Starting an online business comes with plenty of perks, like flexibility, low overhead, and access to customers around the world. But before you launch your site or make your first sale, it’s important to cover your legal bases. One of the most common questions new sellers ask is: Do I need a business license to sell online?
In this guide, we’ll break down when and why you might need a business license to sell online, the types of business licenses, and what steps to take to stay compliant.
What is a business license?
A business license is a government-issued permit that allows you to legally operate your business within a specific jurisdiction. It helps cities, counties, and states track business activity, ensure compliance with local laws, and collect taxes. Depending on where you live and what kind of business you run, you might need one or more licenses to get started.
For ecommerce businesses without physical storefronts, licensing requirements can vary based on where your business is registered and where your customers live. Selling through platforms like Etsy, Amazon, or your own online store doesn’t automatically exempt you from local licensing laws. It’s worth checking with your city or state’s business office to understand what’s required so you can avoid potential penalties.
Related: How to start an online store
When do you need a business license for online selling?
Business license requirements can vary widely depending on where you live and where you’re operating. To find out what applies to your situation, you’ll need to check with both your state and local government. Some areas require a general business license just to get started, while others may need additional permits based on what you sell and how you operate.
Most states require some form of registration for any business, even if you’re selling products from home or running an ecommerce store. You may need a Doing Business As (DBA) name, a resale certificate for collecting sales tax, or other local permits.
For example, in Los Angeles County, California, a standard business license is not necessarily required, but there are rules you have to follow. A business must file for a Doing Business As name (DBA), get a resale permit, and run an announcement about the DBA in a local paper for four weeks before selling any products.
If you move to another county in California, you may be contacted by your new county and informed that you now need a business license as soon as you change the address on your resale certificate and send your taxes to the state.
Types of business licenses for ecommerce businesses
Before you start an online business, it’s important to make sure you have the right licenses and permits in place. These requirements help keep your business compliant with local laws and can vary depending on your location, what you sell, and how you operate. While not every ecommerce business needs every license on this list, these are some of the most common ones to look into:
- General business license: Often required by your city or county to legally operate any type of business.
- Seller’s permit (or sales tax license): Required in most states if you’re selling taxable goods and need to collect sales tax from customers.
- Federal licenses: These are industry-specific licenses for federally-regulated sectors
- Home occupation permit: May be required if you’re running your online store from your home.
- DBA (Doing Business As): Needed if you’re using a business name that’s different from your legal name.
- EIN (Employer Identification Number): Required if you have employees or plan to open a business bank account.
Related: The cost of starting a business
What kind of business license do I need?
Figuring out what licenses you need upfront can save you time, money, and stress down the road. Even if you’re selling exclusively online, it’s important to check the rules in your state, county, and city before launching your business.
The licenses and permits you’ll need depend on two main factors: your industry and your location. The Small Business Administration (SBA) has a helpful directory of state licensing offices you can use to get started. From there, check with your local agencies to make sure you’ve covered everything required to run your ecommerce business legally.
How to get a business license for your online store
Getting a business license for your online store doesn’t have to be complicated. Here’s a step-by-step guide to help you get ready to sell:
Step 1: Choose your business structure
Before applying for any license, you’ll need to decide how to legally structure your business, such as an LLC, sole proprietorship, partnership, or corporation. This structure affects how you register your business, pay taxes, and manage liability, so make sure the one you choose fits your long-term goals.
Step 2: Register your business
Once you’ve picked a structure, the next step is registering your business with the proper state or local agency. Most states require you to file paperwork with the Secretary of State if you’re forming an LLC, corporation, partnership, or, sometimes, sole proprietorships.
If your business name is different from your legal name, you may also need to file a Doing Business As (DBA) name. This lets you operate under a brand name and is often required for opening a business bank account or signing contracts.
Step 3: Apply for an EIN
Most online businesses will need a federal Employer Identification Number (EIN) from the IRS. It’s basically a Social Security number for your business, used for tax reporting, opening bank accounts, and hiring employees.
You can apply for an EIN online for free through the IRS website. Sole proprietors without employees may be able to use their personal Social Security number, but having an EIN can still be helpful for separating personal and business finances.
Related: Understanding TIN vs. EIN
Step 4: Determine local business licensing requirements
Visit your state’s business licensing website or check with your local government office to find out exactly what’s required for ecommerce businesses in your area. You can also use the SBA’s state business license tool.
Step 5: Apply for a general business license
Most areas across the US require a general business license to operate an ecommerce business legally, even if it is home-based. To license your business, you’ll need to complete an application that usually asks for your business name, structure, address, and a brief description of what you do.
Step 6: Get industry-specific licenses
Depending on what you’re selling, you may need special licenses or permits. For example, selling food, alcohol, or cosmetics often comes with extra regulations. Always double-check with your state or industry board.
Step 7: Apply for a seller’s permit or sales tax license
If your state collects sales tax, you’ll likely need a seller’s permit (also called a sales tax license) so you can charge and remit tax properly. This step is essential for ecommerce stores selling physical goods to customers in taxable states.
Step 8: Keep licenses and permits up to date
Once you’re licensed, make a note of expiration dates and renewal requirements. Staying compliant helps you avoid fines and keeps your online business running smoothly.
Can you sell online without a license?
In most situations, you cannot sell online without a business license. Even if you’re selling on marketplaces or running a small shop out of your home, you will likely need a general business license. Requirements vary by state and city, but operating without the right licenses or permits can lead to fines, penalties, or being forced to shut down.
Some platforms may not ask for license info upfront, but that doesn’t mean you’re in the clear. It’s always best to check with your local government to make sure you’re set up properly from the start.
Benefits of having a business license
Obtaining a business license does more than ensure compliance; it also offers benefits like:
- Builds customer trust: Shoppers are more likely to buy from a store that’s registered and legitimate.
- Enables tax collection and deductions: You’ll be able to collect sales tax where required and claim business-related expenses.
- Allows access to wholesale suppliers: Many vendors require a business license or resale certificate to buy inventory.
- Supports business banking and credit: Opening a business bank account or applying for credit often requires proof of registration.
- Helps you grow with confidence: With the right licenses in place, you can focus on scaling your business without worrying about legal roadblocks.
Related: Tips for selling online
Final thoughts
Running a successful online business starts with the right foundation, including making sure you’re properly licensed. Taking the time to check local requirements and get your paperwork in order can save you a lot of hassle down the road. It’s a simple step that helps you stay compliant, build trust, and grow with confidence.
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