When setting yourself up as a business, you should consider the implications of different business structures. If you intend to take on staff within the first few years, you may wish to set up a corporation. If you plan to remain a solo worker, having everything set up as a sole proprietorship may be the best solution.
Having said this, consider speaking to an accountant and possibly a lawyer to seek advice about your particular scenario. You could also speak to local business bureau (such as SCORE4) or associations. They’ll take into account your current personal and financial situation, as well as your legal jurisdiction. Requirements for different business and company registrations will vary depending upon your location.
Each different structure can have a considerable impact on your taxation benefits, your licensing and governmental costs, and your ability to grow the business in the future.
The main differences between a limited liability company (an LLC) and a sole proprietor arrangement reside in the varying levels of possible taxation benefits, legal protection, ability to obtain finance, and your legal requirements.
Setting up an LLC structure has both advantages and disadvantages. The advantages include:
greater legal protection : If a client sues the company, only company assets can be seized to pay any judgement, not your own car or house.
greater ability to obtain credit : Many financial institutions and lenders have a preference for a company, rather than an individu al, for business finance.
tax benefits : In some states and locations, a company receives more taxation benefits than a person.
This option isn’t entirely free of disadvantages, of course. An LLC costs money to set up, and there are ongoing company-related fees. Also, financial reporting is usually more involved than for an individual.
Being in a sole proprietor structure has its fair share of benefits, mostly to do with cost. When compared with an LLC, there’s less financial reporting for most situations, fewer start-up administration costs, and not as many licensing or business costs.
There are disadvantages though, which are easily recognizable as the other side of the LLC advantages:
zero legal protection : If a client should sue you, the court can order that your assets be taken to pay any legal judgment.
less access to credit : Business loans are likely to be harder to get for a sole proprietor than for an LLC.
tax burdens : You may be taxed more than if you were a company.
Ideally, whatever structure you create now will mean that you aren’t paying more than you need to in fees and costs, yet allow you to be flexible enough to accommo date change as your business and your direction evolve.
It’s also a very good idea, regardless of your structure, to open a bank account for your freelance business that is separate from you as an individual. This way, you can pay yourself as if you were an employee, and allow a small nest egg to grow in the business account for those quieter months.
This account will also be used to pay all of your running costs, making the book
keeping side of your new venture easier to manage.
Speak to as many other freelancers and small business owners as well, and ask them how they set up their own structure—people will soon tell you the pros and cons of their decisions, and this can save you a fortune in reorganization in the future.
Having said this, consider speaking to an accountant and possibly a lawyer to seek advice about your particular scenario. You could also speak to local business bureau (such as SCORE4) or associations. They’ll take into account your current personal and financial situation, as well as your legal jurisdiction. Requirements for different business and company registrations will vary depending upon your location.
Each different structure can have a considerable impact on your taxation benefits, your licensing and governmental costs, and your ability to grow the business in the future.
The main differences between a limited liability company (an LLC) and a sole proprietor arrangement reside in the varying levels of possible taxation benefits, legal protection, ability to obtain finance, and your legal requirements.
Setting up an LLC structure has both advantages and disadvantages. The advantages include:
greater legal protection : If a client sues the company, only company assets can be seized to pay any judgement, not your own car or house.
greater ability to obtain credit : Many financial institutions and lenders have a preference for a company, rather than an individu al, for business finance.
tax benefits : In some states and locations, a company receives more taxation benefits than a person.
This option isn’t entirely free of disadvantages, of course. An LLC costs money to set up, and there are ongoing company-related fees. Also, financial reporting is usually more involved than for an individual.
Being in a sole proprietor structure has its fair share of benefits, mostly to do with cost. When compared with an LLC, there’s less financial reporting for most situations, fewer start-up administration costs, and not as many licensing or business costs.
There are disadvantages though, which are easily recognizable as the other side of the LLC advantages:
zero legal protection : If a client should sue you, the court can order that your assets be taken to pay any legal judgment.
less access to credit : Business loans are likely to be harder to get for a sole proprietor than for an LLC.
tax burdens : You may be taxed more than if you were a company.
Ideally, whatever structure you create now will mean that you aren’t paying more than you need to in fees and costs, yet allow you to be flexible enough to accommo date change as your business and your direction evolve.
It’s also a very good idea, regardless of your structure, to open a bank account for your freelance business that is separate from you as an individual. This way, you can pay yourself as if you were an employee, and allow a small nest egg to grow in the business account for those quieter months.
This account will also be used to pay all of your running costs, making the book
keeping side of your new venture easier to manage.
Speak to as many other freelancers and small business owners as well, and ask them how they set up their own structure—people will soon tell you the pros and cons of their decisions, and this can save you a fortune in reorganization in the future.
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