To set the record straight, an LLC and a business license are not the same. In fact, these are different notions. While a limited liability company is a legal entity that gives your business an independent legitimate form, a business license is a sort of permit to be engaged in some type of activity.

You don’t need a business license to start your own LLC, yet, depending on the jurisdiction, the state of operation, and the industry you run your business in, your future LLC company might need some business licenses and permissions. So, these two aspects are strongly connected but are not similar. Below, we are going to consider how they stack up in practice and when licensing is needed to lawfully operate your LLC company as well as how LLC formation services can help you with business incorporation and licensing.

LLC Formation vs a Business License

To make it clear, LLCs and business licenses differ not only in the gist but also in the level they are formed at. Thus, representing a business structure, LLC companies are formed and run at the state level while licenses can be issued at federal, state, and local levels. A business license is not a must to establish a corporation or an LLC but you might still need to get more than one specific license before you start conducting your business.

LLC Formation: At a Glance

A limited liability company is a type of business structure that has gained impressive popularity within recent decades, and for a good reason. A hybrid of a sole proprietorship and a corporation, it’s an optimal framework for a smaller business that creates favorable legal conditions and can cope with growth potential. In contrast to unincorporated business forms like a sole proprietorship or a general partnership that are directly associated with their owners, an LLC allows the business owners to be independent of their company and makes a company a separate legal entity with its own right and liabilities. As such, LLC incorporation keeps the company owners free from business-related liabilities leaving them for the company only. In short, with LLC formation, you are not liable for the business’s financial problems, debts, and lawsuits. The other benefits LLCs offer to your business include:

  • Limited liability protection ensures a secure legal shield for your personal assets giving you peace of mind that you won’t be stripped of your funds, savings, and property in case your company faces some sort of financial or business problems.
  • Pass-through taxation system valid for LLC formations allows paying company taxes on your personal tax returns. It means there will be no federal and state taxes to pay while the business income is taxed along with your own profits. More than that, to catch up with profit growth and fast-paced company development, at some point, you might choose your LLC company to be taxed as an S-Corp that will further optimize your tax payments.
  • Simple and straightforward LLC formation process engages no tricky formalities and is much quicker and easier than that of a corporation. Besides, there are multiple LLC formation services that can do all the job for you without boosting up your formation budget too much.
  • Credibility is something all businesses strive to get and something you’ll get with LLC formation almost at once. Bringing your business activity to the next level and giving it an independent legal form, an LLC shows the seriousness of your intentions and always evokes much more trust in potential customers than unincorporated business forms.

A Business License: At a Glance

A license is not a legal structure. It’s a governmental document that entitles your business entity to operate in a certain industry or run a certain type of activity. So, as we’ve already mentioned, while a business license is not a requirement for LLC formation, it might be a requirement for actually doing your business. Depending on the type of business you are engaged in, you might need to hold a single license or several licenses. Notably, most US cities and counties and many states do require a business license to lawfully operate on their territory.

Unlike with LLC formation where you pay a filing fee only once, business license rates are normally payable on a yearly basis. Most often, you’ll have to pay a flat rate for obtaining the license along with an annual fee to the government for prolonging that license each year.

Business licenses are often put in a row with business permits. Yet, these are different notions again. A business license is a more industry-specific document usually issued without any inspection while a business permit rather refers to public safety and requires an inspection from regulating authorities that issue such permits. Business permits are most often an obligatory requirement for public places and establishments that should meet specific sanitary, health, and safety requirements.

What Type of License Does My LLC Formation Need?

First of all, not all businesses need to obtain business licenses. Thus, these are mostly ventures open to the public and those having physical stores and offices that need licensing for legal operation while home and online businesses can do without a license. For example, if you have a retail shop, you’ll have to apply for a business license. And if you sell products or goods via the Internet, a license is not required.

As stated above, licenses are issued at different levels and fall into three major categories by the level they are issued at:

  • Federal Licenses: This type of license is the least common one, and there are only several business categories that will need it. These are LLC companies from potentially dangerous and socially oriented industries such as mining, energy sector, agriculture, weapons, alcohol production and sale, transportation, and broadcasting.
  • State Licenses: State business licenses are issued to LLC formations engaged in real estate management, building sector, automobile repairs, childcare, and the beauty industry. Besides, if you plan to hire such specialists as attorneys, accountants, physicians, and doctors after LLC incorporation, most likely than not, you’ll need a state license as well.
  • Local Licenses: Issued at the city and county level, local licenses are aimed to protect the interests of the local communities and regulate your business operation within a smaller area. So, if you are a locally operating electrician or a plumber, you do need a local license. And so do the restaurants, cafes, insurance agencies, education and training centers, etc.

Are LLC Services Helpful in Obtaining Business Licenses?

Registering a license might turn out to be a lengthy and complicated process that will take much time and effort to accomplish, especially if you need to file for a federal license. Yet, before you even think about involving in licensing issues, first, find out if your LLC company needs any licenses and permits at all. You can do that via a helpful business license search available on local and state government websites and the best LLC service platforms. Speaking of which, LLC formation services can be of great help not only when filing an LLC but also when obtaining business licenses. Top LLC companies usually provide professional licensing services as well, and their specialists can lead you both through the business formation and through the licensing process.