(Newswire.net — November 3, 2022) —
The pandemic has made a lot of people decide to run a freelance business for the convenience it offers. There are a lot of tools available online, so all you need is to conceptualize your website, have a professional email address, and think of ways to attract clients.
The challenge comes when you have attracted more clients. At this point, you would need to up your freelancing game. This means choosing a business structure that would be best for your operations instead of settling for a sole proprietorship entity simply because it’s the default for most freelancers. Aside from fewer compliance requirements, a sole proprietorship provides few benefits to freelancers.
On the other hand, starting a single-member LLC offers many benefits to freelancers. But, of course, like anything else, there are advantages and disadvantages that need to be weighed before making this decision.
Advantages of an LLC
Your Personal Assets Are Protected
As the name suggests, LLCs limit personal liability. When you start your freelance business without legally choosing a business structure, the government considers you and your business as one. So, you are fully accountable for the tax payment of your business on your tax return.
To illustrate, if your business encounters legal issues, your personal possessions can be taken as damages if your business is a sole proprietorship. These possessions can include your properties, car, and investments, among many others. Although they are unrelated to your freelancing services, the other party is still within their rights to take them from you as compensation.
On the other hand, An LLC separates your personal assets from any liabilities your freelance business can have. It offers the same protection as the more traditional corporate structure.
An LLC is Easy to Start and Reasonable to Maintain
The reason most business owners avoid forming a corporation is because of the many hoops they’d have to go through and the expenses that would be piling up. Put simply; corporations are costly. Though, you can hire services such as Zenbusiness for LLC or Legalzoom to take care of compliance requirements.
For starters, the government requires both initial and quarterly filings. You must also hold board and shareholder meetings to comply with the requirements of a corporation. Company minutes, record keeping, and many other things are also needed.
It can be difficult for a freelance business to set up a corporation, which is why an LLC is a more advisable route to take. You only need to file your Articles of Organization or another document equivalent to it to create your LLC. The fee for submitting your Articles of Organization is minimal. To give you an idea, it’s $110 in South Carolina.
You’ll likely need to create an Operating Agreement that indicates the basic rules of managing your freelance business, voting rights, new owners, and distribution laws. Most states don’t require owners to file this. LLCs provide the same benefits as corporations but at a much lower price.
You Get Flexibility in Taxes
Taxing flexibility is one of the main benefits of adopting an LLC structure for your freelance business. A sole proprietorship can be similar to an LLC because it takes the same business-related tax deductions. However, an LLC can apply for S Corporation status with the IRS. This allows tax liability for high-earning freelancers to be reduced.
Disadvantages of an LLC
You Need Time and Effort
Setting up an LLC is simple, but you need time and effort. First, you must research the particular laws and regulations for LLCs in your location. You also need to complete documents and submit yearly reports in most cases.
There Can Be Taxes and Upkeep Costs
Some states require taxes for LLCs. This makes the business structure less advantageous for freelancers living in these states. In addition, some states ask for fees regularly for LLCs, such as a yearly report submission fee.
An LLC Might Not Be a Good Option for Future Business Expansion
If you plan to have an agency in the future or expand your business differently, an LLC might not be a good choice. It can be best to wait and choose a different business structure. But you should remember that this drawback is trivial and depends heavily on the situation.
Conclusion
We hope this guide can help you decide whether to have an LLC for your freelance business. There are many advantages this business structure offers to freelancers but it’s still best to take time to consider it.
You can check the laws and regulations in your state for LLCs and weigh the benefits and drawbacks presented. Remember that you know best what can be good for your business and what won’t.