Should I Start an LLC or Get a Business License First?
If you’re starting a limited liability company (LLC) for the first time, you might find yourself asking: “What should I do first: form the LLC by filing with the state, or get a business license?” While you’re not required to have an LLC in order to get a business license, or vice versa, you’re still going to want to form the LLC first. We explain why below.
Why Form an LLC Before Getting a Business License?
A Northwest client in Connecticut recently asked us whether they should form an LLC before getting a sales tax license. They should, and here’s why: sales tax licenses (and other forms of business licenses and permits) are registered in a company’s legal name, and many require you to indicate what type of business entity it is. But if you haven’t formed your LLC at the time you acquire a business license, you would have to apply as a sole proprietor using your own name—because you don’t actually have an LLC yet.
LLCs are legally separate entities from their owner members, which means if the company is sued or defaults, only business assets are at risk—you don’t have to worry about losing personal savings or your house. But because LLCs are distinct legal entities, they don’t come into existence until you file formation paperwork (usually called Articles of Organization) with the state. So if you want to apply for a business license for your LLC, you almost always need to form the LLC first.
Professional licenses work a bit differently. In many cases, you apply for a professional license as an individual, not on behalf of your LLC. In some cases, you’ll need to be able to show that you’re certified in your profession (such as engineering, medicine, or law) in order to form an LLC to perform this service. You should contact your state government to find out the exact requirements for your business.
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What if I already have a business license?
If you’ve already got your business license, you can still conduct business with it—you’ll just be operating as a sole proprietor (or part of a general partnership) until you file LLC formation documents. In fact, you can simply continue operating as a sole proprietor or partnership without registering as an LLC, but remember that those types of businesses don’t get the liability protection and other benefits an LLC provides.
However, if you do form your business as an LLC afterwards, be prepared to jump through some hoops to update your business name and entity type once LLC registration is complete. You’ll probably need to contact the state agencies that manage business licenses, and in some cases, the boards that handle professional licensing.
Also, be aware that some states (for example, Washington and Delaware) usually require entirely new licenses if a business changes its legal entity type—so you’ll need to reapply for any licenses you already had, and pay any corresponding fees again, too.
