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.
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There are 9 comments left for Business License or LLC? Which Comes First?
Gal Gadot said: Wednesday, January 27, 2021A Very systematic written and informative article.
HBS Staff replied: Friday, January 29, 2021Thank you for reading our article and we are glad you found it informative.
Hüseyin YILDIRIMTÜRK said: Monday, January 25, 2021I live overseas and my business incorporated in Virginia as S-Corp. I use post mailbox for my business in Arlington, VA. Should I get business license in Arlington, VA. Can I show my mailbox address in my license?
HBS Staff replied: Friday, January 29, 2021We are specialists in forming and maintaining Delaware companies. Generally, you will obtain the necessary licenses and permits in the state in which you physically doing business in. You will want to contact your local Division of Revenue.
Brea said: Tuesday, January 5, 2021Hi if I have a Salon business that is currently a registered business. I would to open up a boutique business with a new name. Can I use my current business registry and add my boutique to it. Or do I need a separate registration for the boutique?
HBS Staff replied: Tuesday, January 5, 2021You can find some great information that lays out several options here: https://www.delawareinc.com/blog/how-to-operate-multiple-businesses-under-one-llc/
Please feel free to email or chat with our team for additional assistance.
Dawn Melhiser said: Tuesday, July 28, 2020I was wondering if you would answer a question? My husband is a licensed builder in North Carolina and is a S Corp. We have moved to Texas , can we drop the S- Corp. and maintain the license for North Carolina? The reason for that is we have a friend that does work in NC and my husband allows him to use his license, this is small work. Do we need to stay as an S Corp? We make no money off of his work it’s just to help him out.
HBS Staff replied: Wednesday, July 29, 2020Business licenses are typically associated with a business entity, so without your S-corp, the license may not be valid. It would be best to check with the appropriate department of the NC state government (or an attorney) for clarity.
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