What is an LLC?
LLC is short for a Limited Liability Company and is a business structure that just about anyone can form in order to operate as an indipendant contractor while potentially protecting personal assets. When you form a LLC you give it a name to operate under rather than using your name as an individual. You can still use your name followed by a comma and LLC. Paychecks are issued to your LLC and deposited into a business bank account. This is not all that different from operating as a sole proprietor business entity. Most freelance technicians are already running a sole proprietorship by the simple fact that they’re accepting MISC1099s forms for their tax return.
What are the Benefits of Forming an LLC?
As this is a separate entity, a corporations unto itself, your personal assets can be protected should your LLC occur depts and/or liabilities. Should you find yourself in a situation where a lawsuit is brought, your LLC acts as a shield to you personally, to a point. The LLC owner(s), also known as members, enjoy protection for the actions made while serving the needs of the LLC towards delivering the services needed to their client. This is not a wild card to ignore responsibility towards safely delivering your end product of course. Operating under the LLC protects your personal finances and assets (house, bank accounts, and such) from losses. There are rare circumstances where a lawsuit might seek to “pierce the corporate veil” they could remove the liability protection of forming a limited liability company.
Working under a corporation entity such as a LLC is often desired by production companies when working with freelancers. Since you are an actual company they are free to pay you as an independent contactor and issue you your 1099 form while being less likely to be tagged by the IRS as hiring you as an employee.
An LLC can have many members and there are several methods to spread the wealth amung your family and others. See our other articles on setting up your structure where you can hire family members who are assisting your at home efforts. Doing so allows you to pay them as employees and claim deductions from your gross yearly intake. If you store gear at home, you can rent out some of your space to your LLC. You’ll need to talk to your own accountant or tax professional who can advise you on your particular situation.
What are the Disadvantages of Creating an LLC?
Most of the down side issues have to do with setup fees, ongoing fees, paperwork, and such. Each state will have their own set of requirements for creating the LLC and some prefer to hire a small business management company to deal with keeping all the forms and notifications straight.
If you plan on building your business in order to sell or transfer it later on, the LLC may not be the best choice. A full corporation type business uses stock to signify who owns the company. Sell or transfer the stock and you’ve changed who owns the company.
How do I form a LLC?
The obvious steps include where you plan to form your LLC. Most freelance technicians tend to form their LLC using their home address. While this is most poplular, some reasons for choosing a different state in which you live are drivenmostly by taxes and might include:
- What state do you do most of your work? You might pay less taxes if the business is “located” in that state.
- What state would serve you best financially? Many people choose Deleware for it’s low corporate tax rates. You should speak with your tax professional for personal advice.
What should I call myself?
Choosing your LLC corporate name can be more complicated than you might think. An LLC needs to have a name that’s not already listed as a business operating in your state, or the state you choose to form your LLC within. Checking with your Secretary of State’s office is needed here. Many entertainment technicians use their own name. You can use some obscure name and then work under a DBA (Doing Business As) using thier own name.
Do I need to Check for Trademark?
You should consider checking for trademarked company names. Using “Disney” Lighting would likely bring the wrath of the mouse. Whether you choose to use your own name or a name that is discriptive on what your LLC does is a hard choice that takes time. Remember that you can form a LLC under one name and the operate under DBA mentioned above.
Do I need a registered agent?
The web has plenty of companies offering to serve as company agents for people forming LLCs. You can also do this yourself If you’re forming your LLC at home or an office you maintain. If you are thinking about forming your LLC in another state for tax/other reasons, you’ll need an agent to act as receiver of your official communications from state offices. For both money-saving and tax purposes, you could hire someone within your household to work as your managing agent. Paying them gives your LLC a tax deduction as a cost of doing business and keeps the money at home. Of course, paying the outside agent is also deductible as a business expense
Filing your LLC with your State
when you search Google on how to file an LLC with your state, the results usually include several advertised links to services that will do the filing for you. As I write this in Pennsylvania, my search result ended up with four ads and the fifth link was to my Pennsylvania State department. My search term was “filing LLC in PA.” When I replaced this with “filing LLC in NY” the result included another four ads followed by the link to the New York State LLC filing page. Each state has its own fees for filing and the outfits the do the filing for you simply pass on the state fee and then add their service fee on top.
What are LLC Articles of Organization?
Well an individual freelance entertainment technician is not necessarily required to have official articles of organization written out, it’s not a bad idea. Basically, articles of organization is an outline of how you operate your business. They include the who, what, where, why, and how.
A brief example:
C-Wrench LLC is operated by C. A. Wrench out of their home office located at 123 Leko Ln. Strand, WV 00512. C-Wrench LLC offers services to corporate event production companies to provide power to various audio/video/lighting departments while avoiding sparks and blackouts at inopportune times.
C-Wrench LLC operates primarily on location that often requires travel for extended periods of time. Pre-preparation of proper paperwork is mostly done ahead of time in our home offices.
Agent related correspondence can be sent to Spanner Wrench at the above address.
Check with your state as they may have a simple standard form for you to fill out. Some other terms used to equate articles of organization include operating agreement, organization document, certificate of organization, certificate of formation, etc.
Obtain an EIN (LLC version of a Social Security number)
From the IRS site: Apply here for your EIN Number
Step 1: Determine Your Eligibility
- You may apply for an EIN online if your principal business is located in the United States or U.S. Territories.
- The person applying online must have a valid Taxpayer Identification Number (SSN, ITIN, EIN).
- You are limited to one EIN per responsible party per day.
- The “responsible party” is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.
Step 2: Understand the Online Application
- You must complete this application in one session, as you will not be able to save and return at a later time.
Step 3: Submit Your Application
- After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your EIN confirmation notice.
Open a Business Banking Account
Now that you have your EIN number you can open a banking account using your LLC name. It is extremely important to keep your finances separated with regards to your work versus personal expenses. The separation will make it extremely easy a tax time but admittedly makes it harder to take advantage of credit card point programs that you enjoy on your personal cards. For legal reasons keeping all of your operating expenses separate helps isolate you from your LLC operations should you find yourself in court for any reason.
Some other reading for you to explore:
https://www.bizfilings.com