When you are new to Shopify and on the verge of starting your online store, one question always hits your mind. Do you need a business license to operate, or can you roll on without it? Well, the shortest answer possible is no; you primarily don’t need one.
You don’t need a business license to operate your Shopify store. However, a set of rules should be followed to operate a Shopify store with all legal compliance. Now, if you plan to set up a new Shopify store, you need to know a few essential rules.
One of the most important rules to remember is that you will need a business license if you plan to sell something that falls under the category of goods and services. Now, this may include furniture, cosmetics, clothes, etc.
Now, in case you don’t have a business license in these cases, you may have to pay a penalty for the same or face a complete shutdown. You need to understand your responsibilities before starting. So read this short guide on Shopify.
We have explained the left-right center of having a business license and circumstances where you might need one. We have also provided you with some tremendous tips for getting started.
What Is A Business License?
Business licenses and business operation licenses are actually the same. These are nothing but permits that government agencies issue to allow companies to carry forward their business within that government’s jurisdiction.
In simple words, it allows your e-commerce or Shopify store to operate in a country, state, or city. A few online businesses need a license version to operate legally under the circumstances.
Generally, a business license is vital if you’re selling a regulated product, by which we mean firearms or medications or anything like that, or offer a regulated service, for example, construction or real estate.
For the majority of Shopify merchants, it’s not necessary. A home business owner is a very good example. It is still a good idea to acquire a business license, especially if you’re planning to make large profits and must pay huge taxes to federal or state tax authorities.
Besides that, it’s vital to acquire a specific business license for a specific sort of business to permit you to collect sales tax on the state’s behalf. Generally, you need to renew your business license annually, and e-commerce licenses actually don’t differ much from traditional brick-and-mortar business licenses.
The regulations for registering for a business license differ from place to place, and you will have to visit that city or state’s official website to find out the guidelines and requirements for acquiring such a license. Also, make sure to renew your license before the expiry date because if you do so, it can lead to heavy fines.
Is Acquiring a Business License for my Shopify Store Necessary? Quick Answer:
The shortest answer to that question is actually a no (in case of both Shopify Standard, and Shopify Plus businesses). You don’t need a business license to operate a Shopify store. But as mentioned earlier, a few circumstances are different. You need to follow special rules to operate your Shopify store legally.
This may include maintaining inventory levels and taxes. Now, you may plan to sell a few products that need extra regularity compliance, including drugs, food, cosmetics, etc. And in such cases, you will have to match the relevant laws.
Another example can be a liquor seller. If you are one, then you may need a special liquor license to sell it on Shopify. Similarly, suppose you’ve got a physical store and your services are something like makeup, babysitting, styling, pool cleaning, etc.. In that case, you will have to arrange a proper commercial permit from your local government.
Keep in mind you need to consult with the right authorities whenever you are attempting to make changes to your storefront or plan to expand your operations. After all, no one wants to get hammered by law or taxes.
When Do You Need a Business License as a Shopify Merchant?
Now, suppose you are selling something that is subject to government regulations, such as beverages, health beauty products, nurseries, children’s products, food, etc., then you may need to have a business license to sell on Shopify. However, additional regulatory approval can also be required for each of these items. So, if that is the case for you, you need to contact your local government bodies before moving ahead.
Certain exceptions vary depending on the product type and location of the Shopify owner. Suppose you are selling a product that falls under any of these categories. In that case, you need to research the requirements in your local area before starting spending on anything related to your Shopify store. Besides that, ensure all vital licenses and registrations are in their place to avoid any regulatory-related issues in the future. However, you don’t need a business license immediately when you begin selling on your Shopify.
In case your total sales exceed $10,000 or more in 12 months, then it is compulsory for you to have a business license from your state. Besides that, if you sell anything subject to Canadian or American import restrictions or whatever country you are living in, you need to have the right permit.
If you feel like you will gross more than $2,000 via your sales in one calendar year, get a merchant account and report your sales activities to the IRS. You must understand that whatever you sell on Shopify must comply with local laws at any cost.
Do You Need A Business License for My Home Business?
If you are planning to run a home-based business on Shopify and wondering whether you will need a business license, then let us tell you there is no straight answer to that. It highly depends upon the area where you are living.
In various jurisdictions, having a business license is compulsory whether you are running your Brick-and-mortar business or a home-based one. A business license’s core purpose is to ensure your business perfectly complies with the local laws and regulations and contributes to the local tax revenues.
So, we advise you to check your local government website or municipal office to ensure you have fulfilled all requirements before planning any home-based business on Shopify. Now, digging deeper, it may also happen that a few businesses need a license, no matter if you are running them from home, while the others may not.
Besides that, it is essential to check out various legal aspects, for example, zoning laws and homeowners association regulations, because they may have restrictions on running any sort of business from your home.
Now, in case you fail to comply with these regulations, it may track penalties.
Types of Business Licenses and Permits
Understanding laws and regulations can be pretty complex sometimes, as you read up there. Having a business license for running a Shopify store was mandatory in a few cases, while in others, it wasn’t. Also, you checked how these regulations vary when you talk about running a home-based business via Shopify.
So, it becomes even more critical for you to understand these laws and regulations so that you get to know what sort of licenses you will need for elaborating further and how to avoid the chances of getting hit by penalties.
General business license
When we talk about business licenses, this is the most common one. It legitimizes your business and permits you to operate in a given jurisdiction. Every single Shopify business owner would need this license, no matter what sort of business or what size of business they are running.
You can obtain this permit from the city or country where your business is operating from. If you have this license, you can run your business activities in a given area.
Also read: How to Put Icon Images in Shopify Footer
Federal business license
You will need a Federal business license in case your business is involved in producing or selling firearms, pharmaceuticals, transport and logistics, alcoholic beverages and spirits, live animals, radio and TV broadcasting, and aviation.
After attaining this license, your business will get credibility by showing that it operates respecting all legalities and industry standards. In certain cases, you may need an additional license too.
Home Occupation Permit
In some jurisdictions, you may need a home occupation permit in order to match community standards or zoning regulations. While operating from home and having a home occupation permit, you must uphold community standards very well.
This way, your business will not disrupt the residential environment and respect local ordinances. Small home business owners need to acquire this license to avoid zoning penalties and violations.
You can consult small business administration rules experts to check whether you are supposed to comply with any home occupation rules or acquire any additional permit considering where you live.
Resale license or Seller Permit
All sellers involved in selling physical goods need to consider obtaining a resale license or sellers per meter. With this license, the purchaser of resale goods can conduct sales transactions in various states. This license gives your business a unique identity and enriches you with various tax benefits.
You can also call it a sales tax permit. By having one, you can collect taxes from various buyers, which are later remitted to the state with a sales tax ID. This way, you are ensuring compliance with the state tax laws, and you will not have any penalties imposed on you in the upcoming time.
Evaluating your Product and Service
Understand the Industry Regulations: In this case, some industries have very high-level regulatory requirements whereby one must obtain the necessary licenses and permits without regard to the nature of the trade involved.
Consider the Sales Method: The licensing requirements might vary from product to product if you were dropshipping, making handmade products or reselling stuff. Make sure that everything about your sale is legal before you proceed. Otherwise, you might end up in jail!
Identify the Nature of Your Products/Services: Do local, state, and federal governments regulate the production of your goods or services? Food (FDA) and drugs are some of the things that often require stringent measures. As much as you can for Shopify sellers, try to define what products you plan to sell or services you’ll provide.
Check for Compliance and Legal Standards: Knowledge of the legal and compliance requirements applicable to your product or service is one way to go about it. Establish that your products are within safe and acceptable standards.
Starting up a new business venture is about much more than just having the required business skills. Your products might be based on passion and business knowledge, but there’s a requirement for the law as well.
As a determined businessman, you are bound by law to comply with all regulations and obtain various permits as you set up your business. Technically, it is possible to own a Shopify store without a license, but this relates to a particular group of people. Even then, you need a business license if your income grows beyond a certain point.
For lasting success, it is necessary to proceed carefully. Nevertheless, do not allow this to prevent you from beginning that venture you’ve been pondering about. Get the legal requirement squared away by using the right professionals.
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