Business License or LLC? Which Comes First?

By Michael Kupfer Tuesday, October 15, 2019

business license or llc first?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.

It is important to note that obtaining a business license is not the same as forming an LLC or other legal entity for your business. The license approves your engaging 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.

Do I Need Both a Business License AND an LLC?

Yes. They serve separate purposes and one cannot be substituted for the other. Both are required if you wish to legally operate an LLC in a given city, county or state.

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.

Which Do I Get First?

When applying for a business license, you must provide the name of your business. For this reason, it makes sense to form your company first so you can provide the approved entity’s name on the license application, rather than having to change it (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.

Step 1: Form Your LLC   Step 2: Get a Business License

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

THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE'S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.

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