Is the first step applying for a business license or forming a Delaware LLC? Unlike the chicken or the egg, this question has a definitive answer – the LLC formation comes before the business license. In order to begin doing business under a business license, you must first have formed the applicant. The LLC should be started first. Then you should obtain your business license. Similarly, you should form the LLC before obtaining an Employer Identification Number (EIN) from the IRS.
Why Form a Delaware LLC First?
The LLC itself is the applicant that applies for a business license, even if the manager or member is doing the work. The business license gives the authority to conduct the specific business activities you perform in the name of LLC.
How to Form a Delaware LLC
If you are physically located in Delaware and want to start a business, you would start by filing an LLC Certificate of Formation with the Division of Corporations in Delaware. You then would visit onestop.delaware.gov to obtain your business license. You will be prompted to answer business-specific questions about your company (services vs. goods for example). Once you obtain your business license, you are ready to operate a business within the geographical confines of Delaware.
On the other hand, if you are like 99% of Delaware LLC members and conduct business outside of Delaware, you will not need a Delaware business license.
Follow these steps if you operate a Delaware LLC outside of Delaware:
Step 1: Form your Delaware LLC with the Delaware Division of Corporations and obtain a Tax ID Number from the IRS, also known as an Employer Identification Number (EIN);
Step 2: Qualify your business, if required, through the non-Delaware states’ foreign LLC qualification process (often called a Certificate of Authority) and open a bank account;
Step 3: Analyze each state and locality’s specific rules governing business license requirements (often found at the state, city, or county level). Follow the individual steps outlined by each agency to obtain your business-specific licensing. Please note that some industries will have additional licensing required outside of state, city, or county-specific licensing (such as professional licensing for a doctor or attorney). You should also evaluate your insurance needs and other business operational requirements.
Once you have your Delaware LLC and any necessary qualifications and licenses, you’re well on your way to having a compliant business.