Do I Get a Business License or Delaware LLC First?

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.

Is an LLC a Business License?

The requirement for a business license depends on where you are conducting business and what type of business you are conducting. Generally states and municipalities have business licenses for all types of activities. Often you need both a state business license and a municipal license in the incorporated municipalities where you do business. However simply forming an LLC does not require a business license and is not itself a business license. Instead an LLC is a Limited Liability Company. While the letter “L” appears twice in LLC, neither of those letters stands for license.

Instead an LLC is sometimes referred to as an artificial entity or an unincorporated entity. While the LLC has a general purpose clause that it can conduct any type of business that is not illegal, the actual conduct of that business usually requires additional government licenses.

Most businesses, regardless of entity type or ownership structure, are required to obtain one or more business licenses to conduct operations within a state and municipal jurisdiction. Often business licenses are renewed annually. If you form a Delaware LLC, and do not operate in Delaware, the business license will not be required in Delaware. It will likely be required in the local areas where you operate your plumbing service, restaurant, and rental properties, etc.

What Is an LLC?

A Limited Liability Company (LLC), is the most popular type of flexible legal structure that is great for a small business entity. An LLC is a separate legal shell designed to shield its owners’ personal assets from claims of the LLC’s creditors. Therefore, it provides limited liability protection for its owners from business creditors. The owners’ liability is limited to their investment in the LLC. When forming an LLC, its owners outline the rights and duties of each owner and manager in the LLC Operating Agreement.

What Is a Business License?

A business license is issued by a state or municipality for a specific type of activity conducted within that specific jurisdiction. For example, a food truck business may need a general state-wide business license and a city or municipality business license where it operates. It may also need a special food service license that requires periodic inspections.