Understanding the types of licenses you need for online sales can be a bit tricky. Bear in mind that e-commerce business licenses can vary for different business types.
Luckily, we’ve done all the research on your behalf and compiled all the business license requirements in one place.
Follow along as we help you understand if you need a business license to sell online on sites like eBay. You will also learn different types of business licenses and which ones you have to care about as an e-commerce business owner.
What Is a Business License?
For starters, a business license is a permit that allows organizations or individuals to run their business in a specific location. It’s basically a contract between you and the government agencies that allows you to carry on your business operations legally.
Licensing requirements can vary from one state to another and also depending on the industry in question. For instance, food services or construction businesses require additional permits to ensure safety and abide by zoning laws.
Getting a business license should be a straightforward process for the most part. All you need to do is fill in some paperwork, pay the required fees, and present your sales tax identification number.
Pay close attention to when your license expires, as business entities operating without valid permits can be subject to hefty fines.
Legal Requirements for Selling Online
Now that you understand what a business license is, the next question is why you should be concerned as an online business owner.
There are some rules and regulations that you have to stick to when operating an online business. Those can vary depending on where you’re located and what types of products or services you provide.
Regardless, here are some of the basic legal formalities required for online selling:
- Business registration: To run a legitimate business, you need to register with the federal government before offering your services. The process involves getting a federal tax identification number, obtaining professional licenses, and securing zoning permits if you plan to have a physical presence.
- Sales tax license: Online sellers need a permit to collect the appropriate amount of sales tax on each purchase. The tax money is then remitted back to the government as part of the business tax.
- Customer privacy regulations: The personal information of customers is protected by law, and online sellers have to respect their customers’ privacy. This means sellers should only have access to the minimum amount of data to run their business, and such data shouldn’t be traceable to a specific customer.
- Intellectual property laws: Online sellers can’t sell products that violate the copyright of others. Also, they have to respect trademarks and patents.
- Shipping regulations: Online sellers should be transparent when it comes to the estimated delivery time and different shipping rates. Customers should be able to track their shipments throughout the whole process.
- Consumer Protection guarantees: The consumer has the right to a full refund considering certain conditions are met. Many regulations are also put in place to ensure ads represent the real product.
Factors Affecting the Need for a Business License
We’ve already established that there’s no such thing as one business license that fits all businesses. There are many interconnected factors that affect the type of license that a business needs.
1. The Type of Business Activity
Depending on the products and services offered by your business, you might need additional permits to operate legally. For instance, online food services still need health permits to ensure they abide by federal safety standards.
It’s also worth noting that starting an online store on Etsy requires business registration and obtaining a sales tax permit to operate legally.
That’s not all; selling cosmetic products, offering pet grooming services, or operating a construction business all come with their specific additional permits.
The main takeaway here is that you need to consult your business attorney whenever you’re confused to ensure you’re operating on a solid legal basis.
2. The Business Location
Your base of operations dictates the different business licenses that you need.
For example, a home-based online business like digital wholesaling needs a home occupation permit, as some commercial activities can’t be conducted from within a residential area.
Also, running your online business from a physical location like an office space requires a federal business license.
3. The Legal Structure of the Online Business
Different business structures come with different licensing requirements. A sole proprietorship, an LLC, a corporation, or a partnership are all viewed differently in the eyes of federal authorities.
Tax obligations also vary according to the legal business structure. For instance, corporations are required to pay corporate income tax to ensure fair market competition.
Sure, you won’t have to worry about that when running your online store from your garage. But the point here is that as your business grows, so your tax and licensing requirements evolve as well.
Benefits of Obtaining a Business License
Now that you understand the factors that go into obtaining federal licenses for a business, let’s explore some of the benefits that such licenses offer.
- Business credibility: By holding a valid business license, your business becomes more trustworthy. This opens up more opportunities for partnerships and makes your online store more appealing to investors.
- Marketing strategy: You can use the fact that you have a business license to establish your business as a legitimate entity and gain the trust of customers.
- Compliance with local laws: This way, you won’t have to worry about legal disputes and fines.
E-commerce platforms are shifting shopping trends paving the way for home-based businesses to find a customer base. Online sellers don’t need a physical location anymore to have a legitimate business.
Nevertheless, there are rules around business licensing that still apply to online marketplace sellers. By now, you should have a solid understanding of all the licensing requirements needed for your online business.
Tune in to the comment section and tell us how you plan to register your business. Also, don’t forget to share the article so the aspiring business owners you know can start their side endeavor on more solid ground.