Becoming a freelancer can be liberating. You have the freedom to set up shop anywhere you’d like and conduct business from the kitchen, your home office or a coffee shop, or at 35,000 feet. Freelancing has dramatically reshaped how we think about work and empowered individuals to pursue a living without the constraints of the traditional 9-to-5 workday.
A sole proprietorship – the default freelancer business structure – is an unincorporated business that one person owns and runs. However, just because your business blurs the traditional lines of the working world doesn’t mean you can ignore laws and regulations about business licenses and other matters.
In fact, there’s a good chance you have some municipal rules to follow if you conduct business – even as a sole proprietor.
If you’re the sole owner of an LLC, you’re not a sole proprietor. The LLC has a legal identity separate from you, while you’re personally responsible for your business debts and obligations if you’re a sole proprietor.
Freelancers and solopreneurs choose to run sole proprietorships for many reasons. They’re effortless to form and have minimal costs. But because a sole proprietorship is so uncomplicated, you may be lulled into a sense of complacency about rules and regulations.
Some sole proprietors assume they’re exempt from business license restrictions because they run a one-person operation or work online. This assumption is inaccurate and can lead to legal issues down the line.
Here are some crucial things for sole proprietors to know about business licenses.
Sole proprietors are responsible for finding out if they need a business license.
Federal, state, county and city governments issue business licenses. Even if the federal government doesn’t require you to get a business license, your state, county or city may have its own requirements. You will likely be required to get at least one business license or permit between federal, state, county and city requirements.
Generally speaking, regulated businesses are more likely to need business licenses at the federal and state levels. For example, if you make jewelry and sell it at festivals, you are less likely to need a state business license than if you open a restaurant. There’s little potential harm if a customer’s jewelry breaks prematurely. It’s much more severe if a restaurant has a food poisoning incident because it didn’t follow food-handling rules.
If a federal agency, commission, association or board regulates your industry, you’ll need a federal certificate in addition to a business license. These industries include:
Sole proprietors should check federal, state, county and city requirements for licenses and permits.
Sole proprietors may need various licenses to operate legally. Some of these licenses include the following:
As a starting point, sole proprietors should contact their local Small Business Administration (SBA). The SBA operates numerous Small Business Development Centers that can advise on necessary licenses and how to get them.
When it comes to business licenses, location matters. For example, if you live in an unincorporated area of a county, you will likely apply for a business license through the county instead of a city. If you work in a city, you’ll need to check the city’s website to see if it requires businesses to obtain permits.
When applying for licenses and permits, sole proprietors should work from the top down:
It may be tempting to think your operation doesn’t need licenses and permits because you work from home. Federal, state and local governments will notice eventually. Tax revenue is critical for your community, and you could be subject to penalties for time spent operating without a license.
The freedom of running a sole proprietorship is wonderful, but it’s worth remembering that you’re still part of the business world, and it has some rules for you to follow.