If you're wondering, "what is an LLC license," you should first understand what an LLC is and the steps you have to take to form one. Failure to file the proper paperwork with the appropriate offices in your state can cause major setbacks in your plans to begin operating a domestic LLC.

What Is a Limited Liability Company?

A limited liability company, or LLC, is a specific kind of business structure that provides the company's owners with special protection from being held personally liable for the legal and financial obligations of the company. A limited liability company is not required to pay taxes because the company's financial gains are reported on the owner's personal taxes.

Creating a limited liability company is regulated by local state laws. Members need to file specific documents with appropriate state offices, such as the Secretary of State in most states, to be approved for operation. In simple terms, the limited liability company business structure is less complex than other options. It is also much more flexible than other popular structures, such as the C-corporation and S-corporation.

Creating a limited liability company provides other benefits as well, such as:

  • Pass-through taxation
  • Limited liability
  • Protecting the personal assets of the owners

The LLC business structure is fairly popular among people who are interested in starting a new company.

Starting a limited liability company is generally a simple matter of filing a document known as the articles of incorporation with the appropriate state office. In most cases, this will be your local Secretary of State. In most cases, it isn't a requirement to obtain a business license to start a limited liability company. However, it may be necessary to register with the local state tax agency and gain an occupational license before you can operate your LLC under certain circumstances.

Formation of an LLC

While every state has its own specific laws that regulate how an LLC is formed, they also have a few similarities. When business owners apply for limited liability company status, they are required to have a company name that is unique and easily distinguishable from the name of any other company currently doing business in their state.

Business owners must also file a standardized form that is issued by the state and contains the following information:

  • The owner's identity
  • The company's resident agent
  • The nature of the company

This document should be filed with the state, along with the company's articles of incorporation. Some states also require the company provides some or all of the following:

Specific laws vary from state to state, but generally, the only requirement to form a limited liability company is the organizer is of legal age. In most states, this means that the organizer needs to be at least 18 years old. However, regardless of the state you intend to do business in, your company will be required to designate a registered agent. A registered agent may be either a natural person or another company that agrees to receive legal correspondence on behalf of the company in the event that legal action is taken against your business.

Effect of LLC Registration

Once you've gained appropriate approval, your limited liability company will be authorized to conduct business anywhere in your state of organization. A limited liability company is considered its own distinct legal entity, which means the company is able to do a number of things in its own name, such as:

  • Accruing financial debt
  • Owning and leasing land
  • Purchasing and selling items
  • Entering into binding contracts
  • Taking a political stance

In most states, your LLC will be required to follow certain formalities, such as keeping a set of financial records that are separate from those of the owners' and holding corporate meetings.

Forming an LLC

Fewer filing requirements mean that LLCs enjoy quite a bit more freedom than other business structures, such as corporations. LLCs can come in a number of different variations, including:

Additionally, LLC members can be any of the following:

  • An individual
  • A corporation
  • Another LLC
  • A foreign entity

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