Do you need a business license to sell on Shopify? The 2024 guide

Are you contemplating launching your own business? You may be thinking of starting where most entrepreneurs do: online. 

Launching an online store can be pretty straightforward, especially on Shopify. But before you begin, one critical question must be answered: Do you need a business license to run a Shopify store? 

Knowing whether you need a business license or not has a huge impact on how your online business operates. This guide cuts through the confusion, providing clear answers about business licenses for Shopify in 2024. 

We’ll break down when you need a license, walk you through the application process, and help you ensure your online store is fully compliant. 

Let’s get you one step closer to a successful Shopify launch!

• A business license is a federal government-issued document that legally allows you to operate your business within a specific jurisdiction.

• Businesses earning over $20,000 per month, storing regulated inventory at home, or selling items needing professional/government licenses are likely to need licensing.

• Business license costs vary by location and type but generally involve application fees and renewal charges.

• To get licensed, identify the type of license required, gather documents, choose your business structure, obtain an EIN, and apply through the appropriate channels.

• Utilizing services like Gelato for print on demand solutions helps streamline your Shopify business and reduce inventory management hassles.

A business license is a government-issued document allowing you, the business owner, to operate within a specific jurisdiction. It certifies that you comply with local regulations, enhancing credibility and trust among customers and partners. A federal business license can protect you from legal issues and help establish your business as a legitimate business entity.

When starting your Shopify store, understanding the different types of required business licenses is vital to staying compliant. Here are some standard licenses you may encounter: 

• Federal licenses: Required for specialized industries like aviation, alcohol, firearms, and broadcasting.

• State licenses: Vary by state and typically apply to professional services and specific business activities.

• Business operating license: A general license allowing you to operate within a city or municipality.

• DBA registration: Allows you to operate your business under a name different from its legal, registered name.

• Seller's permit: Required for businesses selling taxable goods or services, enabling paying sales tax.

• Special permits: Specific to certain types of businesses, such as health inspections for restaurants or zoning permits for specific locations.

Knowing which licenses apply to your Shopify store ensures you operate within legal parameters. Each business type and location may require different licenses, especially if your business operates as part of one of the heavily regulated industries, so research and compliance are crucial.

You don't necessarily need a business license to start selling on Shopify. However, there are specific situations where obtaining one becomes critical to staying compliant.

These scenarios include surpassing certain income thresholds, storing inventory, or selling regulated items. While Shopify doesn't mandate a business license, understanding when and why you might need one is crucial for smooth, compliant operations.

Determining whether you need a business license for your Shopify store largely depends on what you're selling, where you operate, and how much revenue you generate. 

Let's break down the critical scenarios in which obtaining a business license becomes necessary to ensure your ecommerce business operates compliantly and smoothly.

Earning over $20,000 per month

When your Shopify store starts earning over $20,000 per month, this level of business growth is a thrilling milestone. However, it also comes with added responsibilities. 

At this income level, many states and local governments require you to obtain a business license. Failing to secure the appropriate permit can lead to penalties or even the closure of your shop. 

Here are some considerations:

• Legal compliance: Ensure your business meets all legal standards and is not at risk of penalties or fines.

• Tax implications: A business license can streamline tax filings and make claiming business expenses more manageable.

• Professional credibility: A business license can enhance your company’s credibility and trustworthiness with customers and suppliers.

Earning over $20,000 monthly necessitates a business license to maintain compliance and credibility. Taking this step can safeguard your business from potential legal issues.

Storing regulated inventory at home

Storing regulated inventory at home can introduce unique challenges. Certain products, such as food, beauty, or CBD, may require special permits or adherence to specific storage regulations. 

• Food items: You must meet health and safety standards, often requiring inspections.

• Beauty products: You may need to comply with FDA guidelines and proper labeling.

• CBD products: These are subject to strict regulatory compliance and secure storage guidelines.

Storing regulated inventory requires careful attention to legal requirements and safety standards. Doing so can help prevent legal issues and ensure the success of your Shopify business.

Selling items that require professional or government licenses

If your Shopify store plans to sell items that need professional or government permits, it’s crucial to understand the legal requirements. These items typically include:

• Alcoholic beverages: If you sell alcoholic beverages, you must obtain the appropriate federal and state licenses.

• Firearms and ammunition: Businesses dealing in firearms and ammunition require strict federal licensing.

• Pharmaceutical products: Selling pharmaceutical products requires special permits and licenses due to the highly regulated nature of the industry.

• Health and beauty products: Depending on the ingredients and claims made about the products, vendors of health and beauty products may need specific certifications and licenses.

Each of these categories requires a specific federal license/s and compliance measures. For example, selling alcohol may require state-issued permits and compliance with federal regulations. Similarly, pharmaceuticals often need approval from regulatory bodies like the FDA. 

Using Shopify's payment gateways

A business license becomes critical when you use Shopify's payment gateways, such as Shopify Payments, third-party processors, or PayPal. Here's why: 

• Verification process: These gateways often require verification of your business status to ensure compliance with financial regulations.

• Legal operation: Operating with a business license helps avoid any potential legal issues that might arise from regulatory scrutiny.

• Trust and credibility: Maintaining a business license can enhance your store's credibility with payment providers and customers, fostering trust and reliability.

• Dispute resolution: It simplifies resolving financial disputes or issues with payment processors.

Ensure you have the required licenses before setting up payment gateways to avoid disruptions, ensuring a seamless transactional process that benefits you and your customers.

The cost of obtaining a business license for your Shopify store can vary widely depending on several factors: 

• Type of business and industry

• Location (state, county, city)

• Business structure (sole proprietorship, LLC, corporation)

Typically, you can expect to pay anywhere from $15 to over $400 for a Shopify business license. Some states, like Washington, require most businesses to apply for a permit, with processing fees of up to $50. Remember potential renewal costs, which can be the same as the initial application fee. 

New Shopify business owners should also budget for any necessary permits or inspections. For instance, a liquor license or fire code inspection might add extra expenses. Your specific business needs and regulations influence the cost, so it's essential to consult your local government for precise figures and requirements.

Obtaining a business license for your Shopify store is essential to ensure legal compliance and build credibility. Let's explore the process step-by-step to make sure you set your ecommerce business up for success!

Determine the type of license you need

Figuring out the type of business license you need is crucial for legal compliance. Here are the most common types: 

• General business license: Needed for most businesses, regardless of their size or industry.

• Seller’s permit: If you plan to sell physical goods, you require this. It allows you to collect sales tax from customers.

• Federal licenses and permits: These are necessary if a federal agency (e.g., agriculture, alcohol, firearms) regulates your business activities.

• Local licenses and permits: These vary by city or county and include health permits, building permits, and zoning clearances.

• DBA registration: Required if you operate your business under a name different from your legal business name.

Identifying the correct license early on will prevent potential fines and operational hiccups. Be sure to prioritize this step as you navigate the business license process.

Gather necessary information and documents

Having all your documentation in order is vital before you apply for a business license. This helps streamline the process and ensures you're aware of unexpected requirements. 

Here's a checklist of essential information you should have on hand when applying for the license: 

• Business name and contact information: This includes your business's legal name, address, phone number, and email.

• Sales tax license: Obtain this from your state agency if applicable.

• Required permits: Any necessary inspections or specific licenses such as health department clearances or liquor licenses.

• Associated fees: Be prepared to pay any necessary application or permit fees.

Having these details readily available saves time and helps ensure a smooth application process. Proper preparation can mean the difference between quick approval and lengthy delays.

Choose your business structure

Selecting the proper business structure is crucial as it dictates your legal and tax obligations. You have several options: 

• Sole proprietorship: Easy setup and complete control, but personal liability for debts and taxes.

• Partnership: Shared responsibility and profits, but joint liability.

• Limited liability company (LLC): Offers liability protection with more flexible tax options.

• Corporation: Limited liability and potential tax benefits, but comes with more regulations and administrative work.

Evaluate factors such as business size, the number of owners, and risk tolerance to make an informed choice. Understanding your structure from the onset helps streamline compliance, financial planning, and future growth. 

Your business structure impacts your operational efficiency and financial health. Make sure to choose one that aligns with your business goals and resources.

Obtain an Employer Identification Number (EIN)

Securing an EIN is critical in legally establishing your Shopify business. Here's why you need it: 

• Tax purposes: An EIN is necessary for federal tax filings and helps distinguish your business identity from yours.

• Hiring employees: If you plan to hire employees, you'll need an EIN for payroll purposes.

• Opening a business bank account: Most banks require an EIN to open a business bank account, which is essential for separating business finances from personal ones.

• Obtaining business licenses: Some states and municipalities require an EIN when applying for business licenses and permits.

Getting an EIN is straightforward and can be done online via the IRS website. It’s quick, free, and takes only a few minutes to complete. An EIN is a fundamental step in starting a Shopify business. It ensures legal compliance and helps manage business operations smoothly.

Apply for the business license

Now that you've gathered all the necessary information, it's time to apply for your business license. Here are the steps you need to follow: 

• Complete the application form: You can obtain it from your local government office or website. Fill it out with accurate and up-to-date information.

• Submit required documents: Include necessary paperwork such as your EIN, business description, and proof of identification.

• Pay the application fee: Most jurisdictions will charge a fee for processing your business license application. Ensure you know the amount and acceptable payment methods.

• Wait for approval: Processing times can vary. It could take anywhere from a few days to a few weeks.

Once approved, you'll receive your business license, allowing you to operate your Shopify store legally. Keep it updated and renewed as required by your local regulations.

Acquire any additional permits or certifications

You may need extra permits or certifications to operate legally, depending on your business type. Here are a few common ones you might need to consider: 

• Sales tax permit: Required if you sell taxable goods or services.

• Health and safety permits: Essential for businesses that handle food, cosmetics, or health products.

• Home occupation permit: This may be necessary to run your business from home.

• Environmental permits: Businesses that deal with waste disposal or hazardous materials need them.

These permits ensure your business complies with local, state, and federal regulations. Check with your city hall, county, or state government to determine which permits are relevant to your business activities. 

Acquiring the appropriate permits and certifications helps you avoid fines and builds customer trust. Do your due diligence to keep your business compliant and successful.

Navigating the complexities of business licenses is just the beginning of your ecommerce journey on Shopify. You can build a compliant and thriving online store by following the advice shared in this post. Once your business is up and running, scaling it becomes a matter of using a modern integrated platform. 

Enter Gelato—a game-changer for entrepreneurs looking to streamline their product offerings without the hassle of maintaining extensive inventories. 

With Gelato's print on demand services, you can access a global network of printing partners, ensuring high-quality products and faster delivery times. Our user-friendly interface seamlessly integrates with Shopify, allowing you to quickly create, sell, and ship products. Plus, our subscription plans cater to businesses of all sizes, making it easy to scale up as your business grows. 

One right decision can level up your business in so many ways. Sign up for Gelato today and take your Shopify store to new heights!