What Is an LLC License?

In most cases, you will not need to obtain a license for a limited liability company (LLC). LLCs are business entities that have been registered with the state in a process called "organization." Casually, some business owners might refer to their document filings with the state as an "LLC license." However, while their LLC is indeed organized and registered with the state, "LLC license" is often just a common phrase, not a state-issued license in the technical sense.

There are, however, some instances where states do require licensure for a limited liability company. LLCs operating in more heavily regulated industries such as accounting, legal, or medical services, might need to apply for state-issued licenses in their field of practice. Here, owners form what is known as a professional limited liability company (PLLC). The critical difference between LLCs and PLLCs is that PLLCs can be sued for professional malpractice.

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Key Takeaways

• LLCs typically do not require a license to organize.
• Sometimes business owners refer to an LLC's organizational process as a "license," but this only in the casual sense.
• Organizing an LLC involves drafting an operating agreement and articles of organization.
• Licensed professionals (such as accountants, doctors, and lawyers) seeking to organize their entity should do so as PLLCs.
• PLLCs generally require malpractice insurance, but they also protect owners' personal assets from the malpractice of other owners.

Organizing as an LLC

LLCs, sometimes also referred to as limited liability corporations, are established in a process called "organization." To organize, business owners draft an operating agreement and articles of organization. An operating agreement lays out your business structure and does not need to be filed with the state. Articles of organization provide details of the business to a state governmental body (typically the secretary of state).

Details required within the articles of organization include the name of the business, the address where its office is located, and the name of a registered agent. Owners pay a filing fee to register their business entity as an LLC.

A few things happen when you organize your LLC with your state. First, your LLC will be registered as a separate legal entity, limiting your financial risk from any business debts or obligations. This is different from a sole proprietorship, which offers no such protection. Next, you will be able to apply for a tax identification number with the federal government, which will let you open a business bank account.

While some small business owners might use the term "license" to describe the above process, this isn't always accurate and is often used as a colloquial term. On the other hand, business owners that are professionally licensed in a particular industry, such as the legal or medical fields, will want to organize as a PLLC.

If you are in a professionally licensed field, it's recommended you check with your local small business administration to determine requirements for PLLCs.

Understanding the Differences Between LLCs and PLLCs

The difference can get confusing since LLCs don't require a business license, but PLLCs do. Here are the key differences:

• LLCs are great entity structures for small business owners in industries that don't require any professional license.
• Alternatively, PLLCs are appropriate business structures for professions that do require licensures, such as accounting or lawyering.

PLLCs operate similarly to LLCs. The critical difference is that PLLCs can be sued for malpractice, requiring owners to obtain malpractice insurance. Under the PLLC structure, owners' personal assets are not at risk for the malpractice of other owners. Organizing a PLLC can be a slightly lengthier process than an LLC. This is because of the added time and steps it takes to verify information regarding your professional license.

Seeking Assistance

Business owners can face a variety of challenges when just starting. When questions are mounting and time is of the essence, the smartest move you can make for your business is to contact a local small business attorney. There is no better resource than pragmatic legal counsel catered to the exact needs of you and your business.

Related Topics

• LLCs
• Limited Liability Corporation FAQ
• Forming an LLC
• What is Professional Malpractice?