Amidst all the excitement and hustle of starting a business, it’s easy to get lost in the jargon and legalities. One common source of confusion is the difference between a business license and an LLC. To clear the air: a business license is not the same thing as forming an LLC. Sure, both are important steps toward getting your business off the ground, but they serve different purposes.
What Is a Business License?
A business license is any kind of permit or license that a government entity requires businesses to have in order to operate. These licenses are issued at the federal, state, and local levels and can cover a variety of business activities.
Now, if you’re wondering whether your business needs a license, the answer is: it depends. Generally speaking, brick-and-mortar businesses may need permits to allow commercial activity on the property and to build or remodel the building. Let’s find out about the various types of licenses that businesses might need to have depending on their operations.
What Are the Common Types of Business Licenses?
To legally operate within certain localities most businesses require different types of licenses and permits. Here are the commonly needed ones:
General: General business licenses can be obtained from local or state government agencies and are fundamental requirements for operating within specific areas.
Professional: If you’re working as a lawyer, physician, or accountant – professional licenses are mandatory before offering your services to clients/customers.
Sales tax: For sales tax collection while selling goods/services, businesses must obtain a sales tax permit beforehand.
Health: Health permits are crucial for food/drinks establishments since they demonstrate compliance with health & safety standards set by regulatory authorities
Building: Building permits can help ensure that commercial properties under construction/renovation are following the required building codes and regulations.
Signage: Regulations regarding signage permitting requirements vary based on location, so special permissions may be necessary before displaying promotional signs outside the business premises.
Fire: If your company uses hazardous materials or presents potential risks from fires you’ll need a fire permit to ensure compliance with required safety standards.
Zoning: Anyone looking at operating their enterprise within commercial zones designed by local zoning laws should obtain an appropriate zoning permit before starting shop.
Always keep in mind that licenses and permits required to run a business can vary on factors including location of operations as well as industry type.
How to Get a Business License?
Assuming you need a business license, here are the steps you’ll need to take to get one:
Step 1: Form your business entity: Apply for a business license in the name of your business, and if you haven’t formed a corporation or LLC yet, now’s the time to do it. Apply for an Employer Identification Number (EIN) if required.
Step 2: Determine which license you need: Seek guidance from a lawyer or resources from your local Small Business Administration office to help you figure out which licenses you need.
Step 3: Apply for the license: Apply online or submit paper applications for local licenses. Be aware that some licenses may take longer to review than others.
Step 4: Renew your license: Don’t forget to renew your business license as often as required, depending on your location and the type of license you have.
Make sure you talk to your lawyer and be up-to-date with the regulations in your state and locality to avoid any lapses in your licensing.
What Is a Limited Liability Company (LLC)?
Think of an LLC as a protective bubble for business owners. When you form an LLC, you’re essentially saying, “Hey world, if anything goes wrong with my business, don’t come after my personal assets!” That means your car, house, and prized stamp collection are safe from being seized to pay off any debts or legal issues that your company might face. And even big-name companies like Pepsi-Cola and Nike can benefit from the protection an LLC provides.
Just keep in mind that tax rules for LLCs can get a little tricky. If you’re a one-person show, you’ll be taxed like a sole proprietorship, but if you have partners, you’ll need to choose whether to be taxed like an S or C corporation. Either way, forming an LLC can be a smart move for protecting your personal assets.
Why Should You Choose LLC as Your Business Entity?
Limited liability Companies (LLCs) have their fair share of pros and cons. On the bright side, LLCs provide liability protection for business owners and shareholders, which can be a huge relief in the event of a lawsuit or bankruptcy. Plus, LLCs offer a flexible business structure with plenty of trading options, and they may even lead to lower tax bills. They are relatively easy to set up and versatile for small businesses. There are no shareholder meeting requirements. The LLC can also lend credibility to your name.
However, there are some downsides to consider. For one, company accounts are made public, which isn’t ideal for those who value privacy. Liability protection is limited, so although there is protection, it may not be enough for every business.
In an owner has to dissolve the LLC, the remaining partners are left responsible for legal and financial obligations to eliminate the business.
How to Form an LLC?
Forming an LLC is a great way to give your business a strong legal foundation. Here are some steps to follow when forming an LLC:
Step 1: Choose and Reserve a Name for Your LLC
Your LLC’s name must be unique and not already in use in your state by another business entity. In most states, you can check the availability of a name online, and if it’s available, you can reserve it for a small fee.
Step 2: Select a Registered Agent
In most states, it’s mandatory for LLCs to appoint a registered agent, also referred to as a statutory agent. A registered agent is a person or entity that agrees to receive legal documents and official notices, such as lawsuits, subpoenas, and other legal correspondence, on behalf of the LLC. The registered agent then forwards these documents to the appropriate person at the LLC in a timely manner.
Step 3: File Articles of Organization
To officially create your LLC, you’ll need to file articles of organization with the state. This document typically includes your LLC’s name, address, and other basic information about your business. Some states may require additional information or specific language to be included in the articles of organization.
Step 4: Create an Operating Agreement
Although it’s not required in every state, it’s a good idea to create an operating agreement for your LLC. This document outlines the ownership and management structure of your LLC, as well as the rules and procedures that govern how the business will operate.
Step 5: Obtain the Necessary Licenses and Permits
Depending on your industry and location, you may need to obtain certain licenses and permits to legally operate your business. Make sure to research what licenses and permits your LLC may need at the federal, state, and local levels.
Step 6: Comply with Tax and Regulatory Requirements
LLCs are subject to certain tax and regulatory requirements at the federal, state, and local levels. Make sure to obtain the necessary tax identification numbers, register for state and local taxes, and comply with any other regulatory requirements in your area.
Do You Need Both a Business License and an LLC?
A business license is like a permission slip from your local government that says you’re allowed to operate your business within a certain jurisdiction. This can range from a general license for your state, county, or municipality, to specific permits and licenses depending on your industry. On the other hand, an LLC is an official, legally-recognized business entity that separates your personal assets from those of your business.
In many cases, having an LLC is not required to operate a business, but it can provide important legal protection. Likewise, having a business license is not always required, but it may be necessary depending on the nature of your business and where it’s located.
Which Do You Get First: Business License or LLC?
The process of obtaining a business license and forming an LLC are two separate steps in starting a business. In general, you would form your LLC first and then apply for a business license. The reason for this is that an LLC provides legal protection for its owners, and having that protection in place before you start operating your business is a good idea. Once you have your LLC formed, you can then apply for a business license.
Is LLC the Same as DBA?
While a DBA, or “doing business as” allows you to operate your business under a different name than your legal business name, it’s not the same as an LLC. An LLC is a legal structure that provides protection for business owners against personal liability. Sole proprietors and partnerships often use DBAs. However, it’s crucial to note that registering a DBA doesn’t offer any legal protection to your business. If personal liability is a concern, it’s advisable to consider forming an LLC.
Bookkeeping Help for Businesses
So there you have it – the lowdown on business licenses and LLCs. Remember, getting your paperwork in order doesn’t have to be a total drag – especially if you have a trusted bookkeeping partner like doola to guide you through the process. Whether you’re a one-person show or a burgeoning enterprise, taking the time to get your legal ducks in a row is well worth the effort. Who knows – maybe someday you’ll be the proud owner of the next big thing!
How much does it cost to get a business license?
The cost of a business license varies depending on the location and type of business. It can range from a few hundred dollars to several thousand dollars.
What can happen if you operate a business without a license?
Operating a business without a license can result in fines, legal action, and the possibility of having to shut down your business.
Do you need to renew your business license yearly?
Yes, most business licenses need to be renewed annually or biennially, depending on the location.
What are the other alternatives for an LLC?
Other alternatives for an LLC include sole proprietorship, partnership, S corporation, and C corporation.
How much does it cost to get an LLC?
The cost of forming an LLC varies depending on the state, but it typically ranges from $50 to $500. Additionally, there may be additional fees for things like filing articles of organization or obtaining necessary licenses and permits.