Do you have a side hustle that isn’t so much on the side anymore? It’s like, maybe even becoming your main hustle and you’re thinking that you might wanna swipe right (or is it swipe left?) and make it official?
You’re probably thinking that the first step you need to take before you can really get started is forming an LLC, amirite? Well, I’m here to let you know that you can still make your creative business official without forming an LLC. Yep! It’s true.
What Is an LLC, Anyway?
LLC stands for “Limited Liability Company” and what it means from the most basic standpoint is that if shit ever hits the fan with the business’ debts, liens, or lawsuits, your personal assets might be safe. It creates a barrier between you and the company by turning the company into its own entity.
Yeah! On paper, your creative business becomes its own person. (Awww!!!) This all means that if the business does something naughty, you might be free of punishment.
Notice how I’m saying “might” – that’s because there are exceptions when your LLC won’t be able to protect your personal assets. It’s not a 100% definite thing in all cases.
But yeah, the biggest thing it does is create a barrier and it’s all from a legal perspective. Forming an LLC doesn’t do anything different from a tax perspective unless you also file to be an S-Corporation.
DBAs Are Awesome
A DBA stands for “Doing Business As” and what it allows is for people or existing companies to operate under a different name. With a DBA, you’ll be able to create invoices under a fictitious name (your business name), use it on websites and business cards, and have it as the name on your bank account and checks. They’re sort of like a really serious nickname.
Now – keep in mind that if you don’t snag that LLC, someone could create an LLC using the same name as your DBA. Luckily, if you were already using it on your intellectual property prior to that, you should still have first dibs. If you’re going to go this route, possibly get a second opinion from an attorney. At the end of the day, an LLC is just an LLC. It’s not the end all, be all of intellectual property. If someone registers an LLC in the same name as your DBA, but you already have the domain, the social media handles, and a trademark on the name, what are they going to do? Seems like they might have to file for a DBA!
Do I Need an LLC to Get an EIN?
Check this out – you do not need an LLC to get an EIN! You don’t need anything besides your current taxpayer ID to get an EIN. It’s a really good idea to get one so when you submit your W9 or file 1099’s for your contractors, you aren’t having your SSN floating around the universe. #safetyfirst
It’s super easy to get an EIN on the IRS’ website being you, the creative entrepreneur, and you should go get one pronto if you don’t have one already!
Do I Need an LLC to Open a Business Bank Account?
Again – you do not! You just need to be you – the badass creative entrepreneur to get a business bank account.
The LLC does not make you a business. You, doing business-shit, like generating income, paying expenses, and putting it all on the line, makes you a business. And when you do those things, you can open a business bank account.
Keeping business funds separate from personal funds is very important and should be implemented as early as possible. Sooo if your creative business doesn’t have a bank account (or two) to call home, take care of that!
So Why Would Anyone Form an LLC?
First let me say that a lot of businesses operate as a sole proprietor for many, many years without ever filing for an LLC or any other form of entity. It doesn’t have to be a prerequisite for running a successful business. (Once again for the people in the back!) An LLC or Corporation does not have to be a prerequisite for running a successful business!
So – back to the question – if it’s not needed, why would anyone do it? For liability. And some businesses can’t wait on that. Compare a solo graphic designer who just started their own firm to someone who is opening a training center for wannabe lion tamers. Which business-owner has more liability? The lion tamer extraordinaire!
Another reason why someone might need to open an LLC sooner rather than later, is if the company is going to be doing fundraising. This is because the LLC can possibly protect against being personally liable for debts incurred.
It’s not that an LLC is never necessary, it’s just that it doesn’t always need to be the first step and it won’t give you a leg-up on taxes. I’ve heard from so many freelancers and business owners that the only reason why they formed the LLC was so they could claim expenses on their taxes. Yo! An LLC doesn’t automatically make you a business. When the IRS reviews whether or not someone is operating a business, they look at a multitude of factors, and simply having an LLC is not what seals the deal.
In the super early stages of a business, every dollar is important. Forming an LLC can be pricey, especially in the state of New York due to the publishing requirement. In some cases, those funds are better spent being invested into the business. Obviously, all cases are different and it depends on the nature of the business and how much liability is involved. Personal protection is obvs important, but it doesn’t always need to be the first thing someone does as they embark on their business journey.
PSA: With or without an LLC – YOU are still a business-owner. You still have all the same opportunities available to you. You’re not any less valuable, or professional, or worthy.
If you need any other information on whether forming an entity for your creative business is the right step right now, or which entity would be the best choice for you, feel free to give us a holler; we’d love to help!