When should I form an LLC?
“When should I form an LLC?”
Now!
Are you a freelancer, self-employed or working for someone else as an independent contractor? Have you started a side hustle or do you have a business idea you are developing after your 9-5? If you are asking yourself “When should I form an LLC?”, the answer is: “Now!”
In Idaho, it costs $100 to file a Certificate of Organization to create an LLC and annual report filings are free. By paying $100, you can separate your business liabilities from your personal liabilities. There is simply no reason not to do it. Learn how to create your own Idaho LLC here.
While there are no downsides to incorporating an LLC, and we encourage you to do it as soon as possible, the following factors may convince you it is time to incorporate:
Entering into contracts - If you sign a contract under your own name, you are personally responsible for that contract and your personal assets will be exposed in the event of alleged breach of contract.
Liability exposure - Some kinds of services may be more at risk of civil lawsuits, for example if you are a personal trainer and clients may sustain injuries. Of if you own or rent a space to run your business under your own name, if someone is injured on that property you can be sued personally.
Having a business partner - If you have a business partner, you are automatically in a partnership and you can be held liable for things your business partner does. If you do not clearly agree on things like management responsibilities, capital contributions and equity split from the outset, you will likely run into conflict with your business partner later and that can tank the whole business.
Establishing credibility - Vendors, customers, lenders and investors often see incorporated business entities as more legitimate.
Protecting IP - If you are thinking about protecting intellectual property such as copyrights, trademarks, patents and trade secrets, and are thinking about how to protect the value of your company to sell it one day, it is crucial to create an entity to own the IP as soon as possible.
Hiring employees - While you can put an employee on payroll as a sole-proprietor, employers are generally liable for their employee’s actions and mistakes during the course of employment so it is not a good idea.
If you would like help incorporating your business and advice about your specific situation, please book a New Business Strategy Session HERE.
