forms for the application process. For $38.95 a month, you can receive various other forms of legal aid as well.
Pros
- Various categories for legal aid
- Unlimited updates
- Access to all documents
Cons
- It doesn’t offer personalized legal advice
My Company Works
Forming your new online business is speedy process with My Company Works. They handle most orders by the next business day. However, some states take longer than others to process the paperwork.
Pros
- They provide new business formation services for all 50 states
- Currently they have an A+ rating with the Better Business Bureau
- Have helped over 40,000 business so they have a good reputation
Cons
- They provide lots of information and guides which might be a little overwhelming at first
Our Top Pick
Even though all four of these legal aid programs offer quality service, our favorite is LegalZoom. We like this program because it’s available for all business types, it provides reliable customer service, and it lets you sign your custom legal documents with e-signature.
Make Sure Your Business Is Operating Lawfully
So, do online businesses need a business license? Yes, every type of business requires business licenses and permits. There are different licenses you should obtain as a business owner, depending on the nature, location, and activities of your business. Ensuring you have the necessary permits will give you the permission you need to operate your business legally.
