When I made the freelancer passage for starting a content development agency, the decision of what type of business to form was easy. I went from being a sole proprietor to be the co-owner of a limited liability company (LLC).
Why we chose to go with CLL had much to do with the state in which we are based – Texas. Say what you want about the state, but Texas is one of the smaller companies the friendly states. Furthermore, there is no tax on the state’s income. And we have an awesome barbecue. But I digress.
Apart from the legal and financial reasons for this choice, the creation of an LLC – and generally become a more formal business entity – offered other benefits directly related to our activities -delà our business deposit. If you think you are ready to upgrade, a limited liability company may be just the thing to help you gain more credibility, more customers, and yes, more revenue.
What is the difference between a sole proprietorship and an LLC?
If you are a freelance writer, you already are a sole proprietor. (You pay your quarterly estimated tax, right? right ?! ) Although you probably do not have to actually file documents or pay fees to claim that status, individual enterprise is recognized by the IRS. It means basically you as an individual and you as a business are one and the same, and you will encounter some differences in how you file your taxes, except maybe have more deductions.
To be recognized as an LLC, you must file paperwork and pay fees. What kind of paperwork and how much in fees vary from state to state. But the basic documents necessary whatever the state says your company name, location, and who are the members.
Depending on where you form your LLC, you may also have to pay a fee or LLC, in some states called a franchise fee. I know – we do not speak of franchises, we talk LLCs. You were not really expect tax law to make sense, were you? C’mon.
The formation of a foreign LLC
Notice that I say “depending on where you file your LLC.” Of course, this is because it depends on the state you live in, but something you may not know is that you can file an LLC in any you like, whether you live there or not.
Why would anyone do this? For many reasons, but the main two are:
- to make the filing process easier, and
- to cut spending
Although the formation of a business can be a complex process in some states, when we did, we filled out a form, sent to the state capital, paid a few hundred dollars, and in just a week, we were an LLC. Just like that. Completed. He could not have been easier than it was.
As to the costs, if you live in California, you have to pay a rather high fee LLC 8.84% and a minimum fee of $ 800, and the income tax to boot. If you file your LLC in Texas, you have to pay a franchise tax of only 1%.
(Although I am a teensy bit biased towards Texas (Go Spurs Go), it is not the only state that offers benefits to those forming an LLC But seriously -… It’s Barbecue I say)
Forming an LLC in another state – a “foreign LLC” – may also require the payment of additional upfront fees. You will need to do your homework here to decide not only if you want the sole owner of LLC jump, but if you wish to deposit in your home country or not.
Speaking of doing homework, I discuss these issues on the basis of my personal experience, and in general, the educational point of view. But remember that we’re talking about legal entities that have certain tax responsibilities. Since I am not a lawyer or tax accountant, be sure to consult one or the other or both, or at least do your own research before making any changes to your corporate status.
Now how can go from a sole proprietorship to an LLC get you as business owner?
Let’s be honest for a minute. As widespread and in demand as a freelance writer is, there is always a pervasive attitude that if you’re a freelancer, you are not a business “real”. You just have a little free time on your hands, and you realized that you had a little money while the children were at school, or on weekends. You do not really expect to make a living doing this, are you? Thus, companies are sometimes reluctant to pay fair and reasonable rates for self-employment.
I was really there. In fact, when I am a freelancer, I took to refer to myself as an “independent professional writer” in an effort to be taken more seriously -. And to have my rates taken more seriously
This changes when you become a registered business entity. When you put an LLC (or Inc., or whatever the official name you set) after the name of your business on your site, people perceive you differently. I’m not going to lie and say the companies immediately open their wallets to pay more for Web content because we still have a fight with content mills, but that’s another post.
But when you can put a business name and logo on your invoices, you can start to change the way your customers interact with you and how potential customers that you see.
It may also open other possibilities for you such as speeches, offers client on the well-regarded blogs and even press quotes (Are you signed with HARO?).
The marketing possibilities are all fantastic, but the main objective of these activities is to get customers. You also know that some customers react to the perceived shortage (a classic marketing tactic), and perceived value (a necessary facet of your business). How best to support these perceptions move from being a freelance writer individual to an LLC?
Like your industry colleagues can see you differently once you change your status, so will potential customers. In fact, building your business as an LLC (or other entity) can even passively help you with the pre-qualification client. Some potential customers may infer that once you become a small business, you are probably more expensive than a freelancer. Whether true or not, it can keep the most, uh, frugal customers to your inbox, leaving plenty of room for those who are really serious about their content, and serious about possibly hiring you to your higher rates.
Well, it just follows naturally if the latter forming an LLC brings you more respect and more customers. But if you go this route, why not increase your rates a little? In fact, you really should.
Even if you form an LLC only member, you’ll probably have more expenses than you had as a sole proprietor. You can always not to worry about renting office space, but you can speed using your Gmail address to an address based on the area you access Gmail. The best option for Google Apps is that, while being very affordable, costs.
Then there are business cards. Again, you can find affordable options, but now that you are a company and not a freelancer, you need cards with your logo on them that make more impression that most of the free maps you can find.
And do not forget your LLC or franchise taxes and other fees. As a business you have other expenses that you did not have before. Raising your rates may not provide an immediate increase in net income. But if your new rates cover your new spending while keeping your status quo income (at least initially), you come early.
You can also find it easier later when it comes time to again raise your rates. Some customers will not take well, but that’s just another way to qualifying customers. Again, a post for another time.
OK, now let’s think for a moment. If you form an LLC, you position yourself for more credibility, more customers and more revenue. Well, how do you manage all these new customers and new marketing opportunities for yourself? Maybe you do not have to fly solo.
I never thought about going into business with a partner. My experiences as an employee with less-than-stellar bosses put me in a mood to want to go completely alone. Well, things, things change, and I do not just get a business partner, I became one. But it has led our company to bigger and better things.
Think about it – twice the workforce. Twice marketing. When I am weak, she is strong and vice versa. And now that she is back to his Ohio State at home while I am still in Texas, we are a national company with two locations! OK, we work both still at home, but you get what I mean. It is all new connections up there while I still work here in our community.
But the best thing? These days when being an entrepreneur is hard when customers make us crazy when we wonder what the heck we thought – these days it’s wonderful to be partners that keep each other grounded, who listen to the other vent and then give each other that grow we must continue.
The point is, starting a business is difficult. Keep it going is even more difficult. Do everything by yourself, well, that is not always all it is cracked up to be. If you are considering your company official, you can open yourself up to a lot of benefits. But do not let the fact that, up to this point, you worked alone be the thing that stops you.
In fact, do not let anything stop you.
About the author
Michelle Lowery is an independent book publisher, provides the optimization of a website for writers and wrote the book Self-publishing for authors Indie. Learn more about it by visiting its website at michellelowery.com.
Connect with Michelle on Twitter, LinkedIn and Google+.
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