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Operating a Business Without a License: What Can Happen?

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By William Peacock, Esq. on January 08, 2015 3:41 PM

Anyone who has ever started a small business knows there's always another piece of paperwork that needs to be filled out. Leases. Licenses. Supplier agreements. Receipts and contracts with customers and clients.

And that isn't even touching on costs: Federal taxes. State taxes. City taxes. Sales taxes. After a while, you may begin to feel like you're paying all of your profits off to the tax man.

But don't overlook one easy-to-miss requirement of starting a business: the paperwork and fee for your local business license.

Brief Business License Basics

What is a business license? It's your local city or county's legalized way of extorting a few dollars from you before you even begin to make money.

In less sarcastic terms, a business license is exactly what it sounds like: the requisite paperwork and permission from your local government to open your doors to the public. Depending on your location, you may have to deal with either city hall or, if you are in unincorporated territory, county officials.

The U.S. Small Business Administration has a tool for locating which licenses and permits you'll need to legally operate in your chosen location.

What Happens If You Skip This Minor Necessity?

Fire, brimstone, and lashings!

OK, again, sans sarcasm: The penalties vary by jurisdiction, but you could face a temporary closure (while you sort out the paperwork), a longer waiting period for a license (while your doors remain shut), or even outright denial of a license.

They won't just padlock the doors either. Fines, fees, and penalties are always popular among local governing bodies. As an article by Demand Media notes, for more regulated industries (such as trucking), you might even face simultaneous fines at the local (city or county), state, and federal levels.

Finally, it won't just be the government you have to worry about: Operating an unlicensed business could harm your reputation with the community and may even be a sufficient basis for a lawsuit claiming fraud by a disgruntled customer, Demand Media reminds us.

Between city, county, and state permits, it's easy to get lost in the maze of paperwork. If you need a hand, contact a qualified business attorney before opening your doors. As a wise man once said: Proper planning prevents poor performance.

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