Is an LLC a Business License?
If you’ve been wondering whether your newly formed LLC is a business license, allow me to clear up your confusion. No, your LLC is not a license to do business.
And if this tidbit of information leaves you with more questions than answers, then you’ll want read on. This blog piece will answer questions like:
- If an LLC is not a business license, what is it?
- Do LLCs need business licenses?
- How do I get a business license for my LLC?
But before we dig deeper, let’s take a second to zoom out and make sure you’re seeing the full picture when it comes to the legal aspects of building your business.
Does your business have a solid foundation?
You can’t build a successful business without a solid foundation. A foundation that allows you to thrive during good times, and survive through the bad. But as a new entrepreneur, how can you tell whether you’ve taken the steps necessary to set your business up for success?
Take our Small Business Legal Assessment – a 5 minute quiz designed to help you determine whether you’re business has a solid foundation. The quiz looks into your business structure, contracts, and intellectual property to determine whether you’ve taken the proper steps to build a successful business. Once completed, you’ll receive a personalized report highlighting the steps you can take to strengthen your legal foundation.
Ready to find out where your business stands? Take the Assessment Now!
What is an LLC?
As we’ve established, your LLC is not a business license. So, what is it exactly? An LLC – which is short for limited liability company – is a type of business entity. Among the common business structures available to entrepreneurs, LLCs are the most popular for two reasons.
First, they provide business owners with a layer of personal liability protection. This means that (generally speaking) the business owner is not legally responsible for the debts and liabilities of the business. This layer of liability protection is not bulletproof. However, it will help protect your personal assets from the risks that come with starting a business.
Second, LLCs provide a ton of flexibility. Using your operating agreement, you and your business partners can decide on everything from how the business will be managed, to when profits will be distributed. Also, since there’s no separate IRS tax category for LLCs, you can choose how your LLC will be treated for tax purposes.
It’s important to understand that your LLC is a separate legal entity from you (and your business partners). And while you have a ton of freedom to decide how it runs, there are some legal formalities that you have to follow. If you’re not clear what these are, make sure you speak to a legal professional as you get your business up and running.
Does my LLC need a business license?
Since your LLC is not a license, does that mean you’ll have to go through a separate process to obtain a license for your business? Probably. But the answer ultimately depends on two factors. First, it depends on the type of business you’re running. And second, it depends on where you’re doing business.
Let’s take at how each one of these factors impacts your licensing requirements.
Business Activity
The first factor that’s going to determine your business licensing requirements is your business activity. If you’re in a heavily regulated industry, you’re going to have more extensive licensing requirements than others.
For example, healthcare, childcare, manufacturing, construction, and food service businesses are all subject to heavier regulation than other industries. Therefore, businesses that provide these types of services will have to comply with strict licensing requirements. Similarly, entrepreneurs who work in a licensed profession will also have additional licensing requirements. This includes lawyers, doctors, accountants, therapists, social workers, cosmetologists, and barbers.
But it is not just your industry that you have to consider.
Regardless of what industry you’re in, there are certain business related activities that are subject to additional licensing requirements. For example, if you sell alcohol, firearms or other regulated substances, import or export goods, or if you have a retail store you may have to obtain additional licenses and permits.
Generally speaking, entrepreneurs who operate in an industry or profession that is subject to greater regulatory requirements are aware of these requirements based on their experience in the field. But if you’re not sure whether your business falls one of these categories, check with a local trade association or find a mentor. These folks can share industry specific insights that can make the licensing process much quicker and easier.
Business Location
The second factor that determines your licensing requirements is where your business is located. Most business licensing occurs at the local level. If your business is required to have a general business license – often referred to as a business privilege license – that requirement will most likely be enforced by the city or county government.
Local governments are also responsible for zoning, which determines where businesses can operate within a town or city. For example, most cities prohibit people from using their home as a retail or office space that customers can visit. Similarly, while the average retail business is able to operate in most commercially zoned areas, some businesses are only allowed in specially zoned areas.
Check in with your local elected official’s office, chamber of commerce, or any non-profits that support businesses in your area to learn more about the licensing requirements in your city.
(If you run a business with multiple locations, or that moves from place to place, contact a lawyer for help determining your licensing requirements. The extent of your activity in different places will play a major role in your licensing requirements.)
What do I need to do before I can get a license for my LLC?
What you need before you can obtain a license for your business will depend on the type of license you’re trying to get. However, in many cases, there are certain baseline requirements that must be met.
First and foremost, you must set up your LLC properly. That includes:
- Filing the certificate/articles of organization with the state (including choosing a registered office address or registered agent)
- Applying for an EIN with the IRS
- Creating an operating agreement
- Opening a business bank account
As mentioned above, general business licenses (i.e., business privilege licenses) are typically issued by cities and local municipalities. But they’re not required by every city or town. When they are required, businesses typically must do the following in order to get their license:
- Set up a business tax account with your city or town
- Complete and submit an application with the applicable application fee
If you are applying for an industry specific license, you may also have to take the following into consideration as well:
- Insurance requirements
- Safety, health, and environmental standards
- Educational background and continuing education requirements
- Zoning and land use restrictions
At this point, you’re probably thinking, ‘all that’s great, but how do I figure out what licenses are needed for MY business?’
How do I figure out what licenses I need to operate my business?
The most daunting part of the business licensing process is figuring out what licenses are actually required for your LLC. Trying to research this on your own can be frustrating. The information you need is typically spread out between several different websites. And these websites often contain incomplete or conflicting information.
Some entrepreneurs react to this reality by sticking their head in the sand and operating without the license they need. While they may be able to get by this way for a while, it catches up with them eventually. Businesses operating without required licenses subject themselves to fines and penalties. Additionally, their failure to obtain the proper licenses will prevent them from taking advantage of opportunities, such as obtaining government contracts and grant opportunities.
So, how should you find out what business licenses you need?
First, consider turning to the business support organizations in your area. Non-profit organizations like SCORE, community development organizations, and local business accelerator programs are there to help you be successful.
Second, you can pay a visit to your local elected official’s office. At the end of the day, your entrepreneurial success will help grow the tax base. So their staff are often willing to help business owners figure out what licenses they need to apply for. And since they’re part of the government, they may be able to share tips on how you can speed up the licensing process.
Lastly, trade and industry associations are great places to find mentors who can help guide you through the licensing process. And since these business owners have been through the process before, they may also have tips on how to navigate licensing processes more efficiently.
Save time by hiring a small business lawyer
Of course, all of the resources above can help you figure out your licensing requirements. However, they won’t do the research for you.
If you’re short on time, the easiest route to figuring out your licensing requirements may be to hire a small business attorney. At MZA Legal, we create personalized small business licensing reports to help entrepreneurs get clarity regarding their licensing responsibilities.
If you’d like to get back to running your business, and hand the licensing process over to a professional, give us a call or schedule a time for us to chat. We’re here if you need us!