Information and resources for creating a limited liability company (LLC).
Most BTG independent contractor (IC) projects require a legal entity counterparty. Maintaining a legal entity is good evidence that an IC is genuinely operating an independent professional business. In a time when IC classification rules are becoming more complex, this structure of business organization is increasingly required by BTG and our clients as confirmation of the IC’s independent status. However, operating through a legal entity also offers many benefits to the IC and the most successful independent consultants tend to manage their practices through legal entities.
What are the advantages of a Legal Entity (LE) for the IC?
- Fundamentally, a LE allows an IC to keep their business and personal activities separate
- The entity can open a bank account and the IC can include all business expenses and income within that account, simplifying accounting and tax reporting
- Tax flexibility: By selecting the desired entity type and tax election, the IC has more options than basic sole proprietor/self-employment income reporting offers
- A properly operated LE will allow the IC to limit personal exposure and protect personal assets from business liabilities
- Monetization: If the consulting practice creates or owns intellectual property or other assets, a legal entity makes it much easier to sell a full or partial stake in those assets
What are the steps required to form a Legal Entity?
Forming a Limited Liability Company (LLC), the most popular type of LE for independent consultants, is a very simple process and can be completed in a few days. Costs are generally in the $180-$500 range for formation, depending on what level of service you seek and whether you use a private attorney or company specialized in this area. The same companies that offer formation services also offer ongoing maintenance services. Other LE types (including S-Corporations, C-Corporations, and Limited Liability Partnerships) are somewhat more costly to establish and maintain but offer different benefits for their owners. The following companies will handle all the required steps to create a legal entity:
BTG is not hereby providing any legal, tax, accounting, or business advice – the decision to form a legal entity should be carefully considered and decided on the basis of independent advice from your legal, tax, accounting, and business advisors.
Other suggested resources of useful information regarding business entity formations and tax treatment include: