Business License or LLC? Which Comes First?
A business license and an LLC serve different purposes and are not mutually exclusive. If you own and operate a business, you generally need to obtain a business license in order to comply with local regulations. This can include general licenses from your state, county or municipality; as well as, special licenses or permits based on your industry. Whether you'll need a business license, an LLC, or both depends on your business and your jurisdiction.
The license approves your engagement in a specific business in a certain jurisdiction; an LLC provides an official, legally-recognized business entity. Forming an LLC effectively makes your business a company rather than a sole proprietorship.
Difference Between LLC and Business License
A business license is a permit that allows you to legally operate a business within a specific jurisdiction. An LLC, on the hand, is a type of legal entity. Most businesses, regardless of their legal structure, needs a business license to operate legally within a certain jurisdiction, while an LLC is completely optional (though many businesses choose to operate as an LLC to protect their owners from personal liability).
Do I Need Both a Business License AND an LLC?
Yes. Both are required if you wish to legally operate an LLC in a given city, county or state.They serve separate purposes and a business license cannot be substituted for an LLC.
If you have an LLC and no business license, you put your company at risk of incurring a penalty (financial or legal) if you are found to be in violation of local regulations.
If you have a business license but you do not have an LLC or other legal business entity, you can still operate your business as a sole proprietor. However, doing so carries a number of disadvantages and risks.
An LLC is not your only choice for a legal business entity. Many entrepreneurs decide to start corporations or partnerships, depending on their type of business and objectives. For instance, an entrepreneur who intends to raise capital by selling equity ownership in the company may opt to form a corporation, and specifically a Delaware C Corporation.
Alternatively, if you are looking to provide consulting services over the internet, the LLC is a sensible choice, as it is flexible and simple, in terms of structure and maintenance.
Do You Get a Business License or an LLC First?
When applying for a business license, you must provide the name of your business. For this reason, it makes sense to form your LLC or corporation first so you can provide the approved entity’s name on the license application, rather than having to submit a form to change the name after you form the company (which could carry a fee).
It is recommended that you obtain any required business license(s) and permits before engaging in any business activities to ensure that you are in full compliance with local regulations.
Is a Business License the Same as a DBA?
A DBA, also known as Doing Business As, is a way to register a fictitious trade name that can be used in place of your company’s official name. When a company has more than one line of business, or when a company’s name is not available in a state they are extending operations to—that is when the DBA comes in handy.
Filing a DBA is a separate process from obtaining a business license. A DBA does not permit you to engage in any specific business activities; it simply allows you to use another name for the business you are already permitted to conduct.
What’s the Difference Between a Business License and a Seller’s Permit?
Both of these fall under the umbrella of possible requirements in order to legally operate your business. Specifics will depend on your line of business and your local jurisdiction(s).
A seller’s permit, which may or may not be required where you are operating, gives a business permission to engage in the sales aspect of the business. More to the point, it establishes the relationship with tax collection agencies so they are able to monitor the payment of sales tax by your customers
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
More By HBS
There are 9 comments left for Business License or LLC? Which Comes First?
valentina said: Saturday, April 10, 2021Excellent and decent post. I found this much informative. I'm impressed by the details that you have on this web site. Thank you for this post
HBS Staff replied: Monday, April 12, 2021Valentina,
Thank you for reading our blog and we are glad you found it to be helpful. If you have any questions we are here to assist.
joe leah said: Saturday, April 10, 2021I really enjoy simply reading all of your weblogs. Simply wanted to inform you that you have people like me who appreciate your work
HBS Staff replied: Monday, April 12, 2021Hello Joe,
Thank you for reading our article and we are glad you are finding our articles helpful. If you have any questions we are here to assist.
joe leah said: Thursday, April 8, 2021Nice information, valuable and excellent design, as share good stuff with good ideas and concepts, lots of great information and inspiration, both of which I need, thanks to offer such a helpful information here
HBS Staff replied: Thursday, April 8, 2021Joe,
Thank you for reading our blog and we are glad you found it helpful. If you have any questions we offer free lifetime customer support.
sohag mizi said: Thursday, March 4, 2021I admire this article for the well-researched content and excellent wording. I got so involved in this material that I couldn’t stop reading. I am impressed with your work and skill. Thank you so much.
HBS Staff replied: Sunday, March 7, 2021Hi Sohag,
Thank you for reading our article and glad to hear you found it helpful.
Olivia Zoe said: Thursday, March 4, 2021Excellent and decent post. I found this much informative. I'm impressed by the details that you have on this web site. Thank you for this post.
HBS Staff replied: Sunday, March 7, 2021Olivia,
Thank you for reading our article and glad you found it helpful. We are here to assist with any questions.
1 | 2