One of the very first things I had to decide before I could register my business was choosing the structure of the business. Like many freelance graphic designers, the choices were easily narrowed down to either a sole proprietorship or an LLC.
A quick break down
There’s an abundance of information about each type of ownership with a quick Google search, but I’ll quickly dumb it down.
This tends to be the most common form freelancers choose since it’s the simplest. As the name suggests, you are the owner and operator of the business.
Since that’s the case, there aren’t many complications about how you handle your money or business. You get paid, you can use it for the business, personal, etc. When you die, the business dies. You don’t have to pay yourself a paycheck, you can just immediately take it out of the account. Obviously there are taxes that you have to consider, but beside that, it’s pretty straightforward.
The main issue with a sole proprietorship is that you are held fully liable for the business. That means if a client comes back and sues you about something, they can sue you for your car, your house, and everything you own business and personal.
Limited Liability Company (LLC)
To my surprise, as I was learning about these two, I found out when there is only a single member, a limited liability company functions almost just like a sole proprietorship. You can handle your money the same way and you even file your taxes similarly.
The key difference (and advantage) is having limited liability. That means, if you were to lose a lawsuit, only the business can get hurt. You’ll get to keep your house and tv.
It does cost a little more to register a business as an LLC ($100 annually in Oregon) than a sole proprietorship ($50 annually), but depending on the circumstances, it will be worth it.
There are several other factors and features with an LLC including needing to file Articles of Organization with the state and being able to file as a corporation if you start making more cash than you can handle. While some are extra requirements, most of these don’t really have a huge effect when you’re the only person in the business.
One question will help you decide
Even though there are a lot of potential things to consider with an LLC, when you are the only member (owner and operator), it ultimately functions just like a sole proprietorship. The main question is, do you think you might get sued for your work?
I needed protection
Most freelancers don’t feel like they need to worry about being taken to court. As for me, knowing the industry my client is in and the potential risks involved, I knew I needed to protect my home and family just in case something was to fall my way. That made it super easy to decide that having an LLC would be the best for my business.
Next, I needed a name
Once I decided on how my business was going to be organized, I just needed to nail down the name. I’ll talk with you about that next time.
But until then… stick with it.