California Business Formation: LLC, Business Licenses, And Permits Explained

Jun 20, 2024

Are you a fledgling entrepreneur choosing between a business license or an LLC? Do you get to choose, or do you need both? A leading business formation consultant in California breaks it down.

You're finally out of the ideation and testing phase, and you think your product is ready for the market. Time you made it official and started an actual company. So what now?

If you're wondering if you should get an LLC or a business license, you're about to ask the wrong question because, as one of California's leading business entity consulting firms explains, there's a high chance that you need both.

"It's a pretty common mistake to compare the two, especially among those who are just about to enter the business world," said BusinessRocket, whose forte is securing licenses for local businesses in California. "If you're thinking of getting an LLC, depending on where you are in the state, it's likely that you also need a business permit."

Breaking down business licenses

"The first thing we tell our clients is that a business license is not a type of business structure like an LLC," the consulting firm explained. "It is what it says it is: a license issued by the state or a city that allows a business to operate within that jurisdiction."

In California specifically, prospective business owners will be required to obtain a seller's permit if they are involved in the sale of goods subject to a sales tax. Moreover, certain types of businesses may require state-level licenses or permits. Law firms, of course, must have a license to practice law from the State Bar.

Prospective business owners must also secure business permits from the city or county. BusinessRocket added that these permits may also be referred to as "business tax certificates" or "business registration certificates", as they are used for revenue collection purposes.

Those who want to determine what permits they need to secure in their specific locality can check CalGold, a website under the Governor’s Office of Business and Economic Development designed to narrow down the specific permits they need for a county or city.

The LLC legal entity

Before applying for a business license, you first need to register your business as a legal entity, and for many, a limited liability company--or LLC--remains an attractive choice.

The name of this legal entity should give you an idea of why entrepreneurs are choosing this over being a corporation. "Limited liability" means that members are typically not personally liable for the business's debts and liabilities--so, you need not worry about creditors taking the family car in the event of a lawsuit.

"Also, by default, LLCs are not taxed as a separate entity," BusinessRocket said. "Instead, profits and losses pass through to you and your fellow owners, meaning you'll have to report them on your personal tax returns. This avoids the double taxation that C corporations often face."

The firm added that forming an LLC is generally simpler, involving less paperwork and fewer compliance requirements. "Say goodbye to bylaws and annual meetings, too," it added.

When to call an expert

BusinessRocket said that those looking to obtain the required licenses for their business but are unwilling to sift through the glut of information online can hire business license consultants, who can manage the entire process for them.

"Our team, for instance, is knowledgeable about what specific license you need for whatever type of business you want to start in any jurisdiction," the firm stated. "Hiring a consultant is all about saving time; we can expedite the process because we know exactly who to talk to and what to do."

This content is provided in partnership with BusinessRocket and is intended for informational purposes only. The views, opinions, and advice expressed in this article are solely those of BusinessRocket and do not necessarily reflect the views or policies of any other individual, organization, or entity.

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