Create an LLC

Is an LLC a business license?

An LLC is a type of business structure, while a business license is typically issued locally in order to legally conduct business. In this article we go over the differences between the two.

Jump to:

Table of Contents

A Limited Liability Company (LLC) is a type of business entity, while a business license is used when opening or starting a business. Therefore, an LLC is not a business license. Generally, it is known that to begin any type of business, one has to acquire a business license that allows them to operate in each state. An LLC may be in three forms: a corporation, partnership, or a sole proprietorship. The different forms of an LLC differ on tax-related issues and therefore they help a business owner decide which to form. An LLC must file an annual report after every year, such as sales tax and franchise tax. LLC formation varies with the state laws. 

Business owners have the freedom to pay personal income taxes after the revenue has been distributed. The articles of organization are the legal documents that form an LLC. When one has the certificate of good standing, the state clears them to operate.

The LLC registers with the Secretary of State, allowing an LLC to continue its operations for small businesses and corporations. Therefore, while forming an LLC, a business license is not required. LLCs provide a corporation's best characteristics that allow companies to operate as their legal entity. The business owner is protected from debts and has other legal protections.

Benefits when a business operates as an LLC:

  1. Few formalities required
  2. Pass-through taxation
  3. Cheaper to form compared to a corporation
  4. Has personal liability protection

You probably wonder about the main difference between a business license and LLC. In our article, we answer this question in detail. Keep reading to learn more.

Business license

A business license allows for a business to operate. Some states require a business license for a company to start its operation. One, therefore, needs several business licenses before beginning any operations with the business. First, a permit refers to the registration issued to companies operating in an industry in a specific geographic region. Other companies also require the sale tax licenses. A business license ensures the department of revenue follows up on the business tax annual filing. This is based on the type of business entity.

After understanding the definition of a business license, it is equally important to know that one must pay an annual fee to the government for a business to continue its operations legally. And, in a case when one sells the business, they need to acquire a seller's permit. A business may require additional licenses. When developing a business, one provides the company name for a new business that has received the state license for the business operations by following the operating agreement. The fee is based on the annual revenue generated by the type of business

The types of business licenses include:

        i.            Local licenses

Many businesses acquire local licenses. For example, hospitals receive licensing from the health department for it to operate. The small business administration ensures all enterprises have the local licenses following the regulatory requirements through documentation from the small business owners. This helps safeguard the rights of the citizens since it ensures that the business is locally recognized and every service it provides is legal. It is given in the local government offices. It serves industries such as mechanics, restaurants, plumbers and hair and nail salons.

      ii.            State licensed businesses

These businesses include state-owned doctors, attorneys, and certified professionals with professional licensing. The companies employing these professionals hire people with an employee identification number through a personal license. These people provide professional services.

    iii.            Doing Business As (DBA)

While operating using a DBA, a business has to be registered with the business name and the county location of the company. When one has the DBA, they operate the business, open bank accounts, and are free to sign contracts with suppliers and producers.

    iv.            Federally licensed businesses

This license allows businesses to operate within different state lines. These businesses will need federal business licenses since the federal government regulates business activities. Examples of companies requiring a federal business license include nuclear energy, aviation, agriculture, fishing, and wildlife.

After understanding a business license and an LLC, let us examine the differences between a business license and an LLC.

Business license vs. LLC

A business license is a government-issued document that allows a business to operate where it was licensed, while an LLC is a business structure. When entrepreneurs plan out the startup of their business, they are required to obtain a local business license in the regional government offices. This also applies to a nonprofit corporation. However, the pricing of the process is cheaper for nonprofit corporations. There are specific licenses for specified activities. While an LLC is only formed once, businesses acquire licenses annually or regularly. Also, an LLC has liability protection, while a business license only allows the business to begin and continue its operations. The business license disregards the type of business, such as partnership, LLC, corporation, or sole proprietorship.

Additionally, while LLCs are formed at the state level, licenses are issued at different levels. Your LLC is formed for operations in a specific state, and therefore, when adding other states, one acquires a new LLC. However, in-licenses are given at different levels, such as federal and national, state, local, and professional. Also, the requirements while forming an LLC and acquiring a business license are different.

Requirements while forming an LLC

When a business owner has businesses in more than one state, they must register for every state, and if they fail to, the business owner is fined and penalized by the foreign state. It also requires the LLC name and the LLC operating agreement depending on the owners of an LLC if it is a corporation. If it is a single-member LLC, one does not require the LLC operating agreement. For a multi-member LLC, they must provide a certificate of formation that has a trading name and observes the annual filing rules. The requirements apply to a professional LLC (PLLC). Some states require LLCs to file articles of organization.

The business owner will also have to pay for the service of process that manages the whole registration process. Further, they require information on the business and its formation. They are also required to provide the names and addresses of consequent business owners and the name and official physical address of the registered agent in the state of qualification. When starting an LLC, one gets a Federal Tax Employer Identification Number (EIN) from the IRS website, not requiring an annual fee. After LLC formation, it ensures one has an LLC license, and therefore the business is eligible for the LLC taxes.

Business license requirements

1.       A written application has to be a government-authorized form, and for the submission, one requires proof of identification during the filing process.

2.       A business name is also required, which differs from an LLC or a sole proprietorship. If it is a sole proprietorship, one provides its title as the business name, and if it is an LLC, one offers the evidence of incorporation within the state.

3.       One has to apply the statement of purpose that defines the type of business one wishes to operate.

4.       One then acquires the proof of license for any specialized activities if there are any other activities the business operates apart from the main ones in the statement of purpose.

5.       The business location is also essential as it allows an agency to conduct the zoning verification process. This contains the contact information. The location of the business provides for operations only in the licensed area.

6.       Also, one must provide proof of sewage and waste services where one gives a copy of the business location sanitation bill statement.

7.       Lastly, as a business owner, you will provide the filing fee and associated fees.

By understanding the differences between a business license and an LLC, we have discussed the requirements of acquiring a business license and an LLC. We investigate whether one can have an LLC without a business license.

Although one does not require business licenses to operate an LLC in many states, you must ensure that the LLC has been formed through the state's procedures. One will register with the state and file the appropriate forms. Therefore, although a business will not require a business license to operate an LLC, one needs to manage the LLC as a business.

Entrepreneurs starting businesses in a municipality require to know how to obtain a business license and understand the cost of the LLC business license.

The Secretary of State and the fee for filing articles of organizations varies according to the state; for example, Alaska is $50-$100. To obtain a business license, one decides the business licensing they require, provides the business documents for the application process, applies for the business license, gets the business licenses after approval, and ensures they maintain the license renewal requirements. 

5 Steps To Form Your LLC

Choose an available business name
Designate a registered agent
File all your state-required paperwork (Articles of Organization, operating agreement, etc.)
Get a federal tax ID (EIN) number
Make sure to pay all mandatory annual fees and state fees
Or, skip the above steps and let Nearside do it for you!
Form Your LLC Today
Free report and guide
How COVID-19 Impacted Incomes of the Self-Employed Workforce
How did the pandemic impact the income of  gig workers and entrepreneurs? Download to learn more.
Get The Report

More From

Frequently asked questions

No items found.