Can you Form an LLC Without a Business License?

Forming an LLC involves many steps depending on where it’s being established and the type of business you want to operate. The process of creating an LLC might differ in most states, but you don’t need a business license. However, you need a business license to operate the LLC as a business.

Can you form an LLC without a business license? You don’t need a business license to form an LLC or vice versa. An LLC makes your business a legal entity recognized by the law, while a business license is the approval of your business engagement in a specific jurisdiction. 

Acquiring a business license ensures business owners are compliant with local, state, and federal regulations, which maximizes the role of business entities. A business license is among the prerequisites of running a compliant business, regardless of the type of business you’re venturing into. 

Besides choosing a product or service to sell, finding a market, securing funding, or setting up a shop, you must get a business license to trade. 

If you feel confused by the relationship between an LLC and a business license, we’re glad you found this post. We’ll discuss how a business license relates to an LLC, what a business license is, and what comes first when starting a business. 

Walk with us as we shed light on LLC and a business license to ensure your business complies with trading laws and regulations. 

What is a Business License?

A business license is any license or permit a business needs to conduct legal business. Different states have varying license and permit-issuing requirements, and you should check with your state regarding the kind of license you need.

So, is a license the same as a permit? A license and permit are distinct documents issued by different bodies; government agencies issue licenses, while permits are permission to do something. 

For example, you need a license to drive a car. When constructing a building, you need a permit, just that once. Both terms have distinct meanings before the law. 

What Comes First? A Business License or LLC Formation?

A Limited Liability Company (LLC) is a business structure that offers liability protection to its owners. An LLC has some benefits, like flexibility, tax benefits, and personal limited liability. 

Any business operating under an LLC needs a business license or permit to function within the law in its location. The document is an authorization granted by a government authority, allowing a business to function legally.  

If you choose an LLC as your business structure, forming it first is wise before applying for a business license. Registering an LLC establishes a business as a legal entity, separating personal and business assets even when the business takes a nosedive. Whenever an LLC is in financial trouble, the owner’s finances and assets aren’t at risk. An LLC ensures a clear distinction between business assets and finances from the owner.

After establishing your LLC, you must obtain a business license to comply with business rules and regulations in your jurisdiction. Local governments can regulate businesses through the acquisition of business licenses. Business licenses ensure compliance with local laws, zoning requirements, health and safety regulations, and other rules concerning industry-specific laws. 

Types of Business License

When you’re ready to launch a new business under an LLC, you must obtain the proper business license under local, state, and federal law. There are many licenses issued by government agencies depending on the type of business you’re operating and the jurisdiction it is established. To understand the business license you need, discover the six types and how to get them.

1. Federal Business License

Federal business licenses are only needed by some businesses, like those that sell or deal with federally regulated products. Regulated products by the federal government must get permits from federal agencies. Some factors that determine if you need a business license include the location of the business and the type of business you’re starting. Most of these licenses only apply to larger companies, but a federal business license is a must-have if you’re operating any of these businesses. 

• Mining and drilling
• Cargo
• Nuclear energy
• Transportation
• Alcohol manufacturing, importing, or selling
• Aviation
• Broadcasting
• Fishing and wildlife
• Commercial fisheries
• Agriculture
• Firearms, ammunition, or explosives
• Maritime transportation
• Radio and television

Most federal agencies have online services, which means business owners can access them anytime and apply for the business license they need. To get these licenses, it’s good for a business to be properly registered as an LLC and then contact the relevant federal agent for a business license. Some federal business licenses take weeks, while others are too involved and take months to complete.

2. State Business License

Although not all businesses need a federal license, many need a state one. 

State business licenses range from industries to pet care services. Every state has different licensing laws, meaning the licensing requirements will vary too. Some have stringent licensing laws, while others have no licensing. Most licenses are issued at the Secretary of State’s office, but other agencies are tasked with specific licenses.

Before purchasing any licenses, search your state’s website for business licensing information or the state department of eCommerce to know the license you need. Your business must be registered as a legitimate entity before applying for a state license. Most states require businesses to obtain a state tax permit for them to collect sales tax. When applying for a state business license, here are the requirements the state will ask for:

• Business filing at the state’s Department of Commerce. You may have to file extra paperwork depending on the business structure you want to register.
• Taxpayer Identification Number. Every business license applicant needs a TIN. Those with a registered corporation or LLC need an Employer Identification Number (EIN) from the IRS. A sole proprietor’s Social Security number (SSN) will be used, or they can apply for an EIN.
• Annual fee. All operational licenses cost a fee and must be renewed annually for smooth running of the business. 

3. Local Business License

Some businesses need a local business license, like those serving alcohol and food from the city where you’ll be doing business or where it’s located. Like all states, every town and county has different licensing requirements across the US. 

Visit the city hall or county clerk’s office to get a local business license, especially for everyone who runs a city-owned physical store. Home businesses are different; not all need a license if they do not serve local customers. Some standard local business licenses include:

3a) Operating Licenses

An operating license is a blanket permit issued by a federal, local, or state agency. 

The license means all permits, evaluations, inspections, and other functions have been performed. The holder is allowed to do business at the location for the purpose listed in the license. 

An operating license announces the legal operations of a business at the state and local levels, with each agency approving its part. For instance, a restaurant serving alcohol needs licenses and permits to operate legally. 

Operating licenses vary from area to area. There are exemptions for some situations or organizations. Contact your local Department of Commerce or county offices to find out if you need a local permit. 

3b) Zoning and Land Use Permits

Zoning and land use permits grant business activity on land in a specific area. For instance, conducting business in residential areas isn’t permitted, and you’d need a zoning permit if you plan to operate a business in a particular area. Land use permits are also meant for companies operating like a factory on a piece of land. 

3c) Building Permits

Building permits allow approved building construction to begin on existing structures and can be used by businesses and individuals. For instance, if a cafe wants to build a patio to accommodate more customers, they need a building permit before initiating construction. The local government issues a building permit to allow certain activities to take place in a building. Sometimes, the issue can be sorted with a zoning or building permit. 

3d) Commercial Signage License 

Hanging business signs is regulated, and you need a permit or license. Zoning rules in most local areas regarding signage depend on the sign’s site ze and type d type. You need approval to hang any business sign. 

3e) Fire Inspections and Permits

Fire and safety regulations are local area permits that any structure serving the public needs to follow. After inspection, the business receives a permit allowing the public to access the building. Different activities within the structure may need other permits. So, check with the local fire officials to find out what you need for your business. 

4. Professional Licenses

Specific fields of work need professional licenses and certifications. These licenses prove that you or your employees are qualified and have the necessary experience and knowledge for the job. These industries require professional licenses:

• Accountants
• Electricians
• Doctors
• Hair stylists
• Mechanics
• Insurance agents
• Nurses
• Security guards
• Plumbers
• Real estate agents

Getting a professional license may take longer than getting a business license, and it may depend on the following qualifications:

• A degree or certificate. Some licenses need a professional certification, a bachelor’s, or a graduate degree. 
• Work experience. Some fields require you to have work experience before you get certified. 
• Take a test and Pass. You may have to take written or practical tests and pass as a sign that you’re knowledgeable in a specific field. 
• Pay a fee. Most professional licenses need renewal every two or more years. When renewal time comes, you may have to pay a fee and submit an application for a new license.

Different professional associations have varying rules; you should check with your profession to learn more about the rules to play by. 

5. Sales Tax Licenses

If your business will be selling goods, you may have to apply for a state tax license and charge sales tax. In most states and localities, products and some services are charged sales tax. Your state’s tax authority is where to find information on whether you need a sales tax certificate and to apply. Like most licenses, state licenses only last a year and need renewal to remain relevant. 

6. Home-based Business Licenses

Working from home cuts costs considerably, and you might be wrong if you think licensing isn’t necessary. Most states require home-based businesses to have a sales tax license to collect taxes. Getting a permit for your home-based business is a way to confirm that your activities will not create noise, cause environmental issues, or affect local traffic. Check your local government to know if your home-based business needs a license, and then obtain it from a county or city agency. 

The Importance of a Business License

Most states don’t require companies to acquire a general business license to operate their businesses. However, the industry your business belongs to might require you to apply for a permit to do business in your City or county. Here’s why you need a business license:

1. Legal Compliance. Obtaining a business license ensures that your LLC operates legally. It also signifies compliance with local laws, regulations, and requirements in your industry and jurisdiction.
2. Credibility and Trust. A valid business boosts your LLC’s credibility, making customers, partners, and money lenders trust you. It signals that your company understands ethical grounds and is committed to upholding specific standards and regulations.
3. Fair Competition. A business license allows your LLC to compete fairly with other businesses in the same industry. A business license ensures all businesses compete on a level ground by adhering to the same rules and regulations. 
4. Consumer Protection. Acquiring a business license helps protect consumers by ensuring all businesses meet safety, industry-specific, and quality standards. Customers are confident when dealing with a law-compliant LLC, meaning their interests are safeguarded. 
5. You are avoiding Legal Consequences. A business without a license can lead to legal consequences like penalties, fines, and potential business closure. But, if you obtain a valid business license, you avoid legal complications because you operate within the law.

How to Obtain a Business License

After registering your LLC, you need to apply for a business license in your industry to start trading. Following these steps to obtain a permit depends on our business location and industry.

1. Identify your type of business – Mining, liquor store, bar, restaurant, gun shop, cafe, bar, 
2. Choose a location for your business.
3. Search your City or county to know the licenses or permits to obtain. 
4. Get the forms you need to fill out from your state’s Secretary of State website and provide all necessary information; 

• Business Type 
• Business address
• Name and contact info of the business owner
• Number of employees
• Your EIN

1. If your business will operate in different locations, you’ll need appropriate licenses for each location. 
2. Ensure you provide accurate information on the forms, pay relevant fees, and be registered with the state tax office. After registration, keep track of renewal notices for the licenses or permits to keep your business in good standing with the law. 

Lack of appropriate business licenses or permits will hinder you from operating your business. Plus, operating without a license means your business activities are illegal and are more costly than license acquisition. 

Running a business without proper licensing also puts your business at risk of getting shut down temporarily or permanently. In addition, a lack of licensing can impact your business negatively, damage its reputation, and cause a loss of a customer base. Ultimately, all the effort you put into establishing your business is wasted. 

Business License Vs a Seller’s Permit (Sales Tax Permit)

A business license and a seller’s permit are different and serve specific purposes, as outlined below:

A business license is issued in a specific jurisdiction by the local government to allow a business to operate. It ensures compliance with zoning, tax obligations, and business safety standards. 

All business types need a license, declaring their operations in a designated location.

On the other hand, a seller’s permit (sales tax permit) is issued by the state’s tax authority. The permit allows selling businesses (retail or wholesale) to collect sales tax from customers. 

The seller’s permit ensures all selling businesses comply with state tax laws, including accurate reporting and remittance of sales tax to the proper tax authority.

Form Your LLC with Foundeck Today

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Frequently Asked Questions

What are the consequences of operating a business without a license?

Operating your business without a license is a minor violation, which can lead to consequences like penalties, fees, and back taxes. However, primary infringement can lead to legal issues and business closure. 

Can a non-resident own an LLC in the US?

Foreigners can own an LLC in the US if they comply with non-US residents’ formation requirements. Check the rules and regulations of starting a US-based LLC as a foreigner in the state of choice and follow their guidelines to the latter. 

Which state is most likely to form an LLC?

Delaware is the most business-friendly state for LLCs due to flexible tax laws and 0% corporate tax. 

What type of LLC is most prevalent?

The most popular type of LLC is a domestic LLC, formed and operated in the same state. If a domestic LLC is registered in a different state, it’s considered a foreign LLC.

What is the best way to name my LLC?

Naming an LLC can be simple yet complicated; the name must be memorable, unique, catchy, easy to spell and pronounce. It’s a rule of thumb to include common words and not limit yourself to locations or terminologies, as it may be challenging to expand in the future. 

In Summary

Forming an LLC or getting a business are two distinct requirements when starting a business. Both are independent of the other, and neither can come first. 

If you’ve decided to form an LLC, provide your business name and other requirements as per your state. You can still get your business license without it, but you have to update the information later, which might cost you. 

Depending on where your business is located and your type of business, different states may have varying requirements to get a business license. 

An LLC is the most popular and suitable business type making it a more preferable structure for business owners. The business structure limits personal liability and separates business assets and finances from the owners. 

Although an LLC has many positive features, establishing it isn’t enough to authorize your business activities, so you require a business license. 

A business license and permit make your business compliant in the industry from the local to federal levels. It also enhances your business reputation, customer base, and credibility.