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Federal licenses If your business is involved in activities supervised and regulated by a federal agency, you may need to obtain a federal license. Operational licenses Kentucky doesn't have a statewide business license that applies to all businesses, but certain types of businesses are required to have a special license or permit to legally operate. In some cases, more than one license may be required.

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What is a business license?

A business license is a local business registration that is issued to all businesses in a city or municipality. A business license does not usually require an inspection. In comparison with a business permit, a business license is issued by a city or municipality.

Business permits are more about public safety (like a building permit), and that's why permits typically require an inspection. For example, a health department permit requires an inspection of the facility (like a restaurant), while a business license for a restaurant would not typically require an inspection.

The most important thing to remember about business licenses

Business licenses are issued by cities and municipalities, and every city and town in the U.S. is different in what they require, who must get a business license, and how much the license costs. Contact your city's licensing department directly to find out. To find the address of city and county offices, see this listing in Business.USA.Gov.

How is a business license different from a DBA (Fictitious name)?

A business license is required of all businesses, while a DBA (fictitious name)registration is required only if the business is operating under a name different from the name of the owner.

What types of businesses need a business license?

Businesses which are not registered with the state (as a corporation, partnership, or LLC) are typically sole proprietorships. If you are operating a sole proprietorship, from your home or another location in your city, you will need a business permit from the city. You may also need additional permits, such as zoning permits or health permits. If you are an independent contractor working at another company's location, you probably don't need a business license, but cities differ in what they require, so it's better to call and find out.

Do I need a business license if I have already registered my business with my state, as a corporation, partnership, or LLC?

Businesses that have registered with their state may not need a local city business license, but it's good to check with the city anyway. If you are starting a limited liability company, partnership, or corporation, you probably will not need this license. You may still need a trader's license or seller's permit.

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If I have a business license, do I need other permits or licenses from the city?

Talk to the city when you get your business license and explain what kind of business you are running and where you are located. There are a number of other permits that might be required, based on your type of business and location, and every city is different. Here's a list of other licenses and permits your business may be required to get.

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  • 4 Documents Required for Company Registration

One of the primary distinctions between a business license and a tax ID number is that of obligation. Some licenses are legal requirements while other licenses or a tax ID number may be optional. A legally operating business has all necessary business licenses and permits to function in the city and state where it is located. Whether a business has a tax ID number comes down to a number of factors.

Recognizing these factors and understanding the process of acquiring a business license or a tax ID number– or both– is a matter of understanding the steps involved in starting a small business.

Registering Your Business

Starting a small business is not necessarily an onerous process, but it requires familiarity with a series of steps. First and foremost, the small business owner must choose a unique name for that business and then register that business. Registering the business indicates that the business owner intends to operate a legal company that will follow all city, state, and federal laws for operating a business. In most states, including Texas, you can register the business by contacting the office for the secretary of state.

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  • Sole proprietorship (one person) businesses may be exempt from local registration requirements. Make sure to be familiar with the rules in your area.

Obtaining Business Licenses

Any business that has been registered as a legally operating business may also need a business license, depending on local requirements. When a small business owner gives his business a name and then registers that name in the state where he lives, the state will also require that the business owner obtains any necessary licensing. Some businesses fall under federal jurisdiction and require extra permitting. Contact your state’s regulatory office, or utilize the permitting tools available at the Small Business Administration website, SBA.gov, to identify the licensing and permitting requirements for common business types in each state.

Obtaining a Tax ID

A tax ID number is also known as an Employer Identification Number that the Internal Revenue Service provides to a legally established business. The EIN is essentially the Social Security Number for the business and separates the business from the individual who owns and operates it. Business owners who do not have an EIN use their Social Security Number for the business. Business owners can apply for an EIN online at the IRS website. Some states, such as Texas, also require you to obtain a state tax ID for your business, which you can do by contacting the department of revenue for the state.

Requirements for Small Businesses

A registered small business must review and apply for all necessary licensing. The business cannot operate legally without licensing. And if the business falls within industries that have extra regulation, the business must also review and apply for all necessary permits. For some small businesses, the EIN is considered useful for separating the business from its owner during taxes; but it is not necessarily required.

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The IRS does require an EIN for certain situations: businesses with employees, businesses that file as partnerships or corporations, and businesses that file taxes for employment, excise, alcohol, tobacco or firearms.

Other Licensing Considerations

Failure to acquire the correct business licensing can lead to severe penalties at a number of levels: federal, state and local. Failure to acquire the Employer Identification Number can create problems during taxes and lead to an audit. As a result, small business owners should consider applying for an EIN– in addition to obtaining all required licensing– when they register their business. Completing these steps in the beginning can prevent problems later on.

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About the Author

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Kristie Lorette started writing professionally in 1996. She earned her Bachelor of Science degree in marketing and multinational business from Florida State University and a Master of Business Administration from Nova Southeastern University. Her work has appeared online at Bill Savings, Money Smart Life and Mortgage Loan.

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Lorette, Kristie. 'Business License Vs. Tax ID.' Small Business - Chron.com, http://smallbusiness.chron.com/business-license-vs-tax-id-4263.html. 08 March 2019.

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Lorette, Kristie. (2019, March 08). Business License Vs. Tax ID. Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/business-license-vs-tax-id-4263.html

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Lorette, Kristie. 'Business License Vs. Tax ID' last modified March 08, 2019. http://smallbusiness.chron.com/business-license-vs-tax-id-4263.html

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