7 Signs It's Time to Form an LLC

There's so much to think about when starting a business that you may have forgotten the most important part of getting up and running… actually starting the business!

Most of us make our first sales through a Paypal or Etsy account before we ever think about the actual business/legal side of things.

I'm a fan of doing things once, early, and correctly, which is why I'm giving you a list of reasons why/when you should form a Limited Liability Company (LLC) for your business.

Should you file a DBA or form an LLC?

The simple answer is that most small businesses and solopreneurs will benefit greatly by becoming a limited liability company (LLC) rather than staying a sole proprietor, partnership or forming some other kind of entity.

The other part of that simple answer is that it’s time to ditch the "doing business as" (DBA) and cough up the extra cash for an LLC when you’re running a legit biz—well, sometimes, it varies by state and it may even be cheaper to get an LLC than a DBA!

7 Reasons to Avoid Forming an LLC:

  1. You aren’t selling anything yet or in the foreseeable future.
  2. You have no idea if this is a business you want to pursue.
  3. You’re just testing the waters and seeing what services or products might stick.
  4. You aren’t working with anyone else yet as a collaboration or joint venture.
  5. You haven’t had any clients yet.
  6. Your company isn’t very visible, online or offline.
  7. You’re still using the excuse that it’s ‘too expensive’ to form an LLC. (Even in California, the most expensive state to file in, if you can’t save $67/month towards your annual filing fee, you need to seriously re-evaluate your business strategy.)

7 Signs It's Time to Form an LLC:

  1. You are regularly selling at least one product or service.
  2. You have clients or customers who rely on you.
  3. You work with your clients or customers in person, such as at a photoshoot or at a venue.
  4. You are making at least $40,000 a year in revenue (in which case an S-Corporation filing may help ease your tax burden, but you can only elect this tax filing status after forming an LLC).
  5. You would like your business to have its own separate liabilities, credit cards, bank accounts, assets and problems distinct and separate from your personal accounts and worries.
  6. You’d like to start hiring independent contractors or employees.
  7. You’re starting a business with more than one person. By default, this is a partnership, but with an LLC, you both (or all, if there’s more than two) become ‘members’ of the LLC. The LLC will survive even when partners leave (< good news for clients!).

Forming an LLC is something that takes less than 10 minutes online, and can potentially save you thousands of dollars later. Just because it’s not talked about much in our industry, doesn’t mean it’s a smart decision to bury your head in the sand.

Is your business an LLC? Can you share how EASY it was in the comments so other creatives can see that it isn't a big scary To-Do?

Get the Called to Create Workbook to help you start your business on the right foot. (Plus, you'll learn the 6 steps to getting your business legal!)

 

Should you be a DBA, sole proprietor or form an LLC? #legal #business #creativebusiness #startup

Comments (3 Responses)

20 March, 2018

Christina Scalera

Kathi, you’d be surprised how many people mix their finances, especially in the beginning! There are a lot of creatives who stumble into becoming a business because they did something for fun or on the side and suddenly it’s become a product. I’m glad you separated everything immediately, though, definitely the best way to approach it!

17 March, 2018

Kathi
shouldn’t even be on this list. Of course you don’t co-Mingle your personal finances with business finances. It’s one of the first things you do!

04 January, 2018

Lauren Carnes

This is so helpful! I’ve had a few people asking me questions about this recently, and I’m so glad to just send them here to get the info!

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