How Does a Business License Differ From an LLC?
Obtaining a business license is not the same as forming an LLC or other legal entity for your business. A business license is generally required if you own and operate a business in order to comply with local laws. There can be general licenses from your state, county, or municipality, as well as special licenses or permits based on your industry.
An LLC is a legally recognized business entity, while a business license authorizes you to run a specific type of business in a particular jurisdiction. You can then obtain a business license that complies with local rules and regulations after your business is formed.
Is an LLC a Business License?
In the jurisdiction where the license was obtained, business licenses are government documents that grant you the right to operate and start a business. Licenses aren’t types of business structures, and therefore aren’t the same as LLCs.
A business license will be issued to you by the municipality where your business is located. A business license is required only for businesses open to the public. A business operated out of a person’s home does not need a license in many areas. You generally do not need a license if you are selling items over the internet. Businesses with only a website, that do not have a physical store, are also unlikely to need a business license. In some cases, though, such as daycares, licenses and permits are required for home-based businesses.
Do I Need Both a Business License and an LLC?
Yes. Business licenses and LLCs serve different purposes, and an LLC cannot be substituted for a business license. If you want to legally operate an LLC in a given city, county, or state, you must have both.
You put your company at risk of incurring a penalty (financial or legal) if you are found to be in violation of local regulations if you have an LLC and no business license.
Even if you have a business license but do not have an LLC or another legal business entity, you can still operate your business as a sole proprietor. Such a decision, however, comes with some disadvantages and risks.
An LLC is not your only choice for a legal business entity. According to their type of business and goals, many entrepreneurs choose to start corporations or partnerships. For example, an entrepreneur who intends to raise capital by selling equity ownership in the company may form a corporation, specifically a Delaware C corporation.
In addition, if you are looking to provide consulting services via the internet, an LLC would be a good choice, since it is flexible and straightforward structure and maintenance.
Which Do I Get First, Business License or LLC?
The name of your business must be provided when applying for a business license. Thus, it makes sense for you to form your LLC or corporation first so you can provide the approved entity’s name on the license application, rather than having to submit a form to change the name after forming the company (which could result in a fee).
It is recommended that you obtain any necessary business license(s) and permits before engaging in any business activities to ensure compliance with local regulations.
FAQs:
A business license is a document issued by a government authority that grants permission to operate a specific type of business within a certain jurisdiction. On the other hand, an LLC (Limited Liability Company) is a legal entity that provides personal liability protection to its owners and offers flexibility in terms of taxation and management structure.
Yes, in most cases, you will need both a business license and an LLC if you choose to operate your business as an LLC. The business license grants permission to operate, while the LLC structure provides liability protection and certain tax benefits. The specific requirements may vary based on your location and the nature of your business.
It depends on the laws and regulations of your jurisdiction. In some cases, certain small businesses may be exempt from requiring a business license, but it is generally advisable to obtain the necessary licenses and permits to ensure compliance with local laws and regulations.
To obtain a business license, you typically need to contact the appropriate government agency or department responsible for business licensing in your jurisdiction. They will provide you with the necessary application forms and guide you through the process. Requirements may include providing information about your business, paying fees, and meeting specific criteria.
Yes, it is possible to change your business structure from a sole proprietorship to an LLC. This process typically involves filing the necessary documents with the appropriate government agency, such as articles of organization for an LLC. It is recommended to consult with a legal professional or business advisor to understand the specific requirements and implications of such a change.
