Business License vs LLC: Everything You Need to Know
The differences between a business license vs. LLC is important for any business owner. 3 min read
Updated July 2, 2020:
Business License vs. LLC
The differences between a business license vs. LLC is important for any business owner. An LLC, also referred to as Limited Liability Company, is a legal business structure that is registered with the Secretary of State in the state where you plan on conducting business. A business license, however, is a specific license that you might need to obtain before conducting business – whether you are operating as an LLC, corporation, partnership, DBA (doing business as), or sole proprietorship.
LLC: An Overview
There are many benefits to operating an LLC, including but not limited to:
- Personal liability protection
- Pass-through taxation
- Fewer formalities
- Less expensive than forming a corporation
LLC owners cannot be held personally liable for the debts and obligations of the business. Therefore, plaintiffs cannot try taking the owner’s personal assets, i.e., car, home, bank accounts, etc. When registering your business as an LLC, you’ll have to file the articles of organization with the Secretary of State. Since LLCs aren’t recognized as legal structures for tax purposes, the revenues and expenses from the business will pass through to the owners who will then report it on their personal income tax returns.
LLCs also enjoy fewer formalities and are generally less expensive to form than a corporation. Unlike a corporation, the LLC isn’t required to hire a board of directors, conduct periodic meetings, or maintain meeting minutes.
Business License: An Overview
Regardless of what type of business you operate, you might need to obtain a business license before conducting business. Most municipalities – cities and counties – require a business license. Moreover, some states also require a business license. Therefore, you might need to obtain several licenses prior to doing business.
The license is a registration that is issued to businesses operating in a certain industry and/or in a certain geographical area. For example, some cities require all businesses to obtain a license before doing business in that city. Alternatively, some states require licenses for businesses operating in certain industries, i.e., restaurants.
Keep in mind that, when applying for a business license, you will likely need to pay an annual fee to the government to continue operating legally. It could be a flat fee based on your annual revenue or a fee based on the industry in which you operate. Generally, obtaining a business license doesn’t require an inspection.
Business permits are distinct from business licenses in that a permit is issued for public safety reasons; as such, permits generally require an inspection take place before business is conducted. For example, if you are opening a new restaurant, you will likely need to obtain a business permit to sell food. Before conducting business, the city or municipality will need to conduct an inspection of the restaurant to ensure that it is up to legal sanitary standards before operating. With that said, restaurants might also require a business license, particularly for restaurants selling alcohol to patrons.
Types of Business Licenses
There are many types of business licenses, including:
- Federally licensed businesses
- State-licensed businesses
- Local licenses
- Doing Business As (DBA)
There are several businesses that might require a federal license, particularly for those operating across state lines. For example, businesses operating in the agricultural, transportation, or mining industries will need to obtain federal business licenses as the federal government regulates these industries.
State-licensed businesses include those hiring attorneys, doctors, and other professionals who are certified. Therefore, those companies that employ certain professionals who have their own licensing (legal, medical) will need to obtain state licensing. Furthermore, other types of businesses, such as real estate firms, automobile mechanics, and contractors are also required to obtain state licensing before doing business.
There are many businesses that require local licensing. As previously noted, a restaurant will likely be required to obtain local licensing from the health department. But any business that expects to have customers visiting the storefront will likely need some sort of local license.
If you are operating a DBA, then you will need to register your business name with the county where your business is located. Registration will simply allow you to do business through the DBA name, open a business bank account, and enter into contracts with vendors.
If you need help learning more about obtaining a business license for your LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.