What Is the Purpose of a Business License?


Quick Answer

Aside from providing government with tax revenues, business licenses protect the public by controlling where certain businesses may set up operations. For example, manufacturers of drugs, medical products, fireworks, poisons and explosives may not set up shop in residential areas, or auto-repair shops cannot obtain licenses to operate near schools.

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Full Answer

When an individual applies for a business license, the city planning department checks whether the chosen location is zoned for that particular business purpose and that operations do not result in code violations. Violating licensing and permit requirements set by the regulating authorities in the locality may result in fines and penalties.

A small business owner typically applies for a local business license that permits him to operate in the city or county. Multiple business locations require multiple business licenses obtained from each jurisdiction. Many cities and counties collect business license fees annually, as well as a percentage of the business' gross sales in the form of sales taxes. Additional licensing requirements may apply to occupations such as barbers, doctors and auto mechanics or products such as liquor, gasoline and lottery tickets.

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