Is an LLC the Same as a Business License?

Written by Wesley Henderson

March 8, 2024

Business terminologies can often be confusing, leading to misconceptions and misunderstandings. One common misconception is that a limited liability company (LLC) and a business license are interchangeable or synonymous.

However, this notion is far from the truth. An LLC and a business license serve distinct purposes in business. Let’s delve into each concept to understand their differences and significance.

The short answer is this. An LLC is a legal entity and a way to separate your personal liability from your business whereas a business license is a compliance measure that you file locally with your city or county. You can have an LLC and that gets a business license. They are completely separate.

Limited Liability Company (LLC)

An LLC is a business structure that transforms a business into a separate entity so that it takes on a life all its own and is separate from the business owner. It offers its owners or members personal liability protection from business debts and lawsuits. If the company faces legal action or financial struggles, the personal assets of its owners are protected.

While state laws may vary, forming an LLC involves choosing a business name, filing articles of organization with the state, and creating an operating agreement. LLCs are popular among small businesses and startups due to their simplicity, limited liability protection, and tax benefits.

Business License

Issued by a government authority, a business license or permit allows individuals or companies to operate a business within a specific jurisdiction. The requirements for obtaining a business license vary depending on location, industry, business activities, and other factors.

A business license ensures that a company complies with local regulations, zoning laws, and safety standards. Obtaining a business license is a legal requirement for operating a business in most jurisdictions, and failure to do so can result in fines, penalties, or even forced closure.

Getting a business license depends on the nature and size of your business. Some businesses, such as freelancers or home-based companies without a physical storefront, may not need a business license. However, home-based businesses open to the public, such as daycare centers, may require a home occupation permit or zoning approval.

Differences and Relationship Between an LLC and a Business License

As explained above, an LLC is a business structure, while a business license is a permit to operate a business. Simply put, an LLC is a legal entity through which the business operates, while a business license allows the business to operate legally in a specific location. Forming an LLC does not automatically grant a business license, and obtaining a business license does not create an LLC.

Depending on the type and location, some businesses may not need a business license, while some need multiple. A company may also operate without an LLC. However, relying solely on a business license exposes the owners to personal liability in case of legal action.

On the other hand, an LLC can operate without a business license if the business activities do not require one. However, not obtaining a business license when needed can lead to legal repercussions.

Final Thoughts

An LLC and a business license are not interchangeable — they are complementary business concepts with distinct purposes. Entrepreneurs and business owners must understand the differences between these two concepts to run their businesses legally and effectively.

Drafted Legal offers expert legal templates and advice for business matters. Whether you need to file for an LLC or learn about business laws, we have you covered.

Contact us today to get started on your journey to entrepreneurship!

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