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What Licenses Does A Soap Making Business Need?

What Licenses Does A Soap Making Business Need?

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What Licenses Does A Soap Making Business Need?

Starting a successful handmade soap making business takes more than knowing how to craft the perfect bar of soap. Starting a new business requires completing several steps, and obtaining licensing is an important one as it may impact your ability to operate legally.

The question, “what business license do I need to start my soap making business” is a common one, but in reality, your business will likely need multiple licenses, permits, and registrations from federal, state, and local agencies.

Let’s look at which licenses to consider when starting a soap making business.

Related: Guide to starting a soap making business

While we have researched what licenses and permits your business may need, please be aware that there is no way for us to have uncovered every state and local requirement.

To not miss any important licenses and permits, we recommend also checking with your local Chamber of Commerce, economic development agency, or use a business license service like Incfile or LegalZoom.

What Licenses Do You Need to Start a Soap Making Business?

Federal Licensing

Most soaps on the market are really cleansers, detergents, and other types of products that fall under the oversight of the Food and Drug Administration (FDA) under cosmetic products or drugs.

According to the FDA’s regulations, to be regulated as true soap, a product has to meet three conditions:

What it’s the product made of – To be regulated as “soap,” the product must be composed mainly of the “alkali salts of fatty acids,” that is, the material you get when you combine fats or oils with an alkali, such as lye.

What ingredients cause its cleaning action – To be regulated as “soap,” those “alkali salts of fatty acids” must be the only material that results in the product’s cleaning action. If the product contains synthetic detergents, it’s a cosmetic, not a soap. You can still use the word “soap” on the label.

How it’s intended to be used – To be regulated as soap, it must be labeled and marketed only for use as soap. If it is intended for purposes such as moisturizing the skin, making the user smell nice, or deodorizing the user’s body, it’s a cosmetic. Or, if the product is intended to treat or prevent diseases, such as by killing germs or treating skin conditions, such as acne or eczema, it’s a drug. You still can use the word “soap” on the label.”

Products that don’t fall into the category of true soap are regulated by the FDA.  There isn’t a lot of oversight, however, if your product claims to clean or deodorize, the FDA has regulations for cosmetics. Additionally, you will need FDA approval if your soap makes any medical claims, there are certain drug regulations to follow.

Learn more about the FDA regulations for soaps.

If your product falls under the definition of true soap, the Consumer Product Safety Commission (CPSC) will regulate these products.

Learn more about the requirements from the Consumer Product Safety Commission.

While there aren’t licenses specifically for a soap making business, there are general licensing requirements for starting a business at the federal, state, and local level.   Here are a few of the common licenses and permits that a soap making business may need:

Entity Formation

When starting a business, the legal entity needs to be selected. A legal entity refers to how a business is organized in order to operate. There are four main types of entities; sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).

Each type of entity has its own pros and cons, such as liability protection, costs, and administrative requirements.

Related: What is the difference between a sole proprietorship, partnership, Corporation, or LLC?

Business Name Registration

While not necessarily a business license, it’s worth noting that to use a name for a business, many states require the registration of that name. Making matters more complicated, the process of name registration is different by state and the type of business entity.

For instance, sole proprietorships and partnerships generally need to register a business name (also referred to as a Doing Business As, DBA, fictitious name, or assumed name).

Learn: How to register a DBA

Corporations and LLCs register are a little easier because the name is registered when the entity is formed with the state.

General Business License or Permit

Depending on where the business is located, a general business license or permit may be required. A few states require a business license; however, they are more commonly found at the city level.

Learn more: Business license requirements by state

Federal Employer Identification Number

The Federal Employer Identification Number (also referred to as a FEIN, Employer Identification Number, EIN, or Federal Tax ID Number) is a unique nine-digit number that identifies a business with the Internal Revenue Service (IRS).

Any business with employees or those that form as a partnership, Corporation, and in many cases an LLC, the business will need to get an EIN.

Sole proprietors and single-owner LLCs without employees can instead use the owner’s social security number.

Learn: How to get an EIN 

Sales Tax Permit or Business Number

In order to sell products and/or offer certain services, a state sales tax permit (also referred to as a business tax number or tax ID number) may be needed.  This permit creates an account number with the state’s Department of Revenue (or similarly named state taxing agency) to collect and remit sales tax.

Learn: How to get a sales tax permit in each state

Resale Certificate

When buying inventory that is being resold to customers, such as oils, fragrances, and other items, the business can purchase these items tax-free. A resale certificate (sometimes referred to as a seller’s permit) allows a business to purchase inventory, and instead of paying the sales tax to their vendor, they charge the sales tax to the end-user of the product.

A resale certificate only allows a business to not pay sales tax for items being resold, and sales tax will still need to be paid for supplies or equipment.

Learn: How to get a resale certificate

Certificate of Occupancy

Many soap making business will be operated as a home-based business, and in some communities, a home occupation permit may be required.

If your business will operate from a commercial facility, a Certificate of Occupancy (CO) may be needed.  This certificate is typically obtained from the city and/or the county and allows a business to occupy and operate from a building. Before the certificate is issued, the building will need to comply with zoning regulations, building codes, and any other local requirements.

Before purchasing or leasing a location for your soap making business, be sure to check with the local zoning department first to ensure the business can legally operate out of the chosen location.

 

The process of identifying all of the licenses and permits necessary to start a soap making business may feel confusing and overwhelming. It is critical to do this right the first time, otherwise, your business may be temporarily shut down until all licenses are obtained.

These are some of the most common business licenses, but there may be specific licensing that isn't listed. Before starting your business, be sure to check with the City Clerk, County Clerk, Chamber of Commerce, and/or Economic Developer in your area to get more information regarding business licensing.

For some additional peace of mind, companies like Incfile or Legalzoom can do the research and ensure you have all of the proper federal, state, and local licenses to start your business.

What Licenses Does A Soap Making Business Need?

What Licenses Does A Soap Making Business Need?

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