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Regulation of Business

A municipality, in the exercise of police powers, is empowered to restrict or prohibit the exercise of a trade in order to protect public health, morals, safety, or welfare.

A municipality can regulate offensive businesses by:

  • licensing;
  • charging a reasonable regulatory fee; or
  • charging a fee for the cost of a business’s failure.


A fee imposed under a municipality’s police power is properly called a license tax or license fee.  Licensing is imposed primarily as a means of regulating businesses through the exercise of a municipality’s police powers. When an action is reasonably necessary to protect the public health, safety, or the general welfare, a municipality may refuse to renew a license[i].

The police power to regulate business implies the authority to prescribe reasonable regulations.  However, a restriction must bear a reasonable relation to some legitimate purpose.  A regulation must be issued to advance public welfare.  A municipality cannot impose unnecessary restrictions on lawful businesses or occupations through the exercise of a police power[ii].

A municipal corporation, while regulating business activities for public health, regulates the use of streets and sidewalks.  A municipality can issue an ordinance requiring licensing for selling nonfood goods and services on a city’s sidewalks[iii].

A municipality in the exercise of a police power can designate particular places where a noisy trade should not be conducted.

Generally, religious activities are not subject to licensing.  A municipal corporation can regulate and license the solicitation of funds by nonprofit organizations under the police power, when their activities are noncommercial and involve the spreading of religious faith.  In order to prevent public nuisance, a municipality can impose restrictions relating to time, place, and manner.  A city has the authority under the exercise of its police power to determine whether or not there shall be restrictions on soliciting by unscrupulous persons.  The occupation of soliciting donations for charities is subject to the police power and can involve reasonable supervision over the persons so engaged and over the application and use of the contributions received.  However, the police power cannot be used in an arbitrary, unreasonable, and oppressive manner.  Every person has the right to solicit contributions for charity when s/ he acts in good faith and makes an honest application of the funds so obtained.  An unreasonable restriction amounts to the denial of a common right[iv].

A municipality’s power to regulate a particular business includes the power to prohibit discrimination in that business on grounds of color, race, or religion.   Most of the U.S. states enact ordinances to prohibit blockbusting.  Blockbusting is a technique used to encourage people to sell their property by fraudulently implying that racial, ethnic, or religious minorities are moving into their previously racially segregated neighborhood.  The purpose is to reduce real estate property values.  An ordinance preventing blockbusting does not violate the constitutional right of freedom of speech and is valid.

[i] Consolidation Coal Co. v. Emery County, 702 P.2d 121, 123 (Utah 1985).

[ii] Komen v. St. Louis, 289 S.W. 838, 840 (Mo. 1926).

[iii] Barenfeld v. City of L.A., 162 Cal. App. 3d 1035, 1040 (Cal. App. 2d Dist. 1984).

[iv] American Cancer Soc. v. Dayton, 160 Ohio St. 114, 123 (Ohio 1953).

Inside Regulation of Business