Two years ago, a client gave me the option to leave behind W2 work and become an independent contractor. The catch? If I wanted to bill them, I had to form a limited-liability corporation — commonly known as an LLC.
I assumed that the process would be a huge pain. But, thankfully, I was wrong. For less than $100 and an hour of my time, I had my LLC formed and an Employer Identification Number (EIN).
No more work left on my end except to wait for the paperwork to come. Which is how, in less than 24 hours, I went from knowing nothing about LLCs to having one of my own.
Here are a few step-by-step guides on how to form an LLC.
Now here’s why it’s worth considering.
B2B relationships, a lesser-known benefit of an LLC.
Nobody can say with certainty if an LLC is the best choice for your freelance business — before taking any actions, first consult a financial or tax expert. And whatever you do, don’t let the perceived complexity or unknowns surrounding an LLC make the decision for you.
The key benefit of an LLC is legal protection: by definition, these arrangements are made to limit your personal liability when facing a lawsuit.
Filling work as an LLC has another value, though: It fundamentally changes your relationship with clients, from a client-to-contractor relationship to a business-to-business (B2B) one.
This has extra value for top companies, who face additional scrutiny when hiring independent contractors for work relationships that may be construed as more similar to that of an employee.
Companies can face serious fines if they incorrectly classify workers, which is why some large enterprises try to avoid compliance issues by hiring workers through an agency or by not hiring independent contractors at all.
By forming an LLC, you can often remove the compliance question from the equation.
Businesses are hiring your company to do work, rather than an individual — even if that company is just you.
That protects them from liability and opens up more doors for you, by making sure you can clear compliance at some of the top businesses offering jobs in your industry.
Consider the tax flexibility, too.
One option includes being taxed as an S-Corp, which would allow you to classify yourself as a W-2 employee under your own LLC, or creating a separate LLC for each revenue stream or project you take on — which allows you to further limit your liability to a case-by-case basis, while easily dissolving each LLC once you have completed your work.
The point? LLCs are surprisingly easy and inexpensive to form — so don’t be afraid to consider creating one.
About the author: Jerry Ward has been a product manager/digital platform manager for 15 years working in education, financial settlement, network security, and more, working with a deep understanding of technology and data-driven decision-making.
The views presented in this guest post are the sole views of the author and do not necessarily represent the views of Braintrust. This material is intended to provide information, but should not be relied on for tax, legal or accounting advice; consult a financial advisor or tax professional before making any actions impacting your business.