Amber Weinberg: Freelance Web Developer specializing in semantic WordPress, Mobile, CSS and HTML5 Development

The Blog

Do You Need To Be An LLC Or Corporation?

Posted on 03/30/10 in blog, business about , ,

When I was working at my first full-time job out of school, it wasn’t long before I was getting requests for freelance. I quickly learned that if you make over $600 per year in the U.S., you are required to report it on your taxes. When you are at this stage, you or your accountant will just attach a schedule C form and declare you a sole proprietor.

Then when I went full-time solo in the fall of 2008, one of the things I struggled with was – Should I stay a sole proprietor? Or should I should create a business entity, such as an LLC or S-Corp? After all, I often ask clients this and if they have a business plan before I design their logo. Why? To gauge how serious they are about their company and if they know their target market. So, why should my own company be any different?

In my search for an answer, one of the first steps I took, was taking a class at my local SCORE chapter, called “How to Start and Manage Your Own Business.” It was a full day class, lead by retired business men and women, and talked about everything from the legal structure to how to write a professional business plan. I came away thinking I should definitely create a formal business entity.

I also asked clients about what their own businesses were, researched online at such places as Legal Zoom and at networking events. If I would meet a lawyer or accountant, I would ask their opinion. The result? I came away with many different answers, which was very frustrating. Many said there really is no black and white answer, which quite frankly I didn’t like. I finally ended up deciding by meeting with a lawyer and went over the pro’s and con’s of sole proprietor, LLC or Incorporating.

Below are the three reasons why I ultimately decided to incorporate my own company.

No one can take your company name

I’ll use my own company, Bauerhaus Design, for this example. Let’s say I pay $100 for business cards, $250 for brochures, and place an ad for $250 in a magazine or online all with the name Bauerhaus Design on them. Then, I get a letter from a lawyer in the mail, saying another Bauerhaus Design already exists and I have X amount of days to change my business name. The first company I worked at regularly sent out letters such as these.

And if I did receive such a letter, I would have to pay money for re-printing, change my website address, and all of those dollars that went to advertising are down the drain. And not to mention all of the time it would take to pick another name and re-design everything. Plus, you could lose potential clients in the transition. So, to me paying a fee to make my business official could actually save me money in the long term.

If you should ever get sued, your assets are covered

Let’s face it, no one ever foresees getting sued. But if it were to ever happen, this way your house, car and anything else of value is protected. Only your business would be affected.

Makes you look more official

If you are bidding on a larger client, does it look more official to say pay a deposit to “Rebecca Ritz” or “Bauerhaus Design, Inc.”? Also, think of it this way – You having a business name tells your future clients that you are here to stay. You aren’t going to disappear in a month with their money. You are going to be professional, just like their own business.

Need help deciding between the different structures?

Legal Zoom breaks down the different business structures, such as LLC and Corporations perfectly. Plus, you can get an idea on the price to incorporate or become an LLC. Pricing varies based on state. But in reality, the thing that helped me the most was talking with a lawyer about my specific business and my future goals for it. One last tip – if you are looking for a lawyer, the best referrals I received were from friends, family and clients.

Your turn

What are you? A sole proprietor, LLC or Corporation? And why did you choose that one?

Photo by Attempts at Photography

Rebecca Bauer Ritz is a logo, web and graphic designer that is passionate about helping start-ups and small businesses find their voice. She has over 12 years experience and owns Bauerhaus Design, Inc.

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