LLC Licensing: Everything You Need to Know
LLCs are popular business entities that provide a balance of limited liability that corporations have with the pass-through taxation benefits of sole proprietorships and partnerships.4 min read
2. Advantages of LLCs
3. Disadvantages of LLCs
4. Frequently Asked Questions About LLC Licensing
5. Steps for LLC Licensing
Updated November 27, 2020:
What is LLC Licensing?
LLCs are popular business entities that provide a balance of limited liability that corporations have with the pass-through taxation benefits of sole proprietorships and partnerships. Depending on the state the LLC is formed in and the industry, there might be some LLC licensing requirements to consider. This will depend on the type of business it is and where it is located.
Advantages of LLCs
1. LLCs are taxed as pass-through entities, meaning that they do not pay corporate taxes and all of the money is passed to the shareholders who pay personal income taxes. Unlike other forms like corporations, LLCs are only taxed once resulting in more money going directly to the shareholders.
2. LLCs protect your personal assets by limiting your liability and offering you legal protection.
3. LLCs give you the same protections as a corporation without the rigid structure requirements that are not as useful for smaller businesses.
4. LLCs are not federal entities. Instead, they are regulated at the state level.
Disadvantages of LLCs
1. LLCs cannot issue stock, which can slow long-term growth and investor recruitment.
2. LLCs are not federally managed so they are subject to different laws in each state.
3. LLC shareholders pay self-employment tax which is higher than the corporate rate in most cases.
4. Converting a company to an LLC can result in an additional tax on appreciated assets.
Frequently Asked Questions About LLC Licensing
Are there fees to license an LLC?
The fees associated with filing to form an LLC depend on where you file. Most states have a low filing fee that is below $100. However, states can assess whatever fees they deem necessary. California charges an annual $800 LLC licensing tax.
What are the federal requirements for licensing an LLC?
LLCs are not recognized on a federal level. Instead, they are governed by the state where the LLC was created. However, even LLCs are subject to federal licensing laws based on the industry that they are in. Some of the federally licensed industries include:
- Firearms and weapons
- Air and water transportation
- Mining and drilling
- Nuclear energy and technology
How do I get a federal license for my LLC?
To get the license that you need, you have to apply with the appropriate government agency. This involves filling out extensive paperwork and following procedures. It is highly recommended that you consult legal help since you may have to file with multiple agencies depending on your business, and mistakes can be costly.
Will my company need a state license as well?
Your company will likely need a state license in addition to a federal license. State licenses are generally reserved for key professions including:
- Legal professionals
- Real Estate Agents
- Private Investigators
Other Community-essential professions
These professionals often have to follow a certification process that demonstrates their education and proficiency in their field before they can get their license.
Does my company need a local permit as well?
Local permits are required based on your industry or service. Getting a local permit will follow the same methods of filing as with state and federal permits.
Steps for LLC Licensing
1. Select a business name that meets your state's unique LLC naming requirements.
- This might be located within your state's secretary of state office.
- In most cases, the name of the proposed LLC must be unique, end with some form of the phrase “LLC”, and cannot contain prohibited words, such as “bank.”
- Some states allow you to reserve the name for a small fee.
2. File the LLC's Articles of Organization with the state and pay the applicable filing fee.
- Some states call this a Certificate of Formation or a Certificate of Organization.
- Include who will run the business and how many owners/members there will be.
3. Appoint a member or a service to serve as a Registered Agent to accept legal papers.
- Without a registered agent, your LLC will be forced to dissolve.
4. Secure an EIN number from the IRS.
- An EIN is required to hire any employees.
6. Write up an LLC operating agreement that details which member does what for the organization and how much members own.
7. If your state requires it, publish your notice of intent to form an LLC in a legal newspaper that meets publication requirements.
8. Apply for applicable LLC licenses and permits.
- This may include a tax registration certificate, a seller's permit, or a zoning permit.
If you need help with LLC licensing, 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.