A license means an official document confirming a company’s right to carry out certain activities. The number, cost, and type of certificates depend on the industry and the location of the venture. However, it is essential to check beforehand if you need this paper as violating the licensing requirements exposes the organization to penalties.
Of course, you can get a license and operate as a sole proprietorship without establishing an LLC. However, this option is associated with some inconveniences and risks. Therefore, in this article, we will cover how to get a license for an LLC.
Understanding of a Limited Liability Company
A limited liability company stands for a legal entity created under state regulations for conducting business. It acts as a stand-alone business entity.
How to distinguish an LLC from other forms of business structures? There are several basic indicators. First, unlike sole proprietorships and partnerships, LLCs are established by formal registration with the state. Note that opening a firm does not negate the need for a license.
Another feature of this model concerns the limitation of owners’ liability. Since the enterprise acts under its own name, it is fully liable for its obligations and debts. For the owner, this means that their personal property, such as a car or savings, will be protected, regardless of the financial status of the venture.
Finally, one critical aspect we should mention is taxation. The IRS generally does not treat LLCs for tax purposes. A company’s profit is not segregated from the personal income of its members, who report the gains and losses of the organization in their personal statements. However, because of tax flexibility, the owners can choose their tax regime. If you wish, you can switch to C-corporation or S-corporation taxation.
When your application for LLC registration is approved by the state, don’t rush to enter into deals right away. Most firms need to first obtain a license or permit. They may be provided at the federal, state, or local level. The most common are general business licenses, as well as specialized ones provided for specific fields.
How to Get an LLC License?
To save time, you can outsource the preparation of licenses for your enterprise to a professional provider. It guarantees that you will get all the necessary documentation and won’t miss anything significant. Normally, this procedure is straightforward and can be done even by novice entrepreneurs. You should proceed to it after registering an LLC as you will need to specify your company name among other details for obtaining a certificate.
Here are 8 simple steps to open an LLC and get a license so you can operate legally.
1. Decide On the State
All states provide different conditions for the development, so you can choose the one that best fits the needs and goals of your firm. Naturally, in most cases, registering an entity is more convenient in the same place where the head office is located. In some circumstances, however, it may make sense to establish a venture in another state. For example, if you plan to purchase real estate there or are interested in obtaining certain tax benefits. Delaware and Wyoming are especially popular today.
2. Name Your Organization
You can find the requirements for the venture’s name on the official website of the Secretary of State. Most often, the state requires that the name contain an indication of the type of entity, such as “LLC”, “Limited Liability Company”, “Ltd”, etc. It should also be distinct from the names of other state-registered firms. To check this, you may perform a free name search on the Secretary of State’s website.
3. Assign a Registered Agent
This is a representative who receives all official letters on behalf of the company. Each state sets its own criteria for being a registered agent, but there are some basic ones. You can become an agent if you have a business license in the state where your organization is located, or if you are at least 18 years old. In addition, you are to have a physical address in the state and stay in the registered office of the company during working hours.
Most states allow the owner to act as a registered agent on their own, but it is more preferable to work with a professional service.
4. Submit the Formation Documents
To found an LLC, you have to prepare and file particular documentation. It may be called the Articles of Organization or the Certificate of Organization. There is a mandatory processing fee, which varies by state and ranges from $40 to $500.
5. Secure an EIN
If you are going to hire employees, pay taxes, or open a separate bank account for your enterprise, you will need an EIN. The Employer Identification Number serves as an SSN for your business. It is a unique 9-digit code that the IRS assigns to ventures for quick and easy identification of your company tax records.
To obtain one, all you have to do is file a free form online, by mail, or by fax. Getting online is the fastest and most affordable alternative as you can start using your EIN as soon as you submit the digital application.
6. Prepare an Operating Agreement
Today, only a few states require LLCs to have an Operating Agreement. However, even if the legislation does not mandate it, it is best for the owners to draft one. This document defines the internal structure of the enterprise, distributing rights and responsibilities among the owners or managers. Furthermore, an Operating Agreement describes the basic procedures and principles of the firm. Having this agreement will not only make your company more stable but will also help you avoid the default rules. In the event of a lawsuit against the entity, an Operating Agreement will be a strong argument showing that you have acted as an LLC and, therefore, have the right to enjoy limited liability.
Registration of an Operating Agreement with any state agency is not mandatory.
7. Obtain Licenses and Permits
Hire a professional service or do your own research to get all the licenses required for your firm. Note that some counties and municipalities may set their own licensing requirements.
8. Open a Commercial Bank Account
Separating private and corporate assets is the basis of the principle of limited liability, so a separate bank account is essential for the needs of the company. This will significantly reduce the risk of personal liability.