What is an LLC?
LLC stands for Limited Liability Corporation. It’s a legal status granted to businesses that allow more flexibility than a corporation, while at the same time providing more liability protection than a sole proprietorship. LLC’s are typically owned by more than one person, referred to as “members.” Otherwise, it’s a single-member LLC.
Why freelancers should consider an LLC
For all practical purposes, since an LLC establishes the business as its own legal entity, you are not putting your personal assets at risk in case of lawsuits or other liabilities against your business. Even though your business is attached to you, having it treated as a separate entity ensures your house, cars and personal bank accounts won’t be considered assets of the company.
When you establish an LLC, the state gives you an Employee ID Number (EIN) for filing taxes. This ID number allows you to open a business banking account and obtain a credit card to keep personal and business accounts separate. Freelancers can then use those accounts to deposit checks from writing gigs and cover expenses related to work, like a laptop, office chair or Wi-Fi service.
Lastly, it’s important for a freelancer to come across as trustworthy and professional to clients. Nothing says I’m legit like having an LLC established for yourself.
Step 1: What’s in a Name?
So, first things first. You need a name for your LLC and it has to comply with the rules of the state where you’re establishing it. You can use your personal name as the name of your LLC, which makes a lot of sense if you work as a freelancer, representing your personal brand. The only thing is, the name you pick for your LLC cannot be the same as another LLC or business registered in your state. If you have a unique name, you should have no issues, but if you have a more common name, you may be out of luck and may have to get more creative. Take notice if your state is one that allows you to reserve an LLC name for a period of time, for a fee, until you’re ready for the next step.
Legal Zoom allows you to search for the name you want to call your LLC to make sure it’s available.
Step 2: Articles of Organization
The next step in the process to establish an LLC is to file articles of organization with your state’s corporate filing office. Another term for this document is “certificate of formation.”
Most of these forms can be filled out electronically using a form found on your state’s Secretary of State website. For example, in Arizona, you can create an account online and submit your forms that way. There’s a $50 filing fee and an option to pay an additional $35 for expedited processing.
Step 3: Registered Agent
There has to be a registered agent when establishing an LLC. The registered agent is required to have a physical address in the state where the LLC was established, but other than that this can be any individual or company who agrees to be served with legal papers if the LLC were to ever be sued.
Ask yourself: who is the main person or entity responsible for your LLC? Odds are, as a freelancer and the owner of your LLC, this will be you, but it doesn’t have to be. There are private companies in most states who will serve as commercial registered agents, for a fee.
Step 4: Operating Agreement
An internal document that outlines exactly how your LLC will be run is known as an operating agreement. This document ensures that the courts respect your limited personal liability as well as the rules you set yourself for your own business. This can be used to include the powers, rights, and responsibilities of the manager (you) in reference to the LLC and who would succeed you as manager of the entity.
Although most states don’t require an LLC or its members to have an operating agreement, it’s recommended because it can serve as a shared guide to how the LLC will be managed. Isn’t it better to have your company run according to your rules than default to state laws if there isn’t an agreement in place? You can learn more about operating agreements and how to craft one here.
Additional resources to check out when looking into an LLC for your business
If your budget allows, an LLC attorney can give you legal guidance as you establish your LLC and work towards structuring and defining your business. The American Bar Association can also direct you towards some free legal help to get you started.
There are popular online platforms like LegalZoom and Rocket Lawyer that provide easy-to-understand answers to most of your LLC questions. You can even establish your LLC for a fee right on their sites.
