Freelancers Should Form an LLC

Nowadays, with the development of technology, freelance work is becoming more popular. In fact, according to Upwork, a freelancing platform, the number of Americans who dabbled in freelancing has increased to 59 million during the time of the pandemic. Because freelancing can be lucrative and flexible when done right, more people are saying that they are planning to continue it even after the pandemic. If you are a freelancer, then you should consider starting an LLC. However, what is an LLC, and why should freelancers consider forming one?

If you are interested in knowing more about LLC and why freelancers should consider forming one, then you are on the right page. Continue reading this article for more valuable information.

What is an LLC? 

But, before diving into the reasons why freelancers should form an LLC, you must have a good understanding of what it is in the first place. LLC stands for Limited Liability Company. It’s a widely common business structure in the United States that protects owners from personal responsibilities of the business’s debts and liabilities.

The owners of the LLC are called “members.” There are not many restrictions on who can be members of an LLC in most states. This means that these members could be corporations, individuals, foreign entities, or even other LLCs. However, every state has its own regulations, so it is best to check it first before deciding on who will be part of the members to ensure that you do everything according to the law. Also, LLC is one of the most flexible corporate structures without any significant cost.

Reasons Why Freelancers Should Form an LLC

Here are reasons why you should consider starting an LLC as a freelancer: 

1. It Allows You to Get a Business Bank Account

If you are an LLC, you can have an EIN or Employer Identification number. This is a tax ID specifically for your business, and it makes it a legal entity that is separate from you as an individual. This will then enable you to get a bank account and even a credit card under your company’s name.

Getting a business bank account will provide you with the following benefits:

Easy tracking of cash flow
Records for tax-deductible business expenses.
Business credit

2. It can Help Boost Your Professional Image

Regardless of what freelance work you are doing, being a part of an LLC will make you look more official because it’s a legal business. This can significantly help improve your credibility and make it easier for clients to trust you with projects. 

3. Separates Your Personal and Professional Finances

Another major reason you should consider forming an LLC is that it can help you separate your personal and professional finances. This can be very helpful since you can sign contracts and agreements using the business’ name. In case of unfavorable outcomes that result in lawsuits, your personal assets are protected by “a corporate shield.”

In addition, you can also apply for business liability insurance when you form an LLC. This protects you from worst-case scenarios resulting from your freelance work.

4. You Can Get Help From Others in Running the Business

One of the challenges in being a freelancer is the fact that you will be doing everything on your own. You are solely responsible for marketing your services, doing accounting, sending invoices for your job, and many more. For an individual, this can be quite overwhelming.

However, in an LLC, you can disseminate tasks among each member. By doing this, you will be making your life much easier, and you can focus more on ensuring that your clients are satisfied with your deliverables.

How to Form an LLC as a Freelancer? 

As mentioned above, forming an LLC can vary depending on the state where it will be established. But, there are general similarities in the requirements. If you have already found other freelancers that you want to open the LLC with, the first thing you have to figure out is your company’s name.

The company name is very important because that is what you will be using when filling up the necessary documents. Once you have figured out the name, the organization articles can be then documented and submitted to the states. These articles specify the rights, duties, liabilities, and other obligations of the LLC.

After filing the articles, you will need to pay some fees directly to the state. Again, these fees vary from one state to another. The same thing applies to the paperwork required to get an EIN or employer identification number.

Final Words

There are a lot of benefits that you will get in forming an LLC, especially if you are planning to continue doing it in the future. It offers you tax benefits and an easier way to separate your personal and professional finances. It also lets others help you in a formal manner so that the whole experience will be less overwhelming.

The post 4 Reasons Why Freelancers Should Form an LLC appeared first on Mike Gingerich.

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