Is a business license necessary to start a Shopify business? In short, No, you do not need a business license to start selling on Shopify, however I believe that a license is crucial even for online businesses because it helps establish credibility, especially in heavily regulated industries.
I’ve helped many businesses get started, and small businesses thrive and grow. If you are serious about building a business as a Shopify store owner, you need a license to become an established entity.
But keep reading to find out what you need to know about this process and whether it’s necessary to start an online Shopify business.
DISCLAIMER: While we have done the research for this topic, and we are basing our article on personal research and experience – this is not to be taken as specific financial or legal advice. The laws and regulations DO vary from country to country, so please seek legal advice for your specific situation.
Key Takeaways
- Shopify does not require a business license to sell, except when a store owner earns more than $20,000 and manages an inventory or sells products that require necessary licenses or permits.
- Choose a legal business structure, such as a sole proprietorship or LLC, before you apply for a business license.
- Obtain the necessary documents and permits to submit your business license application to local government or tax agencies.
Article Overview:
What is a Business License?
Do You Need a Business License to Sell on Shopify?
Do You Need a Business License for Dropshipping on Shopify?
Advantages of Getting a Business License to Sell on Shopify
How to Get a Business License
Types of Business Licenses
What is the Business Licenses Cost?
Conclusion: Do You Need a Business License to Sell on Shopify?
FAQs
What is a Business License?
A business license is a legal document issued by the local or state government that proves your business identity and shows that you have complied with the necessary licensing requirements to operate as a business within your local area.
Local authorities or organizations issue licenses with the right to issue the necessary licenses for the applicable businesses.
As federal law dictates, granting a business a license to operate legally also gives them the right to collect federal tax on that business.
Do You Need a Business License to Sell on Shopify?
The short answer is no. Shopify store owners are not required to have a business license to sell on Shopify. Therefore, online business owners on Shopify do not have to obtain a business license, except if the following conditions apply to your small business:
- Your online Shopify business earns over $20,000 per month;
- You sell products on Shopify under heavily regulated industries, such as food production, health supplements, agriculture, alcohol, television broadcasting, etc.
- Your business involves products or services that require a government or professional license.
If those scenarios apply to your small business, you must obtain a business license. If not, you can start selling on Shopify without securing a business license.
However, some states will have different regulations about taxation and business licenses. Therefore, it is crucial to check with the local authorities about online business license requirements and whether you must pay federal tax.
Do You Need a Business License for Dropshipping on Shopify?
Shopify does not require a business license to sell on its platform like other business models. However, you will need one if your dropshipping stores earn more than $20,000 a month.
Otherwise, you can start a dropshipping business with relatively no money and without a business license.
Advantages of Getting a Business License to Sell on Shopify
1. Legal Compliance
A business license to sell ensures your business can operate legally within your local area. It also makes your business credible in the eyes of your customers, knowing that you have complied with the necessary and required business licenses and permits.
2. Business Credibility
Showing your business license as a Shopify business owner enhances your trustworthiness. Not all Shopify business owners take the steps to comply with their business licenser requirements, but taking that extra step reassures your customers and prospects that you take your business seriously.
3. Tax and Legal Obligations
Setting up a business license for your Shopify online store allows you to collect sales tax and remit it to local authorities and tax agencies. It will help your business avoid legal liability when not paying sales tax or avoid the legal risks of your business being forced to shut down.
4. Expansion Potential
Having a general business license or legal business structure also puts you in a position to grow your business. It opens up opportunities to acquire new suppliers or forge partnerships that are only possible if you have a state business license.
5. Professional Brand
A business license helps you establish a professional image or brand. It shows your customers, suppliers, and partners that your business is trustworthy and operates legally and ethically.
How to Get a Business License
If you have determined that your business needs a license to operate on Shopify, here are the steps to get one.
Step 1: Choose a Business Legal Structure
Business legal structure refers to whether you will operate your online business as a sole proprietorship or limited liability company (LLC). In a sole proprietorship, your personal identity and business are considered as one.
Therefore, you will not be separating your business and personal assets. Also, you need only one owner under this type of business structure.
On the other hand, an LLC is a business entity separate from your personal assets, identity, and liabilities. There are no restrictions on the number of owners in an LLC, which can have one or more.
Step 2: Register Your Employee Identification Number
You must register an Employee Identification Number (EIN), which will serve as your business’s federal tax ID. This step is crucial if you own an LLC, whereas sole proprietors can use their social security numbers for tax purposes.
You will also need your EIN when securing a seller’s permit or any permit applicable to your Shopify business.
Step 3: Research the Required Licenses and Permits
While most states differ in their requirements for state business licenses, there are also different business license requirements depending on the type of business you operate.
Aside from the state’s legal compliance and regulations, you must consider the type of products or services for your business.
Check with your state’s local licensing agency to determine if your Shopify business requires additional business licenses types, and permits.
Step 4: Get a Business License
This step is where you will file your business license application. You must complete the necessary information about your online businesses and submit it to the local government to secure the appropriate business licenses.
Types of Business Licenses
Learn about the different types of business licenses to help you pick the right one for your Shopify business.
- Federal License—Secure this business license if your business involves activities governed by federal agencies, such as alcohol and broadcasting. This type of business requires legal compliance with national regulations.
- Industry Business Licenses – This business license refers to regulated industries or products, such as financial services or contractors. An additional industry license requires specialized skills or knowledge when providing business or personal services.
- Business Operating License – This business license applies to businesses governed by zoning, health, and public safety standards. You must comply with this business license before your business operates within your local area.
- Seller’s Permit—This business license applies to businesses that sell goods and services and must comply with local or state tax regulations.
What is the Business Licenses Cost?
The business license cost in the US ranges from $50 to $550. It depends on the business license types you’re applying for and if there are other permit fees to settle.
As mentioned earlier, the necessary business licenses are governed by the type of products you sell and which industry they belong to. Additional permit fees could also apply depending on which state government you belong to, as they have varying requirements.
Conclusion: Do You Need a Business License to Sell on Shopify?
Most business owners would rather skip applying for and complying with a business license. However, a Shopify business owner must have a business license that proves that you are legally compliant with the local regulations and that your business entity has a sales tax permit.
Getting a business license is imperative to ensure the long-term success of your business, especially if you envision it growing. Once you obtain your business license to sell on Shopify, you can focus on the fun aspect of selling, marketing, and making money as a legal business.
FAQs
Can I sell on Shopify without an EIN?
Yes. Shopify does not require any form of tax identification numberor employer identification number to sell on Shopify.
What are the requirements to sell on Shopify?
First, you must have a Shopify account and a Shopify store subscription. Additional requirements are a custom domain name and products. You can start selling on Shopify even if you don’t have a business license.
Is a business license for a Shopify store cheaper than a regular business?
Generally speaking, no. Three factors influence the business license cost: your state, the type of business, and the number of employees. It does not account for whether you have a physical or online Shopify store.
How long does it take to get a business license?
It depends on various factors, such as whether you have completed all the necessary documents upon submission. The industry or location of your business can also be a factor.
Longer wait times are expected for heavily regulated industries, but they can range from one day to several months based on the above-mentioned factors.
Consider this when applying for a Shopify store business license and when you want to start trading.
