Starting a successful electrician business takes more than knowing the difference between volts and amps. 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 electrician 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 an electrician business.
Related: Guide to starting an electrical contracting business
What Licenses Do You Need to Start an Electrical Contracting Business?
State Licensing
Every state is different when it comes to the rules and regulations for electricians. A general contractor’s license is required in some states, while others require specific licensing for electricians. You’ll want to research the laws in your state to see what services you can legally offer.
Requirements vary by state, however, most require the contractor to at least be 18 years old, have a few years of work experience, pass a written exam, and pass a background check.
A few examples of state licensing includes:
In Arizona, electricians must hold a state license from the Arizona Registrar of Contractors. There are different levels of licensing that allow for different types of work, but it’s worth noting the Handyman Exemption. The Handyman Exemption allows for a business not to be licensed in most cases as long as labor and materials cost less than $1,000.
The Connecticut Department of Consumer Protection requires licensing to work as an electrician. Licensed electrician contractors need to have a Journeyperson License, which means completing a state-approved apprenticeship program or have at least 8,000 hours of field experience and passing an exam. In addition, contractors must show proof of two years of experience as a Journeyperson, passing a trade exam, and passing the business and law exam.
To work as an electrician in Mississippi to do residential work over $10,000 or $50,000 for commercial work, a Contractor’s License is required through the Mississippi State Board of Contractors. This license requires passing an exam.
Local Licensing
Making matters even more confusing, an electrical contractor can be required to be licensed by the state, the state, and city, or county, or just the city or county. It’s also important to know that licensing or registration may be required in each town or county the contractor is working.
A few examples include of local licensing includes:
In Libertyville, Illinois, an Electrician License is required. License requirements include passing an exam and having a minimum of 4 years or 8,000 hours of documented experience in the electrical field.
The City of Jefferson, Missouri, requires licensing as an Electrical Contractor before performing any electrical work. City licensing requires holding a current State of Missouri Electrical Contractor License.
A Contractor License is required by the City of Cheyenne Building Safety Department for electrical contractors working within city limits. Contractor Licenses need a completed and paid application to the city, proof of a certificate of general liability insurance, and proof of workers’ compensation insurance if the business has employees.
In addition to contractor-specific licensing, there are also general requirements for starting a business. While licensing requirements vary by location, here are a few of the common licenses and permits that an electrician 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 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.
It’s important to understand state sales tax as in most states, the contractor pays the sales tax on the supplies used, and in other states, the contractor will charge sales tax of the materials to the customer. Additionally, in some states, sales tax will be collected on the labor cost of the project.
Learn: How to get a sales tax permit in each state
Resale Certificate
In states where sales tax is charged to the customer, contractors can purchase materials 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
In most communities, a electrician business will likely need to secure a Certificate of Occupancy (CO) before operating in a commercial building. 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.
If the electrician business will be operated as a home-based business, a home occupation permit may be required.
Before purchasing or leasing a location for your electrician 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 an electrical contractor 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.
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.