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How to Form an LLC For Your Business

Carolyn Canetti
Feb 22, 2021 7:00:00 AM

For individual small business owners like yourself, you may be faced with the question of: should I register my business? Do I need to? Why would I want to? These are all great questions! 


Here's information on your options and the pros and cons.



how to form an llc



Being a sole proprietor: 


A sole proprietor is the personal owner of a business, and all its assets. There is no separation, legally, between a business and the person. This is only an option if it's just you working on your business. For instance, you are a certified yoga instructor and you teach classes via Zoom from home, or you are a freelance web designer working with a few clients ongoing. 



The benefits of being a sole proprietor: 

  • It's easy to do, so easy that you might be doing it already! There really is no legal distinction if you're already a contracted or project based worker. 
  • There is no extra filing of paperwork, unless you want to register a DBA (Doing Business As) and use a different name than your own in your State. 

The cons of being a sole proprietor: 

  • You are liable for all business debts and lawsuits, so if you come into hot water (can't pay rent on studio/office, a customer has a complaint and takes you to court), then your personal assets (home, car, bank account) can be seized in a lawsuit against you if it comes to that. 

As a sole proprietor, you can do more than the bare minimum as listed above. For instance, you could open a business credit card to use only for business expenses (great for keeping track of tax deductible items), but from a legal perspective, you're on your own.



Learn how to price your time



Forming an LLC (single member, or regular):


An LLC is a limited liability company, a legal entity formed to own and operate a business. They're great for individual business owners and even as you grow the company and add additional members. 



The benefits of forming an LLC for yourself are:

  • Legal protection of your personal assets. If for instance, you come into debt or are sued, any creditor or person who files a lawsuit against you cannot collect against your personal assets (personal bank, personal car or home), they can only deal with what is linked to your LLC bank account and assets. 
  • Taxes aren't that complicated, generally a one or two person LLC files taxes together with personal tax returns. Any profits or losses are reported with the individual, and taxed at the personal rate. 
  • There is credibility, a reassurance to your customers that you are a "real business" with an official business name

The cons of forming an LLC:

  • Costs and upkeep, to operate your LLC, you will be held to the legal standards of functioning as an LLC, which takes time and can come with a price depending on what you do yourself/need others to help with. Filing fees, operating agreements, quarterly taxes... this could amount to an excess cost of couple hundred a year or more, on top of any existing overhead. 

Want to form an LLC? There are ways to do it pretty easily - and not expensive ($50-200 if you do all the paperwork yourself).



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What to do: 

When you're just getting started, don't worry that if you don't do this tomorrow - something bad is going to happen! But, if you start getting customers and see your schedule fill up and your bank account getting an influx of money (for instance over $600 - you are supposed to file for any income over this amount), then, understand your options! 


If you're treating your business as something on the side and not your main source of income, get acquainted with sole proprietorship and how to prepare for taxes as a contractor/freelancer. But, if your business is your full time, let's get to work business, then definitely look into forming an LLC to protect yourself and legitimize your work!



how to do taxes as a new business



Additional resources: 


Accounting tools: Free or inexpensive tools to help with managing your budget; from profits, overhead, cost of service, marketing, and more, an accounting tool is your new best friend. Of course it's important to forecast and as much as it's necessary to keep track of payments in a detailed way for your quarterly taxes.

  • Intuit QuickBooks Online: The behemoth and most trusted in the space, QuickBooks has been around for a long time as a super advanced software. Intuit is the light version, in which you can track income, expenses, send invoices, track sales and tax, and do pay roll. Starting at $12.50/month up to $75/month. 
  • Wave: Great for individuals or tiny businesses, they offer mostly free services, inclusive of invoice and transaction management. Not useful for product based e-commerce that requires fulfillment and inventory tracking. 

Legal tools: Depending on the service you provide, it's important to have access to legal documentation, contracts, and more at an affordable price. Utilizing a legal tool like DocuSign or Rocket Lawyer is a great way to have a secure and legal relationship with clients, without breaking the bank. 

  • DocuSign: DocuSign is a great tool for getting e-signatures on documents. Started at $10/month, up to $40/month or custom pricing, you can send all legal documents through DocuSign and feel sure of security and privacy. 
  • Rocket Lawyer: Rocket Lawyer helps to create reliable documents for all types of legal purposes. They also provide some legal services, consultations, and business specific filing. You can either join as a member for $39.99 per month, in which everything is included in the membership, or do a la carte style, where you make a one-time purchase to do a thing. 

There's a lot of information out there that can seem overwhelming when you're beginning a business. Take the time to do some research and decide based on the income you're making and the nature of your business, if it makes sense to form an LLC. At a certain point, it's an important distinction to make, and a responsible choice legally. 



Interested in moving your business online? Check out ClickEasy for easy payment and scheduling tools for service businesses.

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