Do I Need an LLC or a Business License?

Do I Need an LLC or a Business License?

business owners working together at table

Establishing a business takes a lot of hard work. In addition to finding the right market, generating demand for your product or service, securing financing, setting up shop, creating a customer base and choosing the right business name, you’ll also need to navigate through laws, regulations and requirements that can differ by state, county and city, and even within industry type.

Starting a business also involves choosing the right entity type and ensuring that all the requirements and prerequisites are met, including filing the necessary documentation and applying for the required permits and licenses needed for the company to conduct business. So where should a new business owner begin, and what do they need to do first?

LLC vs. Business License

When it comes to forming an LLC or obtaining a business license, neither is dependent on the other. You don't need a business license to start your LLC, and you don't need an LLC to get a business license (your business will be classified as a sole proprietorship without any official LLC or S Corp setup). However, depending on where you are located and the type of business you have, your city, county or state may require a specific business license, which can be obtained with or without an LLC.

If you know you want to form an LLC, that is the best place to start. When applying for a business license, you will be asked for your business name. If you have already formed your LLC, you will be able to include the approved, legal business name on your application. If you apply for a business license before forming your LLC, you may need to change and update this information later, potentially costing a fee.

There are a number of different business entities that an entrepreneur can choose from, and each one has its advantage, depending on what you want to achieve. However, the most popular entity type that many business owners opt to form is an LLC. An LLC can help limit personal liability by creating a buffer between the owner and the business. This can help in case of a lawsuit where personal assets, such as a home, could be at risk without an LLC setup.

While LLCs have many positive features, just establishing an LLC is not always enough to ensure proper authorization to legally conduct business, in which case, a business license may be required.

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Do I Need a Business License?

Needing a business license depends on the type of business that you have, along with where your company operates and what the rules are in your area. Also, unlike an LLC, which is issued at the state level, most business licenses are issued locally, covering a city or county and complying with the law within a more restricted municipality. However, be sure to check with your state, as some do require a state-issued business license for particular industries.

Common business licenses can include liquor, tobacco, firearms, gardening/landscaping and food services (restaurant and food truck). In addition to these popular store-front licenses, there are professional and occupational licenses, as well as industry-specific licenses and permits covering healthcare, insurance, construction (plumbing, electric, roofing), retail sales and real estate. Check with your city and state to determine if your company is required to get any business licenses.

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How to Obtain a Business License

Many LLCs, depending on the industry or profession, will need to apply for a business license. Here are the steps required to obtain a license.

  1. Identify your type of business – liquor store, gun shop, cafe, bar, etc.
  2. Decide on the location where your business will be operating.
  3. Perform a search to determine what licenses and permits are needed. Incfile's Business License Search Tool is free and helps you narrow down the requirements for your business.
  4. Secure the forms you need to fill out from your state’s Secretary of State website. You will likely need to provide information about your type of business, your business address, the name and contact info of the business owner, your EIN and how many employees you have.
  5. If your business plans to operate in multiple locations, you will need to have the appropriate license for the places where you conduct business, whether you have one bar in downtown Manhattan and another in upstate New York.
  6. Make sure that all the right paperwork is filed, fees are paid and you are registered with the state tax office. Also, keep track of renewal notices for both licenses and permits.

Failing to acquire the appropriate business licenses and/or permits means that you cannot operate your business. Operating illegally without a business license can prove costly with hefty penalties and fees that will be much greater than any initial licensing expense. Operating without a business license also puts your company at risk of getting temporarily or permanently shut down. In addition, the reputation of your business can be negatively impacted, you may lose your customer base and all the hard work in establishing your company could be wasted.

Business License vs. DBA vs. Seller's Permit

Business licenses, DBAs and seller's permits are all separate things. Depending on the type of business you are running, you may want to consider having a DBA, or assumed (fictitious) name. This is often a consideration if you do not want to register under the name of your LLC. Following that path may help your business stand out and establish branding, as well as align your name to better match your product or service.

Having a DBA (also known as “Doing Business As”) has a number of benefits, but in no way takes the place of a business license. Filing for a DBA is also a separate process and basically allows you to use another name for your business other than the company name selected for your LLC.

Unlike business licenses, which allow a company to conduct business and helps ensure that federal, state and county regulations are followed, a seller's permit allows you to sell goods and services from a store or online. Having a seller's permit enables you to collect taxes on the transactions, which must then be reported to the state, county or city government.

Working Smarter...Not Harder

Establishing an LLC and filing for the necessary business licenses and permits are all important steps that an entrepreneur should plan for in order to operate a compliant business. Navigating through the different federal, state and municipal requirements takes time. Many of the filing requirements can also vary depending on the location and license type.

Incfile can help you make sense of all the rules and regulations through our Business License Research Package. This full-service package will do the research for you, file the right paperwork and ensure you meet all the requirements in obtaining and renewing business licenses and permits. Incfile has helped over 250,000 customers establish their business entity — trust us with yours. Our Business License Research Package gives you one-on-one help and can save you valuable time, allowing you to focus first on your business.

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