You face many challenges when you first start an online business. Everything necessary for launching a successful brand must be in place, including the products, the platform, inventories, operations, financing, marketing, branding, and a wide range of other components.
It is understandable why some people never consider or postpone using the legal system. Because you don’t have a physical location, forgetting is even easier if you operate an online store.
It is still necessary to establish specific legal documentation even if you operate a virtual office. A business license is among the papers. I decided to offer this tutorial because I am frequently questioned about whether getting a business license is necessary when starting an online business.
What Is A Business License?
Business licenses, also referred to as business operation licenses, are authorizations granted by governmental bodies to organizations to conduct business within their territorial purview.
Business licenses and permits are one way the government keeps tabs on what’s going on because it likes to monitor most things.
You can operate your business in a specific area if you have a business license. It demonstrates that you have received official consent from the relevant city, state, or nation to carry out your business there.
In other words, it enables your Shopify or e-commerce site to conduct business locally, regionally, or nationally. This license may be required in certain situations for some online businesses to operate legally.
If you sell regulated goods (like prescription drugs or firearms) or offer regulated services (like real estate or construction), you almost always need a business license.
In order to find the proper license and register for it, get in touch with City Hall or visit the Secretary of State website for your state to learn about the rules and procedures in your area. The requirements to obtain these licenses are typically straightforward (you might have to pay a small fee).
To avoid paying fees or fines for operating a business with an expired license, be sure to check if your business operation license needs to be renewed.
When Selling Online, Do You Need a Business License?
Let’s get right to the most crucial query: Do you need a business license to sell on Shopify?
No, is the quick response. You can sell on Shopify without having a business license, according to Shopify. Nevertheless, there are some circumstances in which you will require one.
In most cases, you don’t need a business license for your Shopify store, unless you are:
- Selling goods that are subject to federal regulation, such as alcohol, animal products, and weapons, You can also check here to find products that are prohibited from selling on Shopify..
- Keeping stock in your home requires a health permit.
In addition, a business license might be necessary if your particular location or type of business demands one. Do not forget that business licenses may be issued by the city, county, federal, or state. As a result, even if Shopify doesn’t demand that you have a business license in order to sell on Shopify, your city may.
We’ll discuss the situations in which a business license is required in order to sell on Shopify in the following section.
Is a Business License Required to Dropship on Shopify?
Functionally, having a Shopify store and dropshipping on the platform are identical. The requirements for obtaining a business license for your online store are therefore the same.
To put it another way, you don’t require one unless you sell regulated goods or keep stock in your house. However, it’s always a good idea to check with the Small Business Administration (SBA) and your local state licensing or legislation office. Here is a tool to help you locate the SBA office in your area.
Dropshipping is a great e-commerce business model in part because of this! Let’s say you decide to dropship groceries on Shopify. Because your dropshipping supplier stores all the inventory, it is their responsibility to comply with health regulations and obtain the necessary storage permits and/or business licenses from the state or city.
As a result, even if you’re dropshipping groceries in your Shopify store, you won’t need to worry about all the additional business licenses that go along with storing food and perishables. Your dropshipping supplier is accountable for that.
However, you are still in charge of filing and paying your taxes, so we’ll go over the necessary tax documentation in the following sections, particularly your 1099 form.
Access the roadmap to triumph in the competitive world of e-commerce. Learn to select, market, and sell products that will help your business reach its full potential.
Get on the path to winning with the best dropshipping items. This guide will help you select, market, and sell products to reach your business’s highest potential.
A Seller’s Permit: What Is It?
The ability to sell tangible personal property (things that can be touched or seen) is granted by a seller’s permit.
- In California, you need a seller’s permit to sell products and services.
- Anyone who wants to sell products online or through another form of retail sales must have it.
- The seller is required to provide details like name, address, and business purpose.
- It is necessary to renew the permit each year because it only lasts for a year.
The Cost Of A Business License
Now that you are aware of the broad response to the question of whether you require a business license in order to sell goods on Shopify, let’s take a quick look at the costs related to doing so.
Due to the fact that business licenses are granted at the municipal, county, federal, and state levels, the price varies at each one.
The absolute minimum you’ll likely have to spend is $50, but in the most pricey situations, it can go up to $400. You also need to be aware that there might be other costs involved in producing the actual document, like processing fees.
It’s critical to keep in mind that a business license renewal has a cost. In some cases, you may need to pay the same amount of money as when it’s granted to you for the first time.
Why Would It Be A Good Idea to Get a Business License First?
If you’re preparing to launch a new business or open an online store, getting a business license may be a good idea.
- To run a business in the US, you need a business license.
- It serves as evidence of one’s identity and business ownership.
- It also makes sure that you abide by all applicable laws and rules.
- Obtaining a business license also lowers the risk of fraud and increases tax benefits.
- Additionally, it provides you with the necessary legal defense in the event of any conflicts or issues.
Following are the three primary reasons explained briefly:
A business must register with the appropriate tax authority and pay income taxes. This covers self-employment taxes (Social Security), payroll taxes (federal and state), corporate income taxes, capital gains taxes, and taxation of inventories, among other things.
A business license guarantees that you are shielded from potential liabilities in the event that one of your clients or employees is negligent or unlawful.
As a result of faulty products sold by your company, you may be subject to claims for personal injury and product liability.
Your company receives an official seal of approval when you have a current business license, which can boost sales and draw in new customers.
How Do I Get a Business License?
Since obtaining an EIN is a requirement for obtaining a business license, you must first complete some steps to establish your business entity. Here’s how:
- Choose your business structure, such as a limited liability company (LLC) or a sole proprietorship, and carry out the necessary procedures to set it up.
- You should apply for an employer identification number (EIN). This is the federal tax identification number for your company. You will require your EIN in order to complete any paperwork for your licenses or permits, unless you’re a sole proprietor who can use your Social Security number in its place.
- Check with your local department of revenue, secretary of state office, or department of consumer affairs to determine what kind of business license or permits you require. You want the state and local licensing bodies that register businesses close to where you live. A local Small Business
- The US Small Business Administration’s Development Center is an excellent resource.
For your license(s), submit an application with the relevant governmental bodies. In some cases, such as when opening a brick-and-mortar store and requiring a zoning permit, you may be able to submit your requests online; in other cases, you may need to gather specific forms in person.
You don’t necessarily need to register your business and request an EIN if it is small or medium-sized. You are permitted to use your SSN or SIN to file your taxes and run a sole proprietorship-style Shopify business. You might need to apply for an EIN if you have employees, though.
The best course of action should be decided after consulting with local authorities or after contacting the IRS to handle the situation.