An Online business is a great and comparatively easy way to have financial freedom. It has a lot of perks out of which the most important one is that you can work from any part of the world according to your schedule and work on your terms and conditions. It requires low startup cost which means you can start your own business with very little investment, unlike other conventional businesses that require huge amount of investments.
Even though it is easy to start an online business that does not mean that you can just jump right into it without any legal things to consider. It depends on which scale you will start your business. If it is a full-fledged company on a large scale then there are a few legal steps you will have to follow. By following all the legal requirements you will be able to own your business and nobody can question your income. You should know that before starting an online business you will need a business license and other permits. But these licenses are very easy to acquire. In this article, we will discuss a few legal things that are required to start an online business, but Please note that I am NOT an Attorney. The advice given in this article is through my own experience starting Online Businesses.
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- Business Operation License
Almost every online business needs a Business Operation license to operate in their city, country, or state. These Business Operation Licenses are issued by government agencies, that allow the individuals or companies to operate in a particular city. The rules and regulations for these Licenses are ever-changing, so it is always better to confirm the current rules from your city’s local authorities. In most cities, there is an option to apply online by filling a simple form on the Secretary of State’s website. The requirements for getting this license are usually very easy to fulfill and you have to pay a small fee as well.
You should keep in mind that when you operate a business without a proper license, you are putting your business at heavy risk because the government has the authority to cease your business until you complete the paperwork. If you already have a business then make sure to keep checking your license after some time to see whether your license has expired or not, because when you have an expired license you WILL have to pay fines. So, it is better to be prepare beforehand.
- Employer Identification Number (EIN):
EIN is also referred to as Federal Tax ID`, it is a federal identification number issued by the IRS that identifies your business as a distinct tax entity. You need to have an EIN if your business is new, plan to hire employees, plan that you are incorporated and in need a of a business bank account or plan to change your organization type. In any of these cases, having EIN for your business is necessary. It is a very good idea to have this ID so that you can avoid tax-related problems in your business because and to make sure that your business collects payroll tax and stays in order. You can simply visit an IRS website and file for an EIN. Even though it is not compulsory to get an EIN, it is best to have one to avoid any tax issues in the future. You can visit the official website of irs.gov here.
- Doing Business As (DBA) License:
A “Doing Business As” license allows you to operate a business under a name other than your name, for example, your name is “John Smith” but you can keep your company’s name as “Christopher hair oil company”. So, it is a great option for someone who does not want to name his business as his name. A DBA license is not mandatory but it is a good opportunity to fulfill some business requirements like opening a business bank account and enforcing and contracts. Every country and state has different rules for this license so if you wish to get this license for your business then it is best to check with the official rules for your country or get consulted by a legal representative.
In most states, it is not necessary to file for DBA unless you are starting a business under a different name from your own. The cost of filing for a fictitious name for your company can range from $10 to $100. Banks also ask for this license when you want to open a business bank account for your fictitious named company.
- Seller’s permit:
Every business that sells goods or services online requires a Seller’s permit to function. It allows you to collect sales tax from your customers pay on a regular basis either monthly, quarterly, or yearly. The requirements and fee vary from country to country but having a seller’s permit is mandatory in all the countries if you want to legally run an online business. To confirm that you are getting the right permit for your type of business it is important to check with your state’s licensing office, they will help you to understand which type of permit you need.
This business permit applies to all kinds of businesses including digital or other intangible products so it is better to get the right license from your state. There are no charges for this permit but sometimes security deposits might be required.
- Sales Tax License:
A sales tax license is an agreement with the state tax agency to collect sales tax on items that are sold by your business. For the states that provide sales tax licenses, you need to collect these taxes and submit them to proper state taxing authorities. Not having a sales tax permit in a country where it is mandatory can result in heavy fines for you. A sales tax license is not a one-time done job, you need to keep updating it after regular time intervals.
You can get your sales tax license terminated whenever you plan to stop doing business, transfer your business to someone else’s name, or change the form of your business. This license is mostly free in maximum states and countries but in some countries, it costs a small amount i.e. usually $20. One thing you should never think of doing is collecting sales tax even when you do not have a license, this can lead to a large number of fines and defamation to your business.
- Home Occupational Permit:
The good thing about e-commerce businesses is that they can be operated from home, you do not need to have a proper office for these types of businesses. So, for such businesses, you do not need most of the licenses and permits that are required for other commercial businesses, but this does not mean that you are safe from all licenses, you will still need a few licenses. You will need a Home Occupational Permit. You can get instructions from your government’s online website to see that how you can apply for this permit and get your business started.
Final Words:
It is believed that only conventional businesses require legal work but in reality all types of businesses do, even the ones like an eCommerce business. Those type of businesses still need legal paperwork to make sure that it functions after acting upon all the laws of your country. So, in this article, we have tried to educate you about certain legal permits or licenses you need to start an online business.
If you need more information for legal requirements to start your business or online business click on the article we found right here.
