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Do I Need a Business License for My Website?

Even virtual businesses require the right licenses.

Web-based businesses offer tremendous flexibility and freedom for entrepreneurs. However, lacking a storefront doesn't excuse a website owner from neglecting to follow state and local business licensing regulations. Though many website owners launch their businesses as moonlighting opportunities or as hobbies, registering for the correct business licenses can prevent misunderstandings and even penalties as a website grows in popularity.

Considerations

In most parts of the United States, website operations require business licenses as soon as they start collecting revenue from sales, advertising, subscriptions or referral fees. Websites that extend an existing business, such as the e-commerce outlet for an existing retail store or purchasing network, generally don't require separate licenses from their parent entities. Otherwise, a stand-alone website that accepts cash or barter for any of its services may require one or more licenses to conduct business.

Types

Most traditional business owners already understand the process of registering for a business occupancy license or a business privilege license. Some cities, counties and states may require one or both of these licenses, covering the permission necessary to occupy a business location or to transact with customers. Although many startup website businesses operate virtually, with no physical location, most government regulators consider the home of the website's owner as the place of business for licensing purposes. Depending on the kinds of services or products offered for sale, owners may also have to register for specialized professional licenses.

Time Frame

In many jurisdictions, government bodies require a business license for an e-commerce or advertising-driven website before the website can collect its first revenue. These requirements often frustrate hobbyists who want to test out new web business concepts on low budgets. Most cities and counties allow web entrepreneurs to license a single umbrella organization that operates multiple websites, reducing the time it takes for serial entrepreneurs to take their projects to market.

Misunderstandings

Some website owners unwittingly find themselves at odds with neighborhood zoning ordinances that restrict business licenses for home-based businesses. Most licensing restrictions exist to deter home business owners from clogging neighborhood streets with deliveries and parked employee vehicles. Therefore, website owners must educate themselves about any restrictions on the use of their home as a primary business address. Likewise, e-commerce sites must register to collect sales tax in every state where their parent companies maintain a physical presence. Site owners must research the rules for their home state and for the state in which their website's server resides.

Expert Insight

Negotiating the right set of permits, licenses and exemptions at the start of a new business can prevent significant legal costs and challenges later in a company's life, according to experts at SCORE, an entrepreneurial advisory group once known as the Service Corps of Retired Executives. While prospective website operators may choose to remain in stealth while their revenues grow, tax records and other public information can quickly reveal the real location of a growing online business. Leasing a small space, or even a desk, in a permitted business zone can help website owners comply with local licensing rules.


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Article Written By Joe Taylor Jr.

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.