When starting a coaching business, you may have wondered about the LLC initials you see after some business names and wondered if you should be doing it. You may have heard advice that you absolutely must form an LLC or you could be sued. How did that make you feel? Did that feeling propel you into action, to either research LLC formation or to seek out the advice of an attorney? Did it make you put off doing anything? Is potential liability kind of a nagging little thought in the back of your mind, making you play just a little bit smaller?
Okay, so LLCs are really not that big of a deal. It’s a business entity choice and like any business entity choice, it is going to have financial (like tax), legal (liability protection) and administrative (filing reports with a state government, separate banking account) impacts. But you’ve got the ability to research this and make a decision of what’s right for you and your business.
LLC stands for Limited Liability Company and it is a business entity that is registered at the state level. An LLC can be a single member managed company, meaning it’s just you and your business. You can register it in any state, but generally people register in their own state. An LLC is going to need a ‘registered agent,’ or someone in that state and it’s easy to be your own registered agent although there are 3rd-party businesses who will serve as a registered agent in another state for a fee. Registering in a different state will have tax costs and benefits and that’s when you’ll want to talk to someone like a CPA to really understand the pros and cons.
The reason most solo entrepreneurs choose to create an LLC is that it generally protects the owner or owners from personal liability from things like business debts and liability. Clients, virtual assistants or employees, or the owner of a resort you were going to use for your amazing retreat in the summer of 2020 which, obviously, had to be cancelled . If you have an LLC and you made sure your contracts, waivers, disclaimers and correspondence were from the LLC, they can go after your business assets, but not your personal assets…ideally, but not always.
Setting up an LLC is generally pretty easy to do and you can do it yourself if you want to roll up your sleeves, do just a bit of research, wade through some state statutes, download some forms and try it. Most state government websites give all the information you need and there are several online services that will do everything for you for a small fee. I used Incfile.com and was completely happy with how quick and easy it was. Obviously, there’s always the caution to talk to a CPA or tax attorney to know your best options, but honestly, a lot of people do this on their own. Just make sure you follow through and understand your start-up and annual registration requirements.
The other big thing is that to really take advantage of that liability protection, you have to start keeping your business accounts separate from your personal accounts (get a new checking account and possibly a credit card in you LLCs name and use that for everything). If your bank, the one you use for your personal banking, will not set you up with an account in your LLC’s name, Bank Novo is a good one with no fees. You will also want to make sure your contracts and business correspondence are coming from your LLC.
So those are the basic facts about LLC formation. The exact how-to’s are going to vary state by state and always conditioned on the disclaimer that you need to talk to your CPA or your tax attorney. Although a fellow coach in Utah will tell you it’s a no-brainer and you should definitely form an LLC from the beginning, a new coach in California might look at those extra taxes and think, maybe not.
So what’s going through your head right now? While one person reading this might have already made a decision and started forming an LLC, a few others might start spinning in confusion. They may go down the ‘google tunnel’ and research and read everything they can trying to find the one right answer. They want someone to tell them, this is what you do and here is how you do it. When they’re told to talk to their CPA, that just makes it worse because they don’t have a CPA. They file their taxes online with Turbo Tax. Who do we think they are? Warren Buffet?
Listen, there is no one right answer and as much as you may want someone to tell you exactly what to do, the right answer is going to come from your empowered thoughts, not from fear or confusion. What kind of thoughts are going to get you to a feeling of confidence? It’s probably not going to be, ‘I’m not a tax expert and don’t know anything about this stuff.’ What about, ‘Other small online business owners have formed LLCs and I know I can make a good decision.” How does that feel? When you feel confident, then you take empowered action, such as looking into those online filing companies or your state’s website or ask a friend or co-worker to refer you their CPA .
The only ‘right’ decision is the one that moves you forward to your goal. So what is it going to be?
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