The Blog

July 13, 2021

How to Know if You Need an LLC For Your Business

I wish I knew this first

You’ve put in the time, you’ve put in the effort — the sweat and tears, but hopefully no blood. Your side hustle is the real deal: it’s making you money and you like the work or the products you’re creating. But if this thing is really taking off, you are likely in that weird “in between space,” where you’re wondering what you need to turn it into a bonafide business.

When is it time to make it official and turn your unofficial side hustle into an LLC?

To LLC or not to LLC?

You’ve evolved from a budding entrepreneur to a business owner — how exciting! If you still aren’t sure what the next steps are supposed to look like to make your business legit, we have good — and somewhat frightening — news for you:

There’s not a one-size-fits-all.

Some people turn their sole proprietorship into an LLC. Some people partner up with others. And some even start a corporation or nonprofit. Having options is great, but choosing can be tricky. Here are just a few things to consider when you’re ready to take your business up a notch. 

Do I need to form an LLC to start my business?

Some people think a “real” business is one with that coveted “LLC” at the end of their name (limited liability company). While forming an LLC can be an exciting endeavor, you don’t actually need to form an LLC in order to start a business.

You can be a sole proprietor, which means you are starting your own business without registering it as an LLC. Be careful, though — you can’t just pull a Michael Scott and declare yourself a business (hopefully not a bankrupt one).

You still might need to register with your state, lest you risk being a vigilante business on the outskirts of the law.* (It’s less fun than it sounds.)

If you have a business name (ex. “Tina’s Tough-As-Nails Training” versus just Tina Swanson), then you will need to register that as well. We know you worked hard on that name, so show it off to your state, too! (If you’re worried people will try to steal your epic name, you might also want to consider trademarking.)

Don’t panic — we’ll be going over these kinds of topics in more detail over on our YouTube Channel in the future, so make sure to subscribe over there!

*Batman LLC just doesn’t have the same ring to it, does it?

Are LLCs the only option?

We’ve gone over the “what” of the matter; now we’re going to get into which entities you can use to make your business official. This is largely going to depend on your goals, your operation, and your leadership style. 

First, let’s look at what types of businesses can be formed — it’s not just LLCs out there!

The LLC

We touched a bit on this earlier, but an LLC (or Limited Liability Company) is a business structure that turns your work operation into its own legal entity. The owner/s (or “member/s”) manage their business assets, debts, and other liabilities solely under the umbrella of the business itself.

Basically, you’re putting that official boundary between your personal life and your professional operation. In the eyes of the law, your LLC has its own assets and liabilities, so if anything goes wrong, they can’t target your personal assets as compensation. This is why many go through the process of forming an LLC — for the extra layer of protection.

The Nonprofit

For the more philanthropic of us, a nonprofit structure may be the best fit. Businesses that use this structure do not distribute their profit between the owners (you don’t take out profit, hence the “non” part of the nonprofit). Instead, they use that generated income for other means, usually charitable ones, although this is not necessarily required depending on the state. 

Nonprofits still enjoy some of the same protections as businesses, such as protection from tort liability. Generally, though, a nonprofit is created for different goals. Because these goals are generally directed towards bettering society, some nonprofits also qualify for tax exemption status.

The Corporation

Ready to be Bezos 2.0? Under a corporation structure, a business is actually owned not just by members, but by shareholders as well. They can share financial responsibility (and limited personal liability) and, when combined with the sale of stock, this can help generate capital. 

This gives your business a lot of resources, although great power comes with great liability. There are business entities called “S-corps” that many small and online business owners opt for, because you can actually pay yourself as an employee, limiting more of the tax burden that comes with being self-employed.

How do I maintain an LLC?

Forming an LLC is easy and, as it turns out, maintaining an LLC isn’t too bad either — as long as you know what you are getting into. 

First, you will want to confirm if your state requires an annual report. This report confirms your contact details and the basic stats on your operation. Basically, this report confirms to the state that 1) you are in good standing (no shenanigans happened over the last year) and 2) that you wish to continue to be an LLC. 

Beyond that, you will want to stay on top of your taxes on both the state and local levels.

An LLC (or other entity) is just the next step in your business’s evolution 

Thinking about forming a business? In the process of forming a business and still have questions about whether or not you need an LLC? Be sure to leave a comment under this video on YouTube and we can talk about it there. In the meantime, if you are looking for a specific contract, The Contract Shop® has you covered for every step your business takes

If you already set up your LLC but want to get the rest of your young business up to legal standing fast, we also have an awesome new Get Legal Fast Bundle to help you out.

In the bundle, you'll get all the legal documents you need to GET LEGAL FAST in your business:

  • Our Independent Contractor Template: Start offering your services as soon as possible with this ironclad client agreement. All you have to do is copy/paste and fill in with your clients’ details! ($455 value)
  • Access to the Lawless to Flawless™ Course:  A step-by-step guide to getting your business set up, including guidance around becoming an LLC and building business credit. ($497 value)
  • Our Blogger Disclaimer Template: Let your audience know you might make a cha-ching if they purchase something that you advertise on your blog or social. ($27 value)
  • A GDPR Compliance Checklist: Know exactly what you need to work on to become compliant with the EU's General Data Protection Regulation. ($29 value)

And so much more: Trust us, we’ve done this a lot — and we thought of everything... like email templates for sending out your shiny new contracts and video tutorials walking you through how to use and modify your templates. 

That's over $1,300 in value if you purchased each of these separately—now available for a fraction of the price!

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