Most freelancers start their work as sole proprietors, but as their business grows, they might consider changing their business structure. Transitioning to a Limited Liability Company (LLC) can provide legal and tax benefits, as well as separate personal and business liabilities. Here’s how to make the change.
The Advantages of an LLC
It can be challenging to know if changing to an LLC is the right move. Here are some advantages to consider:
- Limited liability protection
- Pass-through taxation
- Ease of establishment
Steps to Convert to an LLC
- Confirm your business name is available.
- File articles of organization.
- Draft and execute an operating agreement.
- Tie up your loose ends.
After creating your LLC, it’s essential to get an Employer Identification Number (EIN) and open a business bank account to separate your business and personal finances.
Important Considerations
- Review all contracts and understand your new responsibilities as an LLC owner.
- Consider the disadvantages and potential costs of changing to an LLC, including state fees and taxes.
- Maintain your corporate veil by keeping personal and business assets separate.
- Seek professional advice to determine if an LLC structure fits your business risk profile.