Comments on: Setting Up Your Freelance Business

By: karin

karin — Tue, 15 Jun 2010 14:30:57 +0000

Jun,
The short answer is YES.
However, consider this for a moment: a Federation of LLC’s, rather than a mulitple partner LLC. Each member of the federation owns his/her individual LLC and works on a B2B basis with the other individually owned LLCs.
There are many advantages to this set-up.
* Each LLC runs its own business the way they prefer (such as including familymembers for health- and retirement options)
*Each LLC has its own back office and IT support: no huge upfront investments and no waterhead ‘mothership’ infrastructure
* The modular building blocks allow for the Federation to grow organically; expand by adding one LLC at the time
* etc.

By: Jun

Jun — Mon, 14 Jun 2010 15:58:47 +0000

When setting up a multiple partner LLC, and establishing business credit, do the lenders look at the credit history for all the partners listed? If so is it advantageous to leave those with lesser credit ratings out initially and add them later AFTER establishing the credit line?

Thanks
Jun

By: corp atty

corp atty — Tue, 30 Mar 2010 21:53:08 +0000

The single-member LLC offers you limited liability should anyone sue you over your business. This is the principal advantage over a sole prop. Nickel is correct on the tax treatment.

If you think you will make more than a “reasonable salary” (e.g. you will profit $100K, but a reasonable salary is $50K), then you will be better off taxed as an S Corp. You take your reasonable salary and declare the remainder as a dividend, avoiding Soc. Sec. tax on the dividend.

Nickel is correct that an LLC can be taxed as an S Corp. From my perspective, for a business which you work in (as opposed to Real Estate), this is a confusing manuever. Plus, with a corporation, you get the benefit of corporate law – which is much better developed than LLC law. Many accountants recommend LLCs taxed as S Corps so you save an annual filing fee. In my experience, most average folks understand the corporate structure better (board of directors, officers, etc) than the LLC structure (managers, members, managing members) and are less likely to be confused by it.

Disclaimer: I am an attorney, but you can’t rely on this for legal or tax purposes.

By: karin

karin — Tue, 30 Mar 2010 19:38:15 +0000

Well done, Laura.
You have made the plunge and you have been very thorough in getting your freelance biz ready.
I just made the plunge myself and I found a very cost effective and safe way. I am a client of BOTH. BOTH = Back Of The House – takes care of of my entire back office. I can fully focus on my clients and my gigs as a marketing professional. My accounting, billing, financial reporting is done by a BOTH Personal Advisor. Part of the package is a hosted IT infrastructure, so no more Geek Squads or computer crashes for me! Even healthcare and 401(k) is part of the plan! Sorry, I sound like I am being paid by BOTH. I am not! Check ‘m out. Your life will change.
As they say,
‘Be in business for yourself, not by yourself’

By: Ginger

Ginger — Tue, 30 Mar 2010 15:57:22 +0000

Wow, I was just looking for this information, thanks Laura and Nickel.

By: Laura

Laura — Tue, 30 Mar 2010 15:14:25 +0000

Thanks Nickel for the information. When I looked into NC’s website for LLCs, there were some additional costs such as an annual report ($200 fee) for the state. I’ll contact SCORE and see if they’ll walk me through the process.

I love getting some feedback on handling a business, thanks again!

By: Nickel

Nickel — Tue, 30 Mar 2010 13:14:29 +0000

Around here, it costs something like $50 to register an LLC with a similar annual renewal fee. The default tax treatment of a single member LLC is to have all income flow through to the individual return just like with a sole proprietorship.

If someone told you that taxes are more complex with a single member LLC over a sole proprietorship, they’re wrong. You can, however, elect S-Corp treatment from the IRS if you wish. Depending on your circumstances and the amount of revenue that you generate, there may be some tax advantages to do so.

Bottom line: There’s really no reason not to “upgrade” to a single member LLC. The cost is minimal, the taxes aren’t any more complex unless you choose to make them so, and you limit your personal liability in case someone decides to sue you for some reason.

By: Laura

Laura — Tue, 30 Mar 2010 12:07:35 +0000

TheDebtHawk: My main reason now for keeping it a sole proprietorship is simplicity and the least expensive to form (and dissolve). Right now my freelance work is very cut and dry. I also run my business with no debt.Taxes are a bit easier too.

That’s not to say I’ll stay with sole proprietorship.
My husband and I would like to collaborate in the future, so the business structure would definitely change (most likely LLC) when that happens.

Great question!

By: TheDebtHawk.com

TheDebtHawk.com — Tue, 30 Mar 2010 11:28:32 +0000

Laura, I am curious as to how you made your decision to stick with being a sole proprietorship over an LLC?