What's the Relationship Between a US Business License and EIN? A Clear Guide!

Do You Know the Relationship Between a Business License and an EIN in the U.S.? An In-Depth Explanation Is Crucial!

When starting or operating a business in the United States, you'll often come across two key terms Business License and EIN Employer Identification Number. While both are closely related to legal business operations, they serve very different purposes and have distinct application processes.

Many people mistakenly believe that having an EIN means they can legally operate a business, or that a business license is all they need. That’s not the case. Understanding the relationship between these two elements is crucial for entrepreneurs, freelancers, and especially cross-border sellers.

1. What Is an EIN and What Is It Used For?

An EIN, short for Employer Identification Number, is a nine-digit tax ID number issued by the Internal Revenue Service IRS. It functions like a Social Security Number SSN for a business and is primarily used for tax identification and reporting purposes.

The EIN has many practical uses, including

Opening a business bank account

Filing federal and state tax returns

Hiring employees and reporting payroll taxes

Applying for certain business licenses in some states

Registering business accounts on platforms like Amazon or Shopify

It's important to note that an EIN is not a business license. It simply identifies your business for tax purposes and does not grant permission to operate in any jurisdiction.

2. What Is a Business License and Why Is It Important?

A Business License is an official permit issued by local authorities-such as a city or county-that allows a business to operate within a specific geographic area. Requirements vary widely depending on location and industry. Some areas may require multiple licenses, such as zoning permits, health department approvals, or fire safety inspections.

For example, if you open a restaurant in Los Angeles, you’ll need not only an EIN but also

A food service permit from the health department

A location permit from the city planning office

A fire safety inspection clearance

Operating without the required business license can lead to fines, forced shutdowns, or even legal action.

3. The Relationship Between EIN and Business License Complementary, Not Interchangeable

While both an EIN and a business license are essential for legal operation, they differ significantly in origin, purpose, and requirements

EIN Issued by the IRS, it serves as a tax ID at the federal level.

Business License Issued by local governments, it grants permission to operate in a specific area.

They are complementary, not substitutes. Many entrepreneurs apply for an EIN first because it is often required when applying for a business license or opening a bank account. However, obtaining an EIN alone does not mean you're cleared to start doing business-you still need the appropriate licenses.

4. Recent News Case Consequences of Ignoring the Business License Requirement

With the rise of cross-border e-commerce, many Chinese sellers have registered U.S. companies to comply with platform and regulatory requirements. However, recent reports highlight cases where sellers obtained an EIN but neglected to secure the necessary business license.

For instance, in October 2025, a Shenzhen-based cross-border team registered an LLC and received an EIN but began selling on Amazon without a California business license. Local authorities issued warnings, demanded a suspension of operations, and imposed fines of several thousand dollars.

This case clearly illustrates that while an EIN is a critical first step toward compliance, the business license remains the key document for legal operation.

5. How to Apply for an EIN and a Business License

1. Applying for an EIN

The process is straightforward and can be completed online via the IRS website in just a few minutes. You will need

Business name and address

Type of business entity e.g., LLC, C Corp

Responsible person’s SSN or ITIN

Information about whether the business already has employees

After submission, the IRS will issue the EIN immediately, and you can download the official confirmation letter CP 575 for future reference.

2. Applying for a Business License

The process varies by location but typically includes

Providing your EIN

Submitting business registration documents e.g., Articles of Organization

Completing forms detailing business location and services offered

Paying fees usually $50-$500

Providing professional certifications if applicable, such as those for medical or food services

Before registering, check the local government or business licensing office’s website for exact requirements.

6. Conclusion

In summary, an EIN is a tax identification number, while a business license is a legal permit to operate. Both are indispensable and serve unique roles in ensuring your business runs smoothly and legally.

For anyone launching a business or engaging in cross-border trade in the U.S., understanding the distinction-and how they work together-is vital for avoiding legal risks and building a sustainable business.

In today’s increasingly regulated environment, cutting corners can lead to serious consequences. It’s always better to do things right from the beginning. After all, legal compliance is the foundation of long-term business success.