I'm sure this may be the last thing on your mind, but you may actually want to consider doing so. As you know from prior blogs that operating as a sole-proprietor gives you zero legal protection. A sole-proprietor is not a legal "entity," you are operating legally but you are not a "business". You and your business are one and the same and therefore is legally viewed as an individual. Therefore if you find yourself in a legal situation with a client OR a non-client both your personal and "business" assets are up for grabs. Meaning anything you own outright (not making payments to some type of lender on that item), can be taken from you and given to the other party for payment if you cannot pay them in cash. That means your home, car, land, any bank account you are on, stocks, rental properties, and the same for any business assets. Don't have assets, whelp here comes the bank account garnishment, wage garnishment and liens placed on you for future assets/funds you may receive. Ex. Your car is paid off in a year, whelp, they can file a judgement and take it at that point.
Any and all accounts you are on can (and will) be garnished if the other party receives a judgement order from the courts to do so. So if you are on and account just because, or forgot about that account you opened with your niece, it doesn't matter whose money it 'technically' is, those funds will be taken. Legally joint account holders both own the funds in the account even if you never use it.
To be clear, there is NOTHING wrong with operating as a Sole-proprietor. Even I operated as one when I first started out because I didn't know if I would succeed doing this. But if you are in the position that you can do this right now, you should! Let me tell you why I hold this stance right now:
#1, as always, you need to separate yourself from your business and protect your personal life/assets.
In this uncertain time, if you cannot fulfill a project with a client, again, you are not legally protected right now. They can still sue you for breach of contract even if you don't have a signed contract with them, which in that case, WTF not!?! Get one here, NOW!
Although we are all banding together and helping one another out, unprecedented resources are being provided, it doesn't mean someone won't sue you, nor does it mean the courts would side with you because of all of this.
Incorporating as an LLC is not as expensive as everyone makes it sound nor is the 'upkeep'. Yes, of course, some states are more expensive than others, and some states do not require any annual filings or fees! (Ex. New Mexico, where I am, is $50. Missouri is $50, California is $90 - NOT $800 - that is a TAX and I'll touch on that later)
Some states waive fees in whole for military personnel and their family. The President also signed a new law that no longer makes it insanely difficult for military to transfer their business to a new state every time they have to move. And they also reimburse your incorporation fees up to a certain amount and fees to transfer over any professional licenses you may have.
Incorporation fees are tax deductible including the investment you pay for someone to incorporate for you, like me :). In fact, a lot of services and those investments with me are tax deductible!
Another huge benefit is that you will be able to update your contract with your clients to move it in the name of you LLC and not as you as a person. Aside from the legal benefit, you can take this time to renegotiate, add clauses you missed, etc. Ex. If you didn't include a limited liability clause or force majeure clause NOW is the absolute time to do so! If you need these two clauses, you can grab just the clauses from our shop or a whole new contract if you prefer, or don't currently have one. Everything is 50% off right now too and 10% of all proceeds in March are being donated to a local charity, Hustle Kindness. And everyone who makes a purchase in March will be entered into a drawing to receive a gift card to their merch shop.
Current and future clients will view you as a solid business who is not going anywhere during this time.
It really does change your mindset, give you an extra confidence boost, and give you more drive. I can attest to that.
You have two different tax options as an LLC. Default and the S-corp election. This can also be changed should one no longer benefit you.
Those are just 10 benefits, there are a lot more. So I highly recommend taking a good long look at incorporating right now. If you are unsure, need clarification or anything else, book a complimentary consultation with me and let me weigh the pros/cons and provide you expert advice and recommendations.
Your Business Bestie
Be sure to check out our Banking during COVID-19 Blog while you are here.