As the founder of a new online store, you’ll want to make sure you’re operating a legitimate business. One point of confusion for many digital entrepreneurs involves licensing: Do you need a business license for an online store? The answer depends on a few things.
In this article, we’ll help you think through the factors that impact licensing, such as what type of business you operate, what you plan to sell, and whether your region is likely to require some sort of license. Ultimately, this information will help you answer this question definitively.
Do you need a business license for an online store?
The three most important licensing-related questions have to do with the products you’re selling, where you’re located, and what your business model is.
1. What are you selling?
There are several different types of licenses; the one you may need depends on the products you plan to sell.
A general business license covers many types of small retail businesses. It’s a document that clears you to start a business legally in your area, and it will likely be the only license you need if you sell digital products from your own website or, for example, ship custom-designed mugs from a third-party supplier.
However, you may also need a special product permit for your store. Derek Colvin of Waldrop & Colvin notes that federal or state regulations may require you to get special permits. Here are some examples of products that require a federal permit:
- Agricultural products
- Alcoholic beverages
- Aircraft maintenance products
- Firearms, ammunition, or explosives
- Fish or wildlife derivative products
He adds, “State-level special permits may be required for the same category of products or for products otherwise involving health, safety, or the environment, such as medical equipment, food, beverages, or fertilizer.”
2. Where is your business located?
Another type of license is a home occupation permit, which is a county- or state-issued permit allowing you to conduct business at home.
As the owner of an online store, you don’t need a brick-and-mortar retail location — so chances are you’ll be conducting a significant portion of your business from your personal residence. And you do need a license to operate at whatever address you’ve listed as your primary business address. Check with your local governing authorities to determine if this type of permit is necessary — and don’t forget to contact your homeowners association (HOA) if you have one.
Even if you have a general business license, you may need to consider other unique factors — like which https://www.jotform.com/blog/what-is-dropshipping/ state you live in, any new products you’re stocking at home and launching online, or whether you run logistics from your home — and get another type of permit to meet additional requirements.
3. What is your business model?
Dropshipping is a widely used model for online stores that sometimes doesn’t even require a general business license — and it usually doesn’t require a home occupation permit.
“If you’re dropshipping, there’s a good chance you won’t need any special licenses or permits since you’re not storing or selling products yourself,” says Anand K.C., head of marketing for CLOOM Tech. Anand adds, “In some cases, you might not need a license if you’re only selling digital products (e-books, software, etc.).”
However, it’s uncommon to not need any type of license at all. A general rule of thumb is to evaluate whether you’re selling items that would normally be subject to sales tax. If you are, there’s a good chance your state will require you to at least obtain a general business license — but since each state (and even each county) is different, you’ll need to look into your locality’s requirements.
The bottom line is this: Unless you’re dropshipping exclusively, you’ll likely need a business license for your online store.
How do you get started applying for a business license?
Now that you know whether you need a business license for your online store, it’s time to start the application process. Here’s what you need to do.
1. First, thoroughly research your local government’s regulations.
2. Next, consider how long it will take to get an approved license as well as any possible obstacles to your approval. If you request your license in person, you may be able to obtain a license in as little as an hour. However, some regions and government entities may take weeks or months to approve your application — so plan for at least a few months to be safe.
Colvin warns that you also may not be allowed to get a license, depending on “zoning restrictions, local ordinances, delinquent status on taxes, or having a criminal record,” so be mindful of anything that may hold you back.
3. Gather the appropriate documents. Depending on your state and type of license, you may need to bring the following information:
- Business formation documents
- Your employer identification number (EIN)
- A description of the business
- The business address and phone number
- A list of owners
- An estimate of gross receipts
4. Apply at the appropriate office. “If you’re just getting started with your research,” advises Anand, “the Small Business Administration‘s website is a good place to start. They have a handy tool that can help you figure out which licenses and permits you need based on your location and type of business.”
He also notes that you need to budget for the cost of your license. “Depending on your business and location,” he says, “this can range from a few hundred dollars to a few thousand.”
You’ll more than likely need a business license for your online store, even if you only sell online. But if you plan ahead, do your research in advance, and give yourself time to apply, obtaining a business license can be a quick and painless part of your business startup process.
Photo by Annie Spratt on Unsplash