Unlike his title, C3ntury's question was not about Business Licensing, which is governed by state and/or local law.
An example of Business Licensing includes "Registering" your business with your Secretary of State, which is necessary if you open a bank account in the name of your business.
Based on C3ntury's question, I would have titled this thread: Which "Form" of business did you chose and why? If anyone is confused, I hope the following will clarify exactly what we are discussing:
The purpose of choosing a "Form" of business is to determine how your business reports it's income to the IRS.
The original forms of business were: Corporation, Partnership and Sole Proprietorship, with each Form having unique rules. Over the years, our clever lawmakers added to these original "Forms" of business to address the following issues:
While not an issue for large corporations, small and closely-held corporations were burdened by corporate income being taxed twice, once as revenue on the corporate tax return, and again as income on a personal tax return. Thus, the S corporation was created to reduce the tax burden commonly associated with the C corporation, by allowing some of the corporate tax liability to flow to the shareholder's personal tax return where it is taxed at a lower rate than corporate tax rates. As you might expect, the rules for an S corporation regarding shareholders and their compensation are more strict than in a C corporation.
The LLC was created to combine the limited liability enjoyed by corporations with the simplicity of reporting business income on your personal tax return like a Sole Proprietor. The LLC has become an extremely popular Form of business.
In litigation, an LLC can lose only what is owned by the LLC; however there are technicalities, for example, if during the course of doing business you neglect to include the letters LLC in your business name, then you may risk losing it's limited liability status.