How Much Is an LLC Business License?: Everything to Know
How much is an LLC business license depends on the location and industry of your limited liability company (LLC), as well as other factors.3 min read
2. State Business Licenses
3. Local Permits
4. Forming an LLC
How much is an LLC business license depends on the location and industry of your limited liability company (LLC), as well as other factors. An LLC is a business structure that provides more flexible management than a corporation while still offering its owners, called members, limited liability protection. LLCs are established at the state level and must follow the guidelines of that specific state.
Many business owners choose to create an LLC to enjoy the benefits of pass-through taxation. Unlike corporations, LLCs are not taxed at the corporate level. Instead, profits and losses are reported on each shareholder's individual tax return. This avoids the double taxation levied upon corporations, in which profits are taxed at the corporate level when earned and at the individual level when distributed to shareholders.
Federal Business Licenses
Certain industries require businesses to apply for a federal license. This includes businesses in the areas of:
- Interstate commerce
- Weapons and firearms
- Maritime and transportation
- Broadcast communications
- Nuclear energy
- Mining and drilling
Federal licensing is often complex and may require registering with more than one agency.
State Business Licenses
Certain businesses must be licensed in their state of practice. Depending on state laws, this typically includes but is not limited to:
- Attorneys, physicians, and professionals, who must demonstrate training and education to receive a license to practice in the state.
- Real estate agents.
- Auto mechanics.
- Building contractors.
- Private investigators.
- Retail sales locations, which must obtain a state sales tax permit.
Most LLCs are subject to an annual state license renewal.
Even if your business does not require a state or federal license, you may need a permit to operate in your city or municipality. This is often true for stores that:
- Get a lot of auto or foot traffic
- Need substantial inventory storage
- Prepare food.
Even online-only businesses typically need to apply for a DBA (doing business as) certificate, especially if you operate the business under a name other than your own legal name.
Forming an LLC
To form an LLC, you'll first need to choose a name that is not in use by another business and complies with other naming rules in your state. In most cases, you'll need to include the following words in the name:
- Limited liability company
- Limited company
- liability co.
Certain words are typically prohibited, such as “insurance,” “bank,” “corporation,” or “city.”
Most states will search the name you choose when you file your application. But searching it yourself first can prevent having your application rejected and having to refile at an additional cost. In some states, you can reserve an LLC name while you prepare to file your organization documents. This usually costs less than $100 and requires filing a simple online form. You may also want to register your name with the U.S. Patent and Trademark Office to receive federal infringement protection.
Next, you'll have to prepare and file articles of organization with the secretary of state. Some states call this form a certificate of organization or a certificate of formation. This carries a filing fee varying from less than $100 to a few hundred dollars, depending on your state. You can also pay an additional fee for rush service. This basic form requires you to list the name and address of your business, plus the names of all its owners (known as members). All members can sign, or they can appoint an acting member to sign on their behalf.
You'll also need to list a name and address of a registered agent who is designated to receive legal documents on behalf of your business. This can be a member of the LLC or a business hired to serve as a professional registered agent.
Although an LLC operating agreement is not required by law, it is recommended if your LLC has more than one member. This legally binding document outlines the operating procedures of the LLC, including:
- The percentage of each member's ownership stake
- Rights and responsibilities
- Voting power.
The LLC operating agreement also details:
- How profits and losses are allocated among members
- The management structure of the LLC
- Rules for voting and meetings
- Procedures for transferring ownership stakes.
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