When opening a small business, it’s important to research any business license and permit requirements that may apply to your industry. It does not matter if you're an LLC or Corporation not having proper licensure can be extremely detrimental to your business. It can cause unnecessary stress, confusion, and potential fines.

To help you avoid this and better understand the basics of business licenses, we’ve answered these 4 common questions. 

1. Why Do I Need a Business License?

Obtaining proper business licenses and permits ensures that your business is maintaining compliance with federal, state, and local laws. Keeping your business license up to date is just as important as paying your taxes and annual state fees.

When applying for a bank account, you will most likely be asked to present your business license. Your business license can also help you with business financing, and may make things smoother when filing your taxes.  

2. What Are the Different Types of Business Licenses?

Keep in mind that business license types and requirements can vary from federal, state, county, and city levels. The following are a few common types of business licenses and permits to help you gain a general understanding of what you may need.

Basic Business License: This is typically issued by the city or county in which you’ll be operating.

Health Department Permits: If you prepare, serve, or sell food products, this will most likely be required,

Sales Tax License: This license is typically required for the sales of products and services.

Zoning Permits: This permit states authority to use a certain area of land for a certain purpose.

Professional & Occupational Permits : These may be required for services that are regulated by the state. These services may include, but are not limited to:

Medical Services                Legal Services

Tax Servoces                    Real Estate Services

Be sure to review your state laws if you are in an industry that may require an occupational license.

Federal Permits: if your business involves any of the following, it is best to contact federal departments for specific requirements.

Alcohol, Tobacco, or Firearms  Ground Transportation

Drug Manufacturing                Broadcasting

This is a sample of industries that may require federal licensure. Please check with federal agencies for your specific requirements. 

3. Are There Penalties for Not Having a Business License?

If you do not obtain required business licenses and permits, you are highly jeopardizing the security of your company. Not having a business license can leave you legally vulnerable, result in high financial penalties, and in some cases may lead to imprisonment. Aside from this, it negatively impacts your credibility as a business owner and will cause long term negative effects for your business. 

4. How Do I Get a Business License?

Since business licenses are handled on many levels, we suggest doing research with your state to find out exactly what you may need. You may find that your local city hall, state’s government websites, or www.sba.gov are great resources.

Since researching all of the requirements on the Federal, State, Country, and City level can be a time consuming task. American Incorporators Ltd. offers a service that researches, details, and lists all of the licenses and permits you will need. The only thing you would need to do is answer a few quick questions about your business. If you’d like to learn more, visit our Business License page.

Having the proper business licenses and permits is just as important as incorporating your business. Do not leave this process out of your business plan. We hope that this eases your business license research process! If you have any questions, feel free to post below or contact one of our Incorporation Specialists by dialling 800.421.2661

For more information and answers to your 50 most common incorporation questions read our FREE eBook

Answers to Your Questions

The incorporation process can seem confusing and scary to a first time entrepreneur. What to name your venture, where to incorporate, and whether to form an LLC or corporation are just a few of the many questions that arise before you even begin the process. However, incorporating does not have to be intimidating. 

In reality, assuming you have taken the time to consider and evaluate all of your options, it should be a relatively quick and painless process. On the other hand, putting off this process can have dire consequences; from making it hard to open a bank account, to leaving your personal assets open to a liability suit, to limiting your access to investors. So don’t delay – please continue reading to find out how easy and painless the process can be!

Choosing a Name:

There are numerous places to learn about naming your entity – with everything from name reservations to trademark searches.  Read more about the process: 5 Tips on Naming a Business

LLC or Corporation?:

Likewise there are numerous sites and articles devoted to explaining the differences between LLCs and Corporations: Comparing Entities 

If you have further questions about which entity type is best for your venture we encourage you to consult an attorney or accountant.

Where Do I Incorporate?:

Similarly there are many factors that go into determining if you should form your company in your home state or in one of the so called “special formation stated” like Delaware where pro-business courts and practices attract thousands of new businesses annually. For information on what makes Delaware distinctive please read: Where Do I Incorporate?

This article is designed to de-mystify the actual company formation process once all of the above decisions have been made. Once you know where you want to form, what you want to form, and what you want to call your company, you are ready to start the process. In order to do this you have three main options – enlist the help of a professional accountant or lawyer, use a company formation service company or file directly on your own. There are clear advantages and disadvantages to each approach, but we will focus on the advantages of using a formation service company like American Incorporators Ltd. As a service company with extensive relationships in all 50 states, American Incorporators is able to form your company quickly and inexpensively (using a lawyer or accountant will often cost a lot more money, while doing it yourself will tend to take a lot longer).

What You Need to Do:

All you will need to do is answer a few questions related to the nature of your business. Requirements vary slightly depending on the jurisdiction (state) where you are forming, but in general you will need to know the names of your members or directors, your business address and purpose, how many shares of stock you want to issue (only for corporations), and who you want to appoint as registered agents (this can almost always be provided by the person or company forming the company for you).

A corporate service provider like American Incorporators will prepare all of the necessary paperwork, file it with the relevant state authorities and follow up to make sure your business is properly recorded. Depending on the state (and the amount you are willing to spend for expediting in certain jurisdictions) this process can take anywhere from a few hours to several weeks. In most instances you will have your paperwork back and your company officially listed within a week. Once completed, you will receive a filed certificate of incorporation (or formation) that you can use to prove you are a legitimately established business. Other steps that should be taken at this stage include obtaining and Employer Identification Number (the business equivalent of a Social Security Number) and creating your operating agreement.

Your EIN allows you to hire and pay employees and is usually needed to open a bank account. The operating agreement sets the by-laws for how your entity will be run and helps you to begin the process of establishing the corporate veil that protects your assets. For more explanation on what that means please see: What is the Corporate Veil and How Can it be Protected?

Corporate service providers like American Incorporators regularly obtain EINs for their clients as part of the formation process – saving you valuable time and energy. They also can provide Corporate Kits which will include templates for Operating Agreements and many other important documents you may need in your business life.

Once you have all of these documents back you are ready to begin your official business life – working with clients and other businesses, reaching out to potential investors and realizing your entrepreneurial dreams! And in most cases it can be completed in a very short time for a very reasonable amount of money! So don’t hesitate to take this important step to get on your way, incorporate today

Find the answers to all of your major incorporation questions in our new eBook

Bank Accounts and EIN's 

Opening a business bank account is one of the first major steps in running your company successfully. By establishing a business bank account you can legally separate your personal and company assets and keep track of income and expenses. You will need to obtain a Federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS) in order to open a bank account.

How Do I Open a Bank Account? 

It is best to speak with your personal bank to be sure that you meet all of their individual terms and policies, but in general you will need to provide the bank with the company's Certificate of Incorporation or Formation, its EIN, a copy of the by-laws or operating agreement, and copies of any necessary business licenses.

What is an EIN?

An EIN represents an entity's registration with the IRS. Although you are not required to obtain an EIN for your business, you will need one if you want to open a bank account for your company and to file your annual tax return.  Sole proprietors use their Social Security Number for these purposes, but do not posses the same liability protection provided by LLCs and Corporations.  International clients who form US companies but do not have any US income and have no need for a US bank account do not need to obtain an EIN. We highly recommend all other individuals obtain an EIN when they form their business. American Incorporators can help by preparing the EIN application for your company or by obtaining the number from the IRS for you here.

Find the answers to all of your major incorporation questions in our new eBook

Corporate Requirements After Incorporation

An important first step after receiving your company's incorporation documents is to hold an initial meeting to appoint officer and directors, as well as to issue shares of stock.

Directors typically operate as part of a Board, making up the governing body elected by shareholders. They are responsible for the management of a corporation's business and affairs. Officers consist of roles such as President, Vice President, Treasurer, and Secretary. They are responsible for carrying out the Board's policies and for making day-to-day decisions. Shareholders are included in annual meetings and must approve any major company decisions, such as issuing loans, purchasing real estate, and issuing additional shares.

It is important to hold annual meetings with shareholders and maintain minutes of those meetings. In general, maintaining a thorough corporate record means recording all meeting minutes, using a share ledger, and saving copies of all filed documents (formation, amendments, annual reports, etc.).  Make sure to maintain good standing with your state and registered agent by filing all annual reports and paying necessary taxes and fees on time. 

How Will Incorporating Benefit You?

There are many benefits to incorporating. In order to determine whether or not incorporating is the best option for you and your business entity we advise that you consult a trusted accountant or attorney for financial and legal advice.  Incorporating can be a big milestone in the life of your business and American Incorporators can help every step of the way!

These are our top three reasons for incorporating:

1) It offers liability protection

By forming an LLC or Corporation you create a barrier between your personal assets and your company assets, should your company every be sued. In this case you can protect your personal assets from being seized.  

2) It lends a sense of legitimacy

Forming a legal business entity also lends a sense of legitimacy to your venture.  This can help attract investors, clients, and vendors.  People tend to have more faith in a company with Inc. or LLC at the end of its name.

3) It allows for longevity

If the initial owner dies, the business entity continues and shares can be passed on to others. Or if the owner wants to sell his or her shares in a company it is much easier to do if a legal entity has been formed. 

Find more answers to the top 50 questions about incorporating in our newly published eBook!

Member-Managed or Manager-Managed? What's the Difference?

A Member-Managed and a Manager-Managed LLC differ in the way that the company is run.

A member-managed structure is the most common approach. This approach is recommended for companies where the members plan to have an active role in the daily activity of the company. This grants the members authority to act on behalf of the business.

In a manager-managed LLC, the members act more like silent partners and leave the day-to-day management of the company to a member-appointed manager. This operating structure is applicable only if a single member will be involved in running the company - the manager appointed can be a member.

Whichever managing approach the LLC chooses for its operation, it is important that the agreed upon rules and processes are clearly outlined in the company's operating agreement. 

What if I need to change my directors or members? It is a simple internal process to change a director or member. The company would need to have a meeting to pass a resolution indicating the new members or directors. Meeting minutes would be kept to record this transaction of resolution being signed by the current directors or members. It is also allowable, although generally not required, to file an amendment with the state naming the new directors or members. This allows for more formal documentation since the amendment would become part of the company's public record. 

The Importance of Having a Registered Agent and Address 

The first and most important reason that your business needs a registered agent and registered address is that it is required by law.  The state in which you choose to incorporate your business in will not approve the initial incorporation/ formation certificate without providing a valid registered agent and registered address.  

The registered agent and address must be located in the state of incorporation or formation and must be a physical street address.  The registered address cannot be a post office box.  The primary responsibility of the registered agent and registered address is to accept all annual report and tax notices from the state and to accept any Service of Process on behalf of the company in the event of a lawsuit.  The registered agent must be available during normal business hours Monday – Friday to accept any Service of Process on behalf of the company.  If your corporation or LLC fails to maintain a registered agent and registered address, the state may declare the company void for noncompliance.  If a corporation or LLC is declared void or noncompliant by the state, it may lose all of the liability protections provided as an incorporated entity.

Need a registered agent and address? We can help! Click Here

An important first step after forming your LLC is to draft an operating agreement that outlines the rules and protocols of how the company will conduct business and who will be in positions of ownership and management. Specifically, the operating agreement describes the responsibilities of the managers and members, the percentage of member ownership, as well as voting rights. This operating agreement is crucial to providing liability protection to the members of the LLC. It should be maintained with other corporate records such as meeting minutes and membership certificates.

In the operating agreement it is important to lay out the management style of the LLC. It can either be member-managed or manager-managed. A member-managed structure is the most common approach. This approach is recommended for companies where the members plan to have an active role in the daily activity of the company. This grants members authority to act on behalf of the business. In a manager-managed LLC, the members act more like silent partners and leave the day-to-day management of the company to a member-appointed manager. This operating structure is applicable only if a single member will be involved in running the company – the manager appointed can be a member.

It is important to maintain a membership ledger to keep track of stock issued to members.

In order to maintain good standing with the state of formation and the appointed registered agent, it is important to pay all annual fees to the relevant state authorities and registered agent in a timely manner.

Although requirements for LLCs differ, maintaining a thorough record of all meeting minutes, documents, and internal resolutions is crucial for the successful function of your LLC.