Business License vs. LLC Formation: Why You Might Need Both

Starting a service business involves legal and administrative decisions. Two key considerations are choosing a business structure and securing the required licenses. An LLC and a business license serve different purposes and many businesses use both to establish their legal identity, meet government requirements and operate according to federal, state and local rules.

What Is LLC Formation?

A limited liability company or LLC, is a business structure created under state law. Owners form an LLC by filing required documents with the appropriate state agency. The LLC creates a business entity under state law that is separate from its owners.

LLC formation can provide owners with personal liability protection, subject to applicable laws and circumstances. It also establishes the company’s legal identity. Filing procedures, fees, reports and other requirements vary by state, so owners should review their state’s specific rules.

What Is a Business License?

A business license is an authorization that allows a company to conduct certain activities within a particular jurisdiction. Requirements depend on factors such as the service provided, business location and rules established by the relevant government authority.

Business owners researching how to get a business license can check the appropriate state, county and city agencies. Some activities also fall under federal licensing rules. Application procedures, fees, license types and renewal periods depend on the applicable authority.

Business License vs. LLC Formation: What Is the Difference?

LLC formation and business licensing address different parts of operating a business. The main differences include:

Together, they can support legal business formation and authorized operations.

Why Might You Need Both a Business License and an LLC?

A service business may form an LLC to establish its legal entity and secure applicable licenses to conduct its activities. Each serves a separate purpose, helping owners address both business formation and operating requirements.

For example, a plumbing company may operate as an LLC while holding applicable licenses for plumbing services. Licensing rules vary by state, profession and location, so business owners should review the requirements for their specific services.

What Should You Check Before Forming an LLC and Getting a Business License?

Requirements vary by state, service and jurisdiction. Important areas to check include:

• State Formation Rules: Review LLC filing documents, fees and ongoing requirements.

• Local Licensing Rules: Check county and city requirements for your location.

• Service Requirements: Identify professional or industry licenses applicable to your services.

• Renewal Requirements: Track renewal dates for applicable licenses, permits and filings.

Reviewing these areas helps owners prepare the required filings and licenses before starting operations.

Conclusion

LLC formation and business licensing serve distinct purposes for a service business. An LLC establishes a legal business entity and can provide liability protection, while applicable licenses authorize certain activities. Having both when required helps owners meet relevant requirements. Reviewing federal, state, county and city rules can help businesses set up properly and maintain required registrations over time.