What Is an LLC License?

by Contributing Writer
    The formation of an LLC requires filing with state government.

    The formation of an LLC requires filing with state government.

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    A limited liability company is a type of business structure that shields the owners of the company from personal liability for the financial dealings of the operation. An LLC does not pay federal taxes since the profits are only reported on the owner's tax return as personal income. The creation of an LLC is governed by state law and members must file certain documents with the appropriate state department to gain approval to operate as an LLC.

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    Formation

    Although each state has its own laws and regulations governing the formation of an LLC, they have many similarities. Businesses applying for LLC status are required to have a name unique from any other business incorporated in the state. Applicants are also required to file a standard form issued by the state identifying the owner and resident agent of the company as well as the nature of the business along with the LLC's articles of incorporation. Many states also require the company to file proof of liability insurance and federal tax identification numbers. Most states also require payment of a filing fee.

    Effect of Registration

    Once approved, the newly formed LLC is authorized to conduct operations state-wide. It gives the company its own legal identity enabling it to accrue or incur debts, own and lease land, buy and sell items, enter into contracts, and engage in political speech. Most states require LLCs to follow the formalities of maintaining separate financial records from the owner's personal expenses and to hold corporate meetings.

    Foreign LLCs

    Although an LLC is authorized to engage in business in the state in which it registered, it must also file a registration form to operate as a foreign LLC in other states in which it intends to conduct activities. This filing process is usually simpler than forming an LLC as it only requires the payment of a fee and the filing of a form with the new state along with a certificate from the company's home state showing the company is in good standing.

    Dissolving an LLC

    If business owners determine that they no longer want to operate the company as an LLC, or wish to shut down the operations altogether, the business must follow formal procedures dissolving the LLC. These procedures require the filing of appropriate forms with the state as well as notifying creditors of the dissolution of the company. Once the LLC status is dissolved, the company no longer has the privileges of operating as a limited liability company and may need to reorganize and obtain other business licenses in order to continue operations.

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