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Allena Tapia

What? You Don't Have An LLC?

By May 6, 2009

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As a full time freelance writer, I've set my business up as an LLC with a separate business bank account and EIN (tax ID number). Honestly, I can't tell you for certain why I did this, except that I prefer everything to be very formal and structured, as that tends to work for me. This structure reminds me that work time is work time (no matter when that is), company money is company money and that this is my job. It just helps me to keep things serious. Maybe I need that extra discipline!

I have a friend who is about to set up her business as an LLC, as she wants to purchase a home next year. I assume the paperwork and ability to show a money flow are both important for things like getting credit. I was going to sit down and write up the steps to forming an LCC, getting an EIN, and starting a business bank account, but, I realized that, other than her situation, I couldn't come up with a really solid why.

So, I'm turning to other writers: why do you or don't you have your business incorporated, under an EIN, and/or with a separate bank account?

Comments
May 6, 2009 at 3:04 pm
(1) James says:

I do this all the time Allena: “right” in your post should be “write”. Probably since I do it a lot (argh!) is why I spot it so readily. Feel free not to post this comment; won’t bother me in the slightest!

May 6, 2009 at 3:49 pm
(2) Jakeu1701 says:

I would like to see how to create an LLC. I looked this up before, but I come away feeling somewhat unclean from some of the sources. If there are resources that you could point me to, I would appreciate it.

May 6, 2009 at 4:45 pm
(3) FupDuckTV says:

Using an LLC or S-Corp protects your personal assest from liability. Without it, work you do is not protected from legal action.

Wow, you do have a typo; right vs write. I didn’t think professional writers made mistakes like that. I thought only I did.

May 6, 2009 at 6:24 pm
(4) allena says:

Nah, anyone with too much on their plate can rush through and leave a typo. I’ll fix it when I get home, unless my proofreader (aka lifesaver) gets to it first.

May 6, 2009 at 7:58 pm
(5) freelancewrite says:

Ok, fixed. This reminds me of that commercial from the early 90s for voice-recognition software: “Please write to Mrs. Wright right now.”

May 6, 2009 at 8:37 pm
(6) John Soares says:

I’m no expert, but I think one of the main reasons for creating a LLC is to make it less likely you personally can lose your money and assets in a lawsuit.

That’s the main reason why I’ve considered it. But in my freelance writing field, writers rarely get sued.

May 7, 2009 at 5:35 pm
(7) Sherrie Sisk says:

As a former attorney, I can tell you that the ostensible attraction for LLCs is indeed protection from personal liability for your assets. However, as a practical matter, the vast majority of business debts will require a personal guarantee for new startups or one-person LLCs, which effectively negates much of the benefit. That being said, it’s a cleaner approach, organizationally speaking, and requires (and thereby fosters) a strict segregation of the business from the personal.

May 8, 2009 at 5:11 am
(8) Sid says:

Nice Post. Want to read more like this in future. Nice very nice really. I also write about this type of topics. To know about my thoughts you can log on yachikaverma.com

May 11, 2009 at 3:37 pm
(9) Brooke says:

I’ve been a freelance writer, with this being my sole income for the past 3 years. I haven’t been asked for an EIN once, since filling out tax forms require your SS# or business ID.

If you’re disciplined enough to put aside some cash for taxes, I really don’t see the point, other than another tax form to file at the end of the year!

May 11, 2009 at 4:03 pm
(10) Chase Roper says:

I second Sherrie’s comment. You can just do business as a sole propietor and use your SSN in lieu of a Tax Identification Number, still have to get a business liscence though. The point of the LLC is to protect the individuals involved in the business partnership but limiting the liability of each one. Like Sherrie said, for the one person LLC start-up business to get any credit, etc, the creditor or bank will want a Guarantor on the account to say they accept personal liability. I quit my job as an Account Executive for a longstanding factoring company to pursue writing full time. I dealt with this sort of thing all the time. (Enjoy my typos.)

May 11, 2009 at 4:17 pm
(11) Nan says:

Keeping business and personal funds separate is one reason for setting up a “formal” incorporated business. (In my case, it’s an S-Corp as opposed to an LLC.) But there are other reasons. Having and using a TIN# (tax ID number) or EIN# (employer ID number) is a bit safer than having your SSN# floating around. In some cases, being incorporated is a requirement for partnering with other businesses on large projects such as government RFP’s or IFB’s. I do believe it may carry a bit more legitimacy in the eyes of a client, but this isn’t always the case. It’s really not that expensive to set up; it’s the accountant fees that add up! I pay two sets of fees at tax time: one for my business and one for my personal tax return. There’s a yearly fee to maintain corporate records with my state. It’s money well spent for the piece of mind that I’m viewed as a legitimate business, that I have no “co-mingling of funds,” and that I’m not a liability if I partner with another freelancer or small company.

May 11, 2009 at 4:47 pm
(12) freelancewrite says:

couple things to keep in mind: in order to get credit as a freelancer, you have to have a paper trail. you can have an official one through your bank, but most banks won’t let you have a biz acct without having that biz paperwork, mine wouldn’t anyway.

Second- there are some major publishers who will not contract with editors who DON’T have an EIN

Third- I have been specifically told I was given contracts due to the professionalism of my biz.

Let’s see- Brooke mentioned never being asked for an EIN, but you are not. You just put your EIN in the SS spot– it’s the same thing. In fact, I’d be surprised if that spot on most forms says “SS”- it probably says “TIN” … which is what an ss and EIN actually IS.

May 11, 2009 at 4:50 pm
(13) Petula says:

I actually have an EIN # because I needed one for a client/account that I had at one point. There have only been a few instances when I’ve officially needed it, but other than that I don’t really use it. I also had a business account at one time, but I… well, I’m too embarrassed to say what happened.

I believe that your reasoning for having one is solid. I’d like to keep all of my ducks in a row and be that organized with a business account, etc., but I don’t think that’s possible right now.

May 11, 2009 at 5:17 pm
(14) Thursday Bram says:

Considering the number of scams out there targeting freelance writers willing to send out their SSNs via email, I feel a lot more comfortable using an EIN at least my personal information is protected.

Taxes and retirement are two other reasons to consider setting up an LLC if you’ve got a good CPA, you can reduce your taxes with an LLC. It also gives you a few more options for saving for retirement (including being able to save more than as an individual).

May 11, 2009 at 5:21 pm
(15) freelancewrite says:

I didn’t know that, Thursday! It’s hard to save the top amount for an individual IRA, but maybe someday!! Hmmmm.

May 11, 2009 at 7:47 pm
(16) Craig Cardimon says:

No, I haven’t, but only because of what I read here:

http://b.lesseverything.com/2008/9/16/6-tips-for-beginning-businesses

If anyone disagrees, please let me know in the comments, or email me directly.

May 11, 2009 at 7:56 pm
(17) Deborah says:

I personally would love to learn what the benefits are to having my freelance writing work be under an LLC. Not sure what it is, but it sounds good. I don’t think I would do it unless there were substantial benefits.

May 12, 2009 at 2:29 am
(18) Amy says:

I recently went to a writing workshop where an accountant highly recommended forming an LLC. I was concerned about it so I did ask my accountant, and she suggested instead getting errors and omissions, or professional liability, insurance if my concern is liability protection. Has anyone heard of or use this option? I am not interested in setting up a separate business account so this is perhaps why she suggested the insurance option. Also, I believe it’s possible to get a federal employer identification number without forming an LLC. Does anyone know if that is correct or not?

May 12, 2009 at 12:12 pm
(19) Craig says:

@Amy – Buy a personal liability umbrella policy. You should be able to get one through your homeowners insurance.

May 16, 2009 at 12:14 pm
(20) HS says:

“It also gives you a few more options for saving for retirement (including being able to save more than as an individual).” Realize you have plenty of options to do this as sole practitioner…SEP, Simple IRAs and Individual 401ks are all made for this. Plus you’ll pay less accounting fees. If you generate more than 40-50k/year in revenue, better to incorporate. Less than that – may not be worth it. (I’ve asked quite a few CPAs about this…and worked under both scenarios the past 20 years.)

May 20, 2009 at 4:27 am
(21) Jean says:

Amy, I have heard that general liability insurance is a good alternative to an LLC. Lucy V. Parker’s “How to Start a Home-Based Writing Business” explains its protection power for those things that might go wrong in your working relationships.

June 2, 2009 at 7:00 pm
(22) jo says:

I’ve been freelance for about 25 years and have worked as both a sole proprietor and as an S corporation (which I dissolved a couple of years ago). I have an EIN to use as an SP, and had a different EIN for the corporation. I also have a personal liability umbrella policy. For me, the corporation involved too much paperwork and tax filing dates, and accounting costs to be worth it in time and money. I keep separate business and personal bank accounts anyway, so funds are not mixed.

December 1, 2010 at 1:45 pm
(23) bw says:

Just thought I’d post a comment regarding starting an LLC. It varies from state to state, your absolute best resource is likely your state Secretary of State. In my case (Ohio), all you have to do is fill out a form..pay a filing fee and you’ve got your LLC.. well and use their online search to make sure the business name isn’t taken.

And yes, there are a lot of scummy businesses out there preying on folks who don’t know how easy it is to setup an LLC, charging ridiculous fees and the like.

Go the do-it-yourself route, and if you’re worried about anything you’d be best off paying a lawyer or paralegel for a consultation.

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