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Can You Have an LLC Without a Business? (Updated 2024)

Max Smith

Reading Time: 7 minutes

Forming an LLC can be beneficial for your assets. But can you have an LLC without a business

You don’t want traditional business activities, so you don’t need a business license. But you may still need an LLC for your asset protection from creditors. 

Later, you may start your business quickly. So, if you don’t have an LLC yet, you may need one in the future for its excellent benefits.

Do you want to know in depth? Let’s go!

You can create an LLC without a business license in most states. They have two distinct purposes and don’t depend on each other.

So, is an LLC considered a business license? No! Creating an LLC is an optional step to protect assets from personal liabilities. On the other hand, a business license is a permit that will help you legally operate a business. Regardless of the legal structure, almost all businesses need a business license.

This means you do not need a business license to create an LLC. But you will still need one when you operate the LLC as a business.

However, can you have an LLC without a business purpose? Let’s find out in the next section!

Can You Have an LLC Without a Business Purpose?

Not all states require an LLC to have a business purpose, but most do. Simply put, an LLC’s business purpose is the reason for forming your business. 

So if the Articles of Organization require an LLC business purpose, you will describe the legal purpose for which the company will exist. But do not mix it with your mission or vision statement.

Some states require a business purpose, while others allow only a general LLC purpose for the list. Which is called a “Statement of Lawful Purpose.” However, some of them ask for a specific LLC purpose. This one is called a “Statement of Specific Purpose.”

Moreover, you will be able to find a business-purpose formation document template online. If your state allows general purpose, typically you should check off a box. Or you will need to give a phrase stating the LLC’s public purpose.

Besides, the process will differ if the state requires it for a specific business purpose. The authority will want to know your LLC’s primary business activity in a short phrase or sentence.

How Should I Write an LLC Business Purpose?

While writing an LLC business plan, keep a few things in mind. They are:

  • Identify the core activities.
  • Consider the audience.
  • Be specific and avoid any jargon.
  • Sound authentic and honest.
  • Keep it simple and concise & more.

Your LLC business purpose is a foundational document. So, take your time to craft a clear and compelling one.

Furthermore, you might consider getting an LLC anyway, even if you have not started a business. But let’s examine first whether it is feasible or not.

Should I Get an LLC Before Starting a Business?

The answer depends on the individual’s situation. You should decide depending on the nature and scale of your company. Plus, your personal preference as an owner and risk tolerance are also important factors. 

Legally, you are not required to create an LLC before starting a business. You can start running your business without an LLC just fine. But you will be excluded from the LLC benefits, like limited liability protection, tax flexibilities, and potential capital raising.

Moreover, you will need to submit documentation to your state officials. This can claim your business entities as corporations or limited liability partnerships. 

However, starting a business without an LLC has significant risks, especially if it is a general partnership business. The risks are:

  • Your assets will be vulnerable to lawsuits and bankruptcies.
  • Without an LLC operating agreement, there will be a lack of structure among the partners. This may include anything from responsibilities, profits and losses to leaving issues.
  • It will be hard to find investors for your business.
  • When no LLC protection exists, other businesses can have the same name in the same state, which will be difficult for your business marketing.

After considering the ins and outs of getting an LLC before starting a business, you might now understand the importance of the LLC to gain your business objectives. 

Also, now you know you can start an LLC before starting a business. But why would you do that? The following section will quench your curiosity.

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Why Start an LLC Without a Business?

Starting an LLC without a business may sound absurd. But it is common, especially for those who intend to run a business in the future. 

But what could be the reasons behind this seemingly odd order of action? Once you know the reasons, it will make sense to you. So, below is a list:

  • Future Business Venture

You can establish an LLC as a proactive measure if you have plans for future business. This legal structure in advance will save you time and hassle later. It is an established, ready-to-go entity for plans.

  • Brand Protection

An LLC formation can reserve your desired business name for the future. It will secure your brand identity before anyone else claims it. An LLC registration will save that brand name for you if you have long-term plans for it.

  • Planning Taxes

Some form an LLC to enjoy its benefits even when they don’t have an active business. It offers flexibility in managing income taxes and deductions. For this, choose the proper tax structure for you.

  • Investment Holding

LLCs can help you hold investment properties like rental units or vacation homes. It can also help keep real estate, stocks, or intellectual property. This step will simplify your ownership and management.

  • Estate Planning

You may use LLCs even when they don’t have a business for estate planning. This strategy is used to transfer assets to beneficiaries. Forming an LLC and putting them in a trust will help them avoid the probate process. It will also provide some tax advantages.

  • Business Credit

Having an LLC early will establish business credit. It is an advantageous step if you need a loan or to project a professional image to attract investors. It will give you a head start on launching your business operations.

For the numerous advantages an LLC provides, almost all entrepreneurs wonder, “when should I get it?” Our next section will provide answers to this question.

At What Point Do I Need an LLC?

It doesn’t matter whether you own a small or established company. Every business needs protection. Because every venture has liabilities. But when do you know it is time to form an LLC to get protection?  Let’s figure it out below. 

  • Business Stage

Start by considering your business development stage. The typical advice is to establish an LLC once your business is operational. Also, it should start generating revenue. Then, there will be profits to cover LLC formation and maintenance costs.

  • Risk Exposure

Evaluate the level of risk exposure you face from business activities. If you practice service-based professions in a state that allows LLCs, you can significantly benefit from creating them.

You will also need an LLC if you have professions with exposure risks to liabilities like:

  • Manufacture and distribution of products,
  • Having subcontractors,
  • Working with sensitive client data &
  • Own a significant amount of business assets.
  • Income Level

You will need an LLC if your business reaches a certain income threshold. The threshold recommendation varies but is typically an annual income of $50,000–$100,000.

This high profit will make your LLC’s state filing fees and compliance costs easier to absorb. Also, you will enjoy the LLC tax advantages for your high profit.

  • Personal Finances

Assess your financial situation to understand when to form an LLC. Your personal assets, net worth, and expenses decide what the LLC needs.

If your personal and business assets are intertwined, it is high time to establish an LLC. It will separate your assets and safeguard your personal wealth and savings.

  • Multiple Owners

If you plan to start your business with more than one owner or if you plan to bring more partners, establish an LLC. It will define ownership stakes, profit-sharing, and decision-making responsibilities. To avoid potential legal and financial disputes in the future, get an LLC from the start.

Conclusion

In the end, can you have an LLC without a business? Yes! But your state rules should allow it. You can have an LLC but need a license to operate business activities. 

It’s better to have a business purpose to avoid legal complications. Plus, it will help you run a business in the future. 

Having an LLC without a business is possible and a strategic choice for many entrepreneurs. It differs depending on an individual’s unique situation. And also, if you are still in doubt, it is advisable to consult with a legal expert.

Key Points

  • You can create an LLC without a business license. However, depending on your location and industry, you will need a license to operate your business legally.
  • Not all states require an LLC for business purposes, but many do. It is the reason stated in the Articles of Organization about why your LLC exists.
  • While not legally required, deciding whether to get an LLC before starting a business depends on an individual’s circumstances. 
  • While it seems unusual, starting an LLC without a business has advantages. Like protecting valuable assets, reserving a desired business name, and more.
  • Generally, creating an LLC immediately is recommended if your business carries any liability risk. Otherwise, you can wait until your company reaches a certain level, including multiple owners or near a significant income.

Frequently Asked Questions

Can I deduct business expenses without an LLC?

Yes, you can deduct business expenses if you are a sole proprietor without an LLC who files an annual Form 1040 to file taxes. You can still subtract things, like supply costs or work equipment, if you are working for yourself without an LLC. Just be careful to keep detailed records of your spending.

Do I need an LLC to start my online business?

No! But if you want a better risk management facility, form an LLC. It will protect your assets and reduce your asset risks.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


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