I am curious if I need a business license or permit for an online Social media Startup company?
I am located in California and applying for a LLC through LegalZoom and it asked me if I needed a business license for my LLC.
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Cities in California and unincorporated areas may require their own licenses and different types of industries require additional licensing, such as a license to sell medical services, food and beverages, insurance, pharmaceuticals, etc. If your social media site does not exist for buying or selling anything that requires a special license then you probably do not need this license to operate your website.
If your business model is to profit through third-party advertisements such as Google Adsense then you may be classified as a commissioned sales agent or a subcontractor and not have to register a company and apply for a business license. If you do decide to register an LLC then you probably do need to obtain a city business license.
An LLC will offer you personal protection from liability, but a lawsuit can still get access to your personal bank account through a process known as "piercing the corporate veil." In order to avoid this, avoid commingling funds from your corporate account with your personal account. In other words, don't withdraw from your corporate account to pay your personal bills. If you do need to withdraw money from the corporate account then document it as either paying yourself a dividend or paying yourself salary.
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1@AustinPerez This answer is wrong. In general you do need a business license in California to legally operate any kind of business, including one you operate from home. "Any business owner must obtain a general business license in the city in which your business is located." Additional licenses are required for specific types of businesses. – rhashimoto Sep 8 '15 at 20:48
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I thought the question was regarding licenses for specific types of business, but I agree that California requires a small business license. Cities and counties also tend to require their own licenses to operate. In my opinion, a social media startup probably does not need a small business license to operate until it consistently makes enough money to be considered a business. The IRS says "an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit." irs.gov/uac/… – Justin Waters Sep 8 '15 at 21:53
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@AustinPerez This is wrong again. A reasonable expectation of making a profit is one factor that may permit you to classify your activity as a business, which allows you to deduct business expenses. The converse is not true, however - not making a profit is not sufficient to classify your activity as a non-business, in order to skip a business license. If you are forming a business entity, if you engage in business activity, or if you intend to write off expenses or depreciation, then you need a business license whether or not you turn a profit. – rhashimoto Sep 8 '15 at 22:19
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The stated question is whether a business license is needed for a "startup company", not a hobby. – rhashimoto Sep 9 '15 at 0:45
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1I assumed Mr. Perez intended to profit from the site through third-party advertisement. Today everyone can monetize their website, blog, or YouTube channel. I monetized my website and received a 1099 tax form from Google at the end of the year. I considered myself a subcontractor or commissioned sales agent, so I never obtained a business license. Mr. Perez may have a different profit model or want to avoid liability through a LLC. I see I should have asked more questions about his profit model. Every profit model is different. – Justin Waters Sep 9 '15 at 1:06
