In today’s economy, 56% of Americans are concerned about job security. However, that doesn’t necessarily mean that a contract equals higher satisfaction and contentment.
For many, quitting a traditional job and freelancing can mean more peace of mind, especially since it puts them in complete control. Plus, there’s more flexibility, as they can pick and choose their clients.
Being self-employed without an official business can seem like the easiest route. But is that allowed, and is it sustainable on a long-term basis? Read on to find out if you need an LLC for freelancers.
Do I Need an LLC to Freelance?
To start things off, no, you don’t necessarily need to form a limited liability company (LLC) to be a freelancer. In fact, many operate as sole proprietors, which is the simplest and most straightforward business structure.
However, there are several disadvantages. For example, there’s no legal distinction between personal and business assets, which means you’re personally responsible for company debts and liabilities.
Besides being a sole proprietor or owning an LLC, you can also form an S or C corporation. These offer you limited liability, potential tax benefits, and the ability to raise capital by selling stock if you have a C corporation. These do involve more complex administrative requirements though, such as regular meetings and more extensive record-keeping, so it may not be worth the effort for you.
Why Create an LLC as a Freelancer?
While you don’t have to own an LLC to be a freelancer, it’s highly recommended that you do. Here are the advantages you can get.
When weighing up a freelance LLC or sole proprietorship, the biggest advantage is the protection of your personal assets. The separation of personal and business debts and liabilities means that you won’t have to worry about the court coming after your finances should your LLC be sued or go bankrupt.
Saying you’re the owner of a business is significantly more impressive than if you say you’re a freelancer. Having an LLC can lend a level of professionalism and credibility, and your company can be perceived more seriously by both clients and partners. Having an “LLC” attached to your company name can lead to opportunities that weren’t open to you before.
Typically, LLCs are taxed as pass-through entities, which means that profits and losses pass through to the owner’s personal tax returns. At first glance, this sounds like a con, but it’s actually a pro. You’ll have tax flexibility and potentially lower overall taxes.
When compared to corporations, a freelance LLC has more flexibility in terms of management structure. For instance, you can choose to be a single-member LLC, or you can have multiple members (or co-owners).
In addition, there’s more room for growth. You can always obtain an employer identification number (EIN), which allows you to hire employees. This means you can start out on your own and add help as you see fit.
Drawbacks You Should Consider
Even though LLCs are ideal for freelancers, that doesn’t mean it’ll be a completely smooth or positive experience. Below are some drawbacks you should keep in mind.
Fees and Compliance
There are costs associated with both forming and maintaining an LLC, which include filing fees and in some cases, annual fees. You may also have to deal with ongoing compliance requirements. These things can unexpectedly add to your expenses and workload.
You do have the benefit of your LLC being taxed as a pass-through entity. However, this can be a double-edged sword. If you don’t understand the tax implications in your specific jurisdiction, then you should consult with a tax professional to see if forming an LLC is a wise choice.
LLC requirements vary by state, so it’s up to you to research and understand the specific requirements for where you wish to operate your freelance business. Speaking with a legal professional can help if you can’t make sense of the laws. Even if you can, it’s best to ensure you’re fully compliant to avoid legal consequences.
Think about your risk tolerance and the nature of your work. For some freelancers (especially those with lower-risk businesses), a simpler structure like a sole proprietorship may be sufficient. Take a look at your industry and see what other entrepreneurs are doing to get an idea of whether an LLC is ideal for you.
How to Start LLC for Freelancers
Ask yourself, “Should I start an LLC as a freelancer?” The answer is probably a “yes” after reading the above information. So how can you get started?
When starting an LLC, there are several steps you need to follow:
- Choose a business name
- Chose a registered office
- Hire a registered agent
- File articles of organization
- Create an operating agreement
- Request an EIN (if you’re hiring employees)
- Obtain necessary permits and licenses
It’s possible to do this on your own, but it can be complicated. An option is to work with a lawyer, but a better choice is to use a business registration service like the one Business Anywhere has.
We have years of experience assisting clients like you, and our services are competitively priced too. In addition, we can be your registered agent, provide online notary services, and give you a virtual mailbox to use. When you can get all these services under one roof, it’ll make freelancing much easier.
Create an LLC for Freelancers Today
While LLC for freelancers aren’t a requirement to be your own boss, you should still take this extra step to create one. It’ll separate your personal and business finances, which can give you more protection and security. Plus, it makes a better impression on potential clients and partners, which will increase opportunities.
If you’re worried about the work involved in forming an LLC, then have a professional do it for you. We can have your filing done within a few working days, and you’ll be up and running before you know it.
To form your LLC quickly and painlessly, sign up with Business Anywhere now. We have different packages available to suit your needs.