An online business can be less expensive than running a brick-and-mortar store. Many online businesses don’t have overhead expenses because they require little to no space for storage and management of inventory.
For example, plenty of custom T-shirt shops will print and mail the goods for you. All you have to do to run an online retail T-shirt operation is to come up with the designs.
Many eBay sellers don’t require space to store inventory, either. A substantial number of them hold only a small amount of inventory (often sourced from local thrift stores) in their home that sells quickly.
Online business owners have it easy in the case of inventory, but they’re not off the hook for observing various laws that govern running a business. Given the simplicity and ease of selling goods online, it can be awfully easy to forget about obtaining a business license and other requirements.
A business license is necessary for selling online
It takes mere minutes to set up an online store on websites like Café Press, Spreadshirt, and Big Cartel. It’s equally easy to create seller accounts on Amazon, eBay, and Etsy.
All of these websites make it easy to sell stuff, but if you don’t have a business license to cover your activities, you might be breaking the law. Unless you’re selling longtime personal belongings you no longer wish to own, the law regards you as running a business, and you are obligated to obtain the correct business license to remain compliant.
This applies whether you deal in physical inventory or not. A general business license can be obtained from the county where you do business. This resource provides information for business requirements in every state.
If you run an online store, you should possess a license regardless of the number of your employees. Certain firms need additional licenses or permits as well. For instance, sales tax registration is necessary for businesses that are required by their state of residence and operation to collect sales tax from customers.
What can be especially surprising is that in some states, unemployment and workers compensation registration are also required, even when you have no employees. If you weigh items for sale, you might have to obtain a weights-and-measures registration, too.
Other licenses and legal registrations are required
Laws vary between states, sometimes significantly. Once you’ve formed a corporation, it’s vital to be aware of all the necessary licenses that relate to running a corporation in your state.
For example, if you form an LLC or hire even one employee, you’ll have to obtain a Federal tax ID number. In Florida, an LLC must have a registered agent.
The registered agent is responsible for receiving all legal and tax correspondence. It’s not enough to register your business; you must designate a registered agent, even if it’s yourself.
California has so many laws that one YouTube publisher refers to that state’s requirements as the “tax rabbit hole.”
Home-based business versus working from home: what’s the difference?
A person who sells T-shirts online only and has no inventory is not running a home-based business; he or she working from home. A person who screen-prints T-shirts in the garage and sells them online is running a home-based business.
The manufacture or physical processing of goods on the premises appears to constitute the distinction, and that’s where the difficulty in obtaining a business license comes into play.
Renters may have difficulty obtaining a business license
Many people who apply for a business license to sell items online are told they need to obtain a Home Occupation Permit first. This permit requires a notarized statement from the landlord that says it’s okay to run a business from the place where you live.
Not many landlords will sign off on this, even if all you’re doing is mailing T-shirts. If your landlord doesn’t approve your home business, you can’t obtain a business license without securing a separate, commercial address with which to register.
Why landlords don’t like home-based businesses
Many apartments have a “no home business” clause written into the lease and allow no exceptions. There’s a good reason for this.
Not every home business runs a low-key operation, such as the sale of stuffed animals or vintage clothing. Some home businesses can be disruptive or destructive.
For example, a company that sells goods to the local public can increase traffic on private roads and tie up parking spots normally used by residents. Other home businesses might store dangerous or hazardous materials, which puts the neighbors at risk.
The best solution is to own your home
Many business owners end up moving when they can’t get their landlord to sign off for their business license. If you seek to build a strong business with the hope of expanding in the future, you may not wish to get too comfortable in a rented home.
Check your local zoning laws to find out which neighborhoods allow business to be conducted, and make some calls to find a landlord who will support your home-based company.