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Becoming an LLC: A Smart Choice for the Self-Employed

As a self-employed business owner, it’s easy to see your business as a natural extension of yourself. While that is true, and it is one of the reasons that entrepreneurs find their lives so rewarding, your customers do not necessarily share that mindset. They see your business as any other company they do business with and for that reason (among others) the legal structure of your business has to be established.

Once you make the choice to open your business, it is vital that you register your business as an LLC or other corporate entity. In this article, I would like to look at LLCs specifically because they are in fact such a popular choice for the self-employed.

The process for creating an LLC is pretty easy and inexpensive: It essentially involves filling out the proper paperwork (like that found with our friends at LegalZoom), going to your Secretary of State’s website and completing the forms, and paying the filing fee.

Registering your business is easy and inexpensive.

Too many self-employed business owners don’t understand why creating an LLC for their business is important. Here are a few reasons why.

An LLC Protects Your Assets

It wouldn’t happen to you, right? Nobody would sue you because your business doesn’t do anything that would invite a lawsuit. But it is true that we do in fact live in a litigious society, where attorneys pay for television time giving people ideas on who to sue and why. You’ve seen the advertisements and you know that nobody is immune.

If litigation is filed against you and you lose or are forced to settle, the only way that your family’s assets are shielded from the lawsuit is by having a corporate form like an LLC. LLC registration allows your business to take on the legal rights of a person so that a lawsuit can only take business assets.

LLCs are More Professional

When a business prints “LLC” or “Inc.” on their letterhead, business cards, website, and other company documents, customers feel more comfortable doing business there. It adds a touch of professionalism and security to your brand that people like to see.

LLCs Can Help With Your Taxes

LLcs offer you great tax flexibility. Specifically, when your business is an LLC, it can elect to be taxed as a sole proprietor, a partnership, an S corporation or a C corporation. And unlike a C corporation, there is no double taxation with an LLC.

Do You Need Funding?

Going after funding, either from a bank or angel investor, is much more likely if you are an LLC than if you are a sole proprietor. When you incorporate your business, you have to file articles of incorporation (for an S or C corp., articles or organization for an LLC) which include your business structure, shareholder rights, and other plans. For an investor, the formalized structure found in your articles of incorporation serve as a starting point for drafting a contract if they choose to provide funding.

Want to Deal With the Big Businesses?

As a self-employed individual, you are most likely in the business of doing contract work for individuals and other businesses. In the case of other businesses, they often hire contract employees because they don’t want to pay for insurance, withhold taxes, or keep employee records. In order for the lines between employee and contractor not to become blurred, they sometimes won’t deal with individuals who are not under a formal corporate business structure. If your business isn’t incorporated as an LLC or other entity, the larger jobs you apply for may be awarded to somebody else for no other reason than your lack of formal structure.

Bottom Line

Incorporating your business as an LLC is easy and inexpensive. For less than $100, you can complete the process and receive all of the benefits and protections that come with holding a formal and legal business structure.

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