Once you've decided you're starting an eCommerce business and chosen one of the best eCommerce business ideas, you'll need to get a license.
Much like a driver's license, if you get caught operating without one, you'll be in a bit of trouble. Obtaining a business license can seem like a convoluted process, like eCommerce accounting. It’s actually much easier than you think!
Read on to learn what an eCommerce business license is, why you need one, and how to go about getting one.
Business License eCommerce: What Is It?
A business license is a permit from a local or state government authorizing the operation of a business. Businesses are required to apply for a business license as a way for government agencies to keep track of them for tax purposes. These licenses also protect a business owner from facing fines or closure by their local or state government.
If you're setup with e commerce banking but no license, that money can be seized and you can face major penalities. eCommerce businesses are held to the same licensing standards as other businesses.
Do I Need a Business License for eCommerce?
Yes, you need a business license to run an eCommerce business, though there are a few exceptions.
Some states do allow businesses to operate without a license until they hit a certain revenue level. Certain municipalities may also offer a separate license for eCommerce business, but usually it's the same as the one issued to all other types of businesses. If your state requires a business license, this will affect you even if you sell your products through an online marketplace.
If you don't have a license to operate, you also can't pick up eCommerce business insurance. That means everything you own is at risk.
What Business License Do I Need for eCommerce?
The requirements for business licenses differ by state, so the steps involved may vary. To find the license needed for an eCommerce business in your state, check the SBA website. They have information regarding the requirements and fees associated with business licenses and permits from all federal and state agencies.
You can also reach out to your local government and state agency if you run into any issues with the application process. If you have any questions, it’s better to get them resolved early in the process.
How to Get a Business License for eCommerce
Getting a license to operate a business varies by location, but usually requires filling out a simple form and paying a fee. You will also need to provide some background information about your business. All information can generally be found by contacting your local City Hall or on your state's Secretary of State website.
Apply for eCommerce Business License
Though each state has separate requirements, most business license applications require the same information and documents.
Here they are:
- A comprehensive ecommerce business plan. This document outlines all aspects of your business and will be used as a roadmap for growth and acquiring investors. It also has a lot of information the licensing authorities need. Your proposed business name, a description of the business products or services, and what facilities you'll use are some of the information needed to get a license.
- Doing Business As (DBA) license or incorporation documents. A DBA allows you to operate a business under a name other than your own. For example, you could sell goods as "Bigger Boat Fishing" instead of as "Roy Schneider". Incorporation is when you form a business as a corporate structure. Both options fulfill requirements for enforcing contracts and separating financial responsibilities, but they also show the state or county how your business will be structured.
- A sales tax license. It may seem odd that you need a license to get a license, but it's true. The first priority for a state is ensuring your business will pay taxes. Your state's Secretary of State website will have all the information you need to get a tax number for your business. If you use an eCommerce payment gateway or eCommerce credit card processing platform without the state taking its cut, don't expect your business to survive for very long.
- Inspections and permits. If you plan to operate any physical location for your business (warehouse and shipping, production, etc.), you'll need to have it inspected. Fire codes, seller's permits, safety inspections, and home occupation permits are all things you may have to acquire before your state will issue a business license.
Do You Have a Permit for That?
A business license is one of the most important things you need to get when starting an eCommerce business. It will allow you to operate legally and provide protection from lawsuits. It will also allow the government to track and tax your business, and let you seek financial relief in times of trouble.
Once you have the requisite licenses and permits, get to work on your B2B marketing (see what is B2B marketing) or DTC marketing plan. If you start positioning yourself and work on finding prospects early enough, you can see substantial growth in your first year.
Now that you know all about business licensing, pick up some eCommerce books or read an eCommerce blog or two to help you understand other aspects of running an eCommerce business. The more information you have upfront, the more likely you are to be successful.
Frequently Asked Questions About eCommerce Business License
Getting your eCommerce business license is a key step towards a thriving business. If you’re still wondering about the details, review these common questions and answers:
How much does an eCommerce license cost?
eCommerce license costs vary by state, but the average eCommerce license runs about $50 to $400. The final price depends on a given state’s laws and what kind of businesses are permitted. There may also be a processing or convenience fee, which may cost as much as $25.
Your eCommerce license cost is an expense that should be worked into your budget before you launch your business. There are several reasons for this. One, planning for each expense means they won’t catch you by surprise. You can complete payments with full assurance that you have all the funds available.
Two, it makes eCommerce accounting much easier. When you can point to every expense and source of revenue, you have a much clearer idea of your business’s profits. You don’t have to guess or hope that your sales will exceed your expenses, because you can find out by looking at your accounting reports.
Does an LLC count as a business license?
No, an LLC and a business license are two different things. But wait, what is an LLC? A limited liability corporation, or LLC, is the type of business you run. A business license is a governmental document giving you permission to open and operate a business.
An LLC is distinguished from other business entities, like a sole proprietorship or C corporation. The business entity that you identify as determines what kind of annual income tax reports you need to file. LLCs usually need to be renewed every one to two years.
Your business license allows you to proceed with selling products, and comes in handy if you ever need to defend yourself from frivolous lawsuits. Depending on where you run your business, a business license usually needs to be renewed every two to four years.
Do I need a sellers permit for eCommerce?
The requirement for an eCommerce seller’s permit differs based on the state you’re in. For example, Florida and Missouri don’t require online seller’s permits, but most other states do.
A seller’s permit is part of how the government tracks what businesses are selling what kinds of products online. It also helps you prepare the correct tax information when reporting gross sales and income to the government.