Do I Need an LLC?

A Limited Liability Company (or LLC for short) is a structural format of a business that is somewhere in between being a sole-proprietor (think small side-gig hustle) and being a corporation (think Whole Foods).

If you only get one thing out of this post, let it be this — as a rule of thumb, forming an LLC is certainly not a badd idea, even if it might not be necessary for your business. Here’s why:

Every business has different needs, and while you may think businesses are only establishments that have a building and a sign out front, taking your neighbors dog out once a week is a still a business. Because companies come in all shapes and sizes, some organizations lend themselves better to different structures. Items like, whether you anticipate having employees or investors, partake in a business with significant risks, or have specific tax or ownership goals are all worth considering when thinking about how to formally structure your business.

Forming an LLC or other business entity makes your business a legal entity that is separated from yourself. When you take a gig, teach a lesson, or complete a commission as a sole-proprietor (which 90% of you reading this probably are), you and your business are one entity.

The separation between yourself and your business is sometimes referred to as corporate veil and it is particularly important because it protects you from personal liability from your businesses’ actions. Of course there are limitations to this if you were personally negligent, etc, but generally an LLC helps protect personal assets, like your personal bank accounts & other personal property from someone coming after your business (aka suing you). Once you form your LLC, you’ll definitely want to open a separate business bank account, and be mindful to keep your two financial lives straight.

That protection is by far the most widely beneficial part of forming an LLC, but there are some other pros as well. Forming an LLC makes co-owning a business with another individual easier, and allows for a clearer operating structure that stretches from owners down to employees.

Forming an LLC has its limitations too. For instance, LLC’s cannot offer stock which complicates attracting outside investors. Additionally, an LLC doesn’t necessarily affect taxation positively or negatively, but it does offer some flexibility to be taxed as a sole proprietor, or other types of business entities like C-corps or S-corps.

Forming an LLC is a pretty straight forward process and is facilitated through the state in which you are forming it. Each state has slightly different fees and rules, but check out Limited Liability Companies for dummies, or this website that helps you break things down into 5 simple steps!

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