Key Takeaways

  • Articles of Organization establish an LLC, while business licenses permit operations within a specific jurisdiction.
  • An LLC offers liability protection and a formal business structure, but a business license ensures regulatory compliance.
  • Certain businesses require multiple licenses at the local, state, or federal levels, depending on industry regulations.
  • Unlike Articles of Organization, which are typically filed once, business licenses often need periodic renewal.
  • Some industries, such as healthcare, construction, and food service, have additional licensing requirements.
  • The order of obtaining an LLC and a business license depends on state and local requirements, and in some cases, both may be needed simultaneously.

Business License vs. LLC

The differences between a business license vs. LLC is important for any business owner. An LLC, also referred to as Limited Liability Company, is a legal business structure that is registered with the Secretary of State in the state where you plan on conducting business. A business license, however, is a specific license that you might need to obtain before conducting business – whether you are operating as an LLC, corporation, partnership, DBA (doing business as), or sole proprietorship.

Do All Businesses Need a Business License?

Not all businesses require a business license, but most do. The requirement largely depends on:

  • Business Location: Some cities and counties mandate business licenses for all enterprises, while others only require them for specific industries.
  • Business Type: Highly regulated industries, such as financial services, healthcare, food service, and construction, require licenses at multiple levels.
  • Online vs. Physical Businesses: If you're operating an online-only business, you may still need a home occupation permit or sales tax license.

Before starting operations, check with state and local authorities to determine your licensing obligations.

Articles of Organization vs. Business License

When forming a business, many entrepreneurs may wonder, is Articles of Organization a business license? While both are essential documents in the business startup process, they serve different purposes. Articles of Organization is a document filed with the state to officially create a Limited Liability Company (LLC). It formalizes the business as a separate legal entity, providing it with a structure for operations and liability protections. On the other hand, a business license is permission granted by a local, state, or federal government allowing a business to operate in a particular jurisdiction.

The Articles of Organization do not grant the right to operate—this is what a business license is for. The business license focuses more on compliance with local regulations, while the Articles of Organization pertain to the legal recognition of the business as an LLC.

LLC: An Overview

There are many benefits to operating an LLC, including but not limited to:

  • Personal liability protection
  • Pass-through taxation
  • Fewer formalities
  • Less expensive than forming a corporation

LLC owners cannot be held personally liable for the debts and obligations of the business. Therefore, plaintiffs cannot try taking the owner’s personal assets, i.e., car, home, bank accounts, etc. When registering your business as an LLC, you’ll have to file the articles of organization with the Secretary of State. Since LLCs aren’t recognized as legal structures for tax purposes, the revenues and expenses from the business will pass through to the owners who will then report it on their personal income tax returns. 

LLCs also enjoy fewer formalities and are generally less expensive to form than a corporation. Unlike a corporation, the LLC isn’t required to hire a board of directors, conduct periodic meetings, or maintain meeting minutes.

What Are Articles of Organization?

Articles of Organization are foundational documents that establish the existence of an LLC. These articles include essential information such as:

  • The name of the LLC.
  • The physical address of the business.
  • Names and addresses of members or managers.
  • The registered agent’s contact details.

Filing Articles of Organization is a legal step towards forming your LLC, but it is not the same as obtaining a business license, which is often needed for conducting business operations within a jurisdiction.

Business License: An Overview

Regardless of what type of business you operate, you might need to obtain a business license before conducting business. Most municipalities – cities and counties – require a business license. Moreover, some states also require a business license. Therefore, you might need to obtain several licenses prior to doing business.

The license is a registration that is issued to businesses operating in a certain industry and/or in a certain geographical area. For example, some cities require all businesses to obtain a license before doing business in that city. Alternatively, some states require licenses for businesses operating in certain industries, i.e., restaurants.

Keep in mind that, when applying for a business license, you will likely need to pay an annual fee to the government to continue operating legally. It could be a flat fee based on your annual revenue or a fee based on the industry in which you operate. Generally, obtaining a business license doesn’t require an inspection.

Business permits are distinct from business licenses in that a permit is issued for public safety reasons; as such, permits generally require an inspection take place before business is conducted. For example, if you are opening a new restaurant, you will likely need to obtain a business permit to sell food. Before conducting business, the city or municipality will need to conduct an inspection of the restaurant to ensure that it is up to legal sanitary standards before operating. With that said, restaurants might also require a business license, particularly for restaurants selling alcohol to patrons.

Differences Between Business License and LLC Formation

There are key distinctions between obtaining a business license and forming an LLC. A business license is a permit that allows a business to conduct activities within a given location. This permit is often issued by local governments, and depending on the nature of your business, you might need multiple licenses (e.g., health permits, zoning permits, or industry-specific permits). Forming an LLC, however, involves creating a business entity with legal protections for its owners.

An LLC provides liability protection by ensuring that the owners' personal assets are separate from the business's financial obligations. Meanwhile, a business license does not offer liability protection but ensures compliance with the requirements to operate legally.

Types of Business Licenses

There are many types of business licenses, including:

  • Federally licensed businesses
  • State-licensed businesses
  • Local licenses
  • Doing Business As (DBA)

There are several businesses that might require a federal license, particularly for those operating across state lines. For example, businesses operating in the agricultural, transportation, or mining industries will need to obtain federal business licenses as the federal government regulates these industries.

State-licensed businesses include those hiring attorneys, doctors, and other professionals who are certified. Therefore, those companies that employ certain professionals who have their own licensing (legal, medical) will need to obtain state licensing. Furthermore, other types of businesses, such as real estate firms, automobile mechanics, and contractors are also required to obtain state licensing before doing business.

There are many businesses that require local licensing. As previously noted, a restaurant will likely be required to obtain local licensing from the health department. But any business that expects to have customers visiting the storefront will likely need some sort of local license.

If you are operating a DBA, then you will need to register your business name with the county where your business is located. Registration will simply allow you to do business through the DBA name, open a business bank account, and enter into contracts with vendors.

Industry-Specific Licensing Requirements

Certain industries require specialized licenses in addition to general business licenses. Examples include:

  • Restaurants & Food Service: Health department permits and food handling certifications.
  • Construction & Contractors: State licensing boards often regulate contractors, requiring proof of insurance and experience.
  • Healthcare Providers: Medical practitioners, pharmacists, and therapists must obtain state-mandated licenses.
  • Alcohol & Tobacco Sales: Federal, state, and local licenses are needed to sell regulated substances.
  • Transportation & Logistics: Trucking companies need U.S. Department of Transportation (DOT) permits.

Failing to obtain industry-specific licenses can result in fines, shutdowns, or legal action.

Do I Need Both a Business License and an LLC?

Yes, many businesses need both. An LLC provides a structure for your business, including liability protection, but that doesn't mean you can operate without a license. Business licenses are often required at the city, county, or state level to make sure your business activities are compliant with local regulations. For example, if you operate a restaurant, you’ll need licenses that cover health and safety regulations, in addition to forming an LLC.

What Comes First: LLC or Business License?

The order in which you obtain an LLC and a business license varies by state and business type. In general:

  • LLC First: Many entrepreneurs file Articles of Organization before obtaining a business license, as the license is issued in the LLC's name.
  • Business License First: Some jurisdictions require a business to obtain a license before forming an LLC, particularly for sole proprietors transitioning to an LLC.
  • Simultaneous Filing: Certain industries or states require businesses to apply for both at the same time.

Checking local regulations ensures compliance and prevents delays.

When to File Articles of Organization or Apply for a Business License

The timing of filing Articles of Organization and applying for a business license depends on your business type and location. Typically, you would:

  1. File Articles of Organization to formally create your LLC and register it with the state.
  2. Apply for a Business License to begin operating your business legally in the location where you plan to conduct business.

Failing to obtain either can result in penalties, fines, or the inability to conduct business.

State Requirements for Articles of Organization

The process of filing Articles of Organization can vary slightly by state. Some states might require additional information, such as the LLC's purpose or information about the duration of the LLC. It's important to check specific state guidelines when filing. In contrast, business licenses are generally regulated more locally, often by municipalities or counties. This means the requirements for business licenses can be much more variable based on local government standards.

Renewal and Maintenance

Unlike Articles of Organization, which you generally only need to file once unless significant changes are made to your LLC, most business licenses need to be renewed periodically, usually annually. Failure to renew a business license can lead to penalties or the suspension of your right to operate in a given location. This is an important distinction: Articles of Organization are more about establishing your LLC, while licenses are about maintaining compliance.

Penalties for Operating Without a Business License

Operating without the necessary business license can lead to serious consequences, including:

  • Fines & Fees: Municipalities may impose daily fines until the license is obtained.
  • Business Closure: Authorities may issue cease-and-desist orders, forcing businesses to shut down until compliance is met.
  • Legal Liability: Conducting business without proper licensing may result in legal action or loss of limited liability protection.

To avoid penalties, business owners should track renewal dates and maintain compliance with local laws.

Frequently Asked Questions

1. Is a business license the same as an LLC?No. An LLC is a legal structure that provides liability protection, while a business license is a regulatory requirement for operating within a jurisdiction.

2. Can I operate an LLC without a business license?Not always. Depending on your location and industry, you may need one or more business licenses to operate legally.

3. What happens if I don’t get a business license?You may face fines, business closure, or legal action for operating without a required license.

4. Do online businesses need a business license?In many cases, yes. Online businesses may require a sales tax license, home occupation permit, or industry-specific licenses.

5. How do I find out which licenses my business needs?Check with your city, county, and state business regulatory agencies. Consulting an attorney can also ensure compliance.

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