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Licensing

Updated: March 28, 2023
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What is Licensing?

Licensing is when a licensee has permission to use a licensor’s intellectual property. It could also refer to business licenses, which many governments require to operate within a specific area. A license is sometimes called a permit.

This web page also defines licensing.

Types of Licensing

Are you considering licensing something you own but are unsure of the different types of licensing available? Licensing intellectual property can be accomplished in several ways.

Here is a closer look at three types of licensing below:

Type 1. Patent Licensing

Patents cover scientific and technological advancements, such as new inventions. Their licensing agreements are the legal documents that allow a patent owner to grant another party the right to use their patent. In addition, patent holders license their inventions for manufacturing and broader distribution.

Type 2. Trademark Licensing

Trademarks are identifiers of commercial origin, specific brand names, logos, and slogans. These licensing agreements help trademark owners grant permission for others to use their intellectual property.

Type 3. Copyright Licensing

Copyrights are for creative works of the intellectual property world. Copyrights exist in various contexts, including works of visual art such as paintings, films, and music.

What is Licensing in Business?

Licensing in business refers to a contract between two business entities. For example, the licensor owner leases its IP to a licensee buyer. This term could also refer to the types of mandated licenses required to operate, such as health and operating licenses.

What is Licensing in Intellectual Property?

Licensing in intellectual property is a business deal between a licensor and a third-party buyer. The license gives the buyer or licensee rights to use intellectual property in limited periods, products, and geographic areas. Businesses can also expand their brand into new product or service categories and markets.

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Example of Licensing

In the example below, a local home chef has high ambitions to open a five-star restaurant. First, however, she needs to obtain several licenses to follow through on her dreams.

Let’s see how this example of licensing works:

  • Ruthann Hofstadter is a home cook with an incredible ability to make delicious comfort food
  • She worked as a sommelier in her twenties while studying abroad in France and possesses a keen palate for fine wines
  • Ruthann’s vision is to build a rustic, cozy restaurant in New Hampshire on inherited commercial land with a wine cellar for public viewing
  • She first contacts the NH Liquor commission to learn about liquor licenses and on-site service permits
  • Ruthann then contacts the local government for an inspector to approve new construction while simultaneously applying for a business license
  • Upon approval, Ruthann can now build her new restaurant on the inherited land
  • Construction finishes as scheduled, and she calls the health and fire departments out to the site for an inspection
  • Shortly after the inspection, Ruthann receives her liquor license approval and begins hiring employees
  • She hires a manager who helps Ruthann purchase supplies, appliances, point-of-sale systems, and furniture
  • This leaves her to focus on food and wine selections for opening night
  • Ruthann has successfully and legally opened her dream business

This scenario above is a simplified version of how business licenses work in opening a restaurant. The process you experience could be much different and far more complicated. If you need advice, don’t be afraid to talk to a lawyer since they can offer powerful guidance along the way.

Types of Business Licenses

Most businesses require a license or permit to operate legally. Determining which types of business licenses you need is not always straightforward without legal advice. However, you can gain a decent idea of what to look for by reviewing general requirements.

Below, we’ve outlined six different types of business licenses to consider before opening the doors:

Type 1. Local Operating Licenses

A local operating license grants you the right to operate your business within a specific area, such as a neighborhood, city, or county. These levels of government may require you to obtain a local operating license to open and operate a new company.

Type 2. Zoning Licenses

Cities and counties issue zoning and land use permits after conducting site inspections. The site inspection determines if it meets proper zoning and land use codes. You may be opening a business in an area that has already been zoned for the type of business you’re starting, eliminating the need to obtain one.

Type 3. Building Licenses

Whether you’re constructing a building or renovating an existing one, you’ll need to obtain building permits from your local city government. This ensures that the structure or renovation complies with safety codes and local regulations. The licensed contractor you’re working with should be familiar with the building permits you’ll need to obtain from your local government to open your business.

Type 4. Fire Licenses

A fire permit authorizes you to allow open your site to the public. Some cities require that you obtain this small business license from the fire department. Others require only periodic inspections and inspection certificates to keep your business open.

Type 5. Health Licenses

If you’re opening a business that might affect people’s health, you’ll want to obtain the proper licenses to operate legally. Imposed requirements are entirely up to your local government. However, most make a PDF version of their requirements available to the public, meaning that you should contact your local health inspector’s office for more information.

Type 6. Liquor Licenses

Local liquor licenses are necessary if you plan to serve alcohol at your location. Some governments allow you to purchase a liquor license to serve all lawful alcohol or a different beer and wine license with self-evident limitations to those products. Some areas limit the number of liquor licenses issued, so you will want to determine if one is available for purchase.

How to Get a Business License

The specific licenses you’ll need vary by industry and state, as will their costs and application requirements. Ensure you understand these requirements entirely and ensure you meet them from a legal standpoint. You can anticipate paying a processing or filing fee and the cost of the license when filing your application.

Here is a general four-step process for getting a business license:

  1. Research. Research local regulations and determine which types of business licenses you’ll require
  2. Apply. Submit your application for any required business licenses via the appropriate governing body
  3. Wait. Once approved, you’ll receive your business license to operate legally in your area
  4. Display. Post the license in all required locations
  5. Renewal. If your license expires, you must renew it per your state, city, or county’s regulations
  6. Watch. Stay aware of developing rules and regulations from your local government so that your business remains compliant

Obtaining a business license can take a few days to several weeks. Timing will vary according to several factors, including your city, county, or state and the type of license you require. Hiring licensing lawyers can help you avoid legal mistakes, which mitigates the chances of processing taking longer than necessary.

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