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Is an LLC a Business License? (Explained in Details)

Max Smith

Reading Time: 7 minutes

After forming your LLC, you are excited to start your business in your selected region. However, you may get confused among the thousands of technical jargon amidst the hustle and bustle of starting a new business. So, you may wonder, “Is an LLC a business license?”

A common cause of confusion in the dynamic business world is distinguishing between a limited liability company (LLC) and a business license. People often wonder whether an LLC is a business license or not. Some even misunderstand them by making them interchangeable.

So, what can be your priority? An LLC or a business license? Let’s find out in the detailed discussion below.

An LLC is never a business license! These two are different in their terms. However, both have their importance and benefits. 

You can form an LLC, but it does not provide you with the authority to operate your business legally. For that, you need a business license.

So, an LLC provides a legal structure to let your business operate as its own legal entity. Its design is to separate personal assets from business assets. Plus, it offers flexibility in terms of management and taxation.

On the other hand, a business license is an official legal document that allows for business activities. It’s a permission that a government authority grants to a business owner. Indeed, a business license is not an option but a compulsory one.  

The critical difference is that an LLC is optional per personal assets’ security requirements. On the other hand, a business license is mandatory for the legal framework. It is for the orientation of your business under a particular jurisdiction.

So what do you actually require? An LLC or business license? Read next to find out!

Do I Need a Business License or LLC?

You may need LLCs to get a mixture of benefits from other types of business entities. Again, you must get a business license to operate a business entity like an LLC. 

However, whether you need an LLC or not depends on your situation and wishes. But you must obtain a license to run a business activity in a particular state.

Read below to find out your need for an LLC and license.

Why Do You Need an LLC?

An LLC safeguards personal assets from business debts. It also simplifies tax management by preventing double taxation.

Plus, the flexibility of LLC management allows for personalized control. So, setting up and developing a trustworthy image for your business is easy.

Moreover, it accommodates diverse ownership and offers asset protection from liabilities. Thus, it facilitates the credit profile of your business as per your stakes.

So, if you want flexibility in ownership changes and a structure granting access to state incentives, you need an LLC. It simplifies legal compliance and administrative processes.

Why Do You Need a Business License?

A business license is a must for a business to operate. It is the government’s testimony certifying that your business is a safe one for the public.

But initially, you may wonder why you need an LLC license. What is its impact on your LLC?

Understanding business licenses can be intimidating at first. They vary as per the jurisdictions and the combination of federal, state, and local regulatory authorities. Undoubtedly, researching the licensing requirements for your business is a crucial part.

For example, if you own a retail business, your city or county will likely require the acquisition of a sales and use tax permit.

Remember, even if the state where you conduct business does not impose a sales tax, your local city or county may have such requirements. So, before launching a business, ensure you understand and abide by your tax obligations.

On the contrary, if your business offers professional services, you will likely need a business license. It is applicable even for seemingly straightforward services like computer repair or marketing.

Additionally, if your business falls under federal regulations, like governing firearms, aviation, or financial advisory, you’ll also require a federal permit.

There are licenses for general business, professional, and alcohol. Permits like health, construction, fire department, and environmental are examples of business licenses.

Moreover, there are various levels of licenses and permits. For example,

  • Federal and national level,
  • State level,
  • Professional level and
  • Local level.

Lastly, there are many differences between an LLC and a business license. You will get a perfect idea about their differences in our next section. 

Business License vs LLC

People commonly get baffled about differentiating between an LLC and a business license. Let’s look at their essence and purposes to distinguish them.

Facts to Consider

LLC

Business License

Definition

An LLC is a legal business structure that protects against liability and creates its own identity.

A business license is a document authorizing a license to do business in a given jurisdiction.

Purpose

An LLC secures members' assets by distinguishing their liabilities in a particular business

A business license legally certifies a business to operate in a specific location.

Requirements

There are various requirements such as filing with the state, carrying out required papers, and paying fees.

Research & meet the standards imposed by the local government or licensing body.

Compliance

An LLC provides a legal structure of a business to mandate a regulation of ownership.

A business license ensures authorizations to local and federal regulations.

Taxation

Only overseen by the federal authorities.

Regulated by the local and federal authorities.

Issuance Before/After

Form an LLC first.

Use your LLC name to apply for the license.

Compulsory

It's not compulsory to form an LLC.

If you have a business, you must obtain a license to run it.

Fees

An LLC registration average fee is $132.

Business license fee ranges between $15 to $550. Plus, there is also a renewal fee yearly.

Operation

An LLC combines elements of both a corporation and a partnership in business operation.

A business license allows to operate a business in a state.

Issued by Whom?

Secretary of State.

Local government.

Liabilities

Limited liability facility for members.

No limited liability

Ownership Transfer


Eligible

Not eligible

Now, you may consider forming an LLC but not applying for a business license, as they are directly related. But can you really do that? Find the solution in the next part!

Can You Have an LLC Without a Business License?

While starting an LLC, it’s reasonable to wonder whether you need a business license. The straight answer is no!

Starting an LLC without a business license is legal. You can form an LLC without a business license in most states.

Still, you might need one. When? If you intend to operate the LLC as a business.

To form an LLC, you need to follow your state’s procedures. It requires registering with the state, filling out the appropriate forms, paying fees, and meeting the legal requirements.

On the other hand, a business license is permission you obtain in a particular county or city. You will need it depending on the type of business you plan to operate.

Furthermore, you might need a federal or local business license, which you can clear with a professional consultant. However, obtaining it for your LLC comes with some benefits.

Among the two types of business licenses (a federal and a local), you will need a local one if your LLC falls into any of these categories:

  • General business,
  • Home Occupation,
  • Health and safety,
  • Electricity and plumbing,
  • Childcare service,
  • Beauty salons,
  • Mechanics,
  • Insurance agent & more.

Ensuring a local business license for your LLC comes with some benefits.

  • Conformity with the law,
  • Trust and credibility, &
  • Protection for consumers.

Lastly, it’s better to get both an LLC and a business license. But which one to get first? Read below to find out.

Business License or LLC First

While planning to get an LLC, you may get confused about what to get first: an LLC or a business license. Although you require an LLC and a license to enjoy better facilities, you should start forming your LLC first. 

Do you know why?

Establishing an LLC precedes obtaining a business license. It is for practical reasons. You need something to exist before getting a license for it, don’t you?

You start by filling out “Articles of Organization” with the state to form your LLC. This process declares your LLC as a separate legal entity capable of applying for a business license.

Being granted a business license requires a permit from the local government. You need to provide proof of business formation, like certificates, documents, tax ID numbers, evidence of insurance, etc. You can show these after forming an LLC.

Moreover, when applying for a business license, you need:

  • Name of the business.
  • Legal structure confirmation.
  • Business documents & more.

Conclusion

An LLC and a business license are different but highly significant terms in the business sector. While one protects your assets with its corporate veil, the other is a vital authorization for smooth operations.

You don’t need a business license to form an LLC to protect your assets from liability. But if you’re going to operate a business, get a business license now.

Ultimately, the answer is obviously ‘no” to the question, “Is an LLC a business license?

Key Takeaways

  • LLC is not a business license. 
  • A business license and an LLC are both functional regarding legal authorization. So you may need both of them to run your business and get LLC benefits. 
  • LLC doesn’t provide any legal permission to operate your business. You need a business license regulated by local or federal regulatory authorities to legalize your business.
  • An LLC provides security to the personal assets of a sole proprietor or partners from debts and lawsuits mandated on a business.
  • It is legal to form an LLC without having a business license. 
  • The local or federal regulators may regulate a business license for taxation. However, LLC taxation is only overseen by the federal authorities. 
  • If you need an LLC for your business, forming an LLC before acquiring a business license is beneficial. It helps with legal introductions and taxation.

Frequently Asked Questions

Is an LLC the same as a business license?

No. An LLC is a legal business entity; a license is legal permission to run a business. They are different but essential to operate and enjoy LLC benefits.

Is a business license the same as an EIN?

No, a business license and an EIN are not the same. An EIN is actually a 9-digit number. The IRS provides a number to identify your LLC for tax purposes. It’s a federal tax ID. On the other hand, a business license is a valid permission document to run your LLC legally.

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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