Your copywriting business is thriving. You’re getting more and more work, and clients are clamoring for your services. You’re ready to take the next step: expanding your business by incorporating it as a Limited Liability Company (LLC).
But is an LLC really necessary? Is it the right move for a copywriter, or could you benefit more from another type of business structure?
The truth is, there’s no one-size-fits-all answer here. An LLC—or limited liability company—can provide certain benefits for copywriters, but it’s not the only option.
In this guide, we’ll discuss the pros and cons of LLCs for freelance writers, so you can decide if it’s the right move for you.
What is an LLC?
An LLC, or Limited Liability Company, is a type of business structure that limits the personal liability of its owners (also referred to as ‘members’).
This means that the members of an LLC are not personally responsible for any liabilities or debts the business incurs.
This is an attractive option for small business owners because it offers protection in the event of any legal disputes or other financial issues. If the business fails, the members are not responsible for paying any of its debts. Instead, the creditors can only go after the business assets.
So, do you need an LLC to be a copywriter? Generally speaking, the answer is probably not.
However, forming an LLC is a good idea if you plan on growing your business beyond just freelance work. An LLC can help protect your personal assets, provide you with tax advantages, and give you a professional image in the marketplace.
Advantages of forming an LLC as a copywriter
Your LLC can provide you with several advantages, including:
Tax Benefits
Forming a Limited Liability Company comes with numerous tax benefits. One of the most significant advantages is pass-through taxation, meaning that the LLC itself does not pay taxes on its income.
Instead, the profits and losses flow through the business to the owners or members who report them on their personal tax returns. This feature eliminates double taxation and simplifies the tax process.
However, LLCs can elect to be treated as an S Corp, which allows you to pay self-employment taxes only on a reasonable salary, rather than on all of your business income. This option provides greater control over your business’s finances and reduces tax obligations.
Professional Credibility
Forming an LLC can also help establish your freelance writing business as a legitimate, professional entity in the eyes of potential clients. This can help set you apart from competitors who are operating as either sole proprietorships or partnerships.
Limited Liability Protection for Your Freelance Writing Business
As mentioned earlier, LLCs provide limited liability protection. This means that if a lawsuit is brought against the business, the LLC members will not be personally liable for any damages or legal fees. The only assets that can be seized are those of the LLC itself.
Disadvantages of forming an LLC as a copywriter
Although forming an LLC can be beneficial for some copywriters, it does come with some drawbacks. These include:
Cost of Formation and Maintenance
Forming an LLC requires a filing fee, which can range from $50 to $500 depending on the state. Additionally, you may need to pay annual fees in order to maintain your company’s status as an LLC.
Additional Paperwork and Record Keeping
In addition to paying the initial formation fee and any ongoing maintenance fees, forming an LLC requires a lot of paperwork and record keeping. Here are some of the paperwork you may need to complete:
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Articles of Organization: This is a legal document that outlines the basic information about your LLC, such as its name, purpose, and structure.
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Operating Agreement: This is a legal document that outlines the ownership, management, and operating procedures of your LLC. Although not all states require an operating agreement, it is recommended to have one in place to prevent disputes and clarify expectations among members.
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Employer Identification Number (EIN): You will need to obtain an EIN from the Internal Revenue Service (IRS) if you plan to hire employees or open a business bank account.
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Business Licenses and Permits: Depending on your industry and location, you may need to obtain certain licenses and permits to operate your LLC legally.
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Annual Reports: Most states require LLCs to file annual reports, which provide updated information about the company’s members, addresses, and business activities.
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State Filing Fee: You will need to pay a state filing fee to register your LLC. The amount of the fee varies by state.
Limited Personal Control
Lastly, forming an LLC can also limit your personal control over the business. This is because LLCs are subject to certain regulations, including state laws and the LLC’s operating agreement.
Also, depending on the operating agreement, all LLC members may need to vote on decisions or agree unanimously before changes can be made. This can make it more difficult to make decisions quickly or shift gears if needed.
Alternatives to forming an LLC for copywriters
Depending on your situation, there may be other legal structures that can provide the advantages you’re looking for without the additional paperwork or costs associated with forming an LLC.
Here are some of the alternatives you may want to consider:
Sole Proprietorship
A sole proprietorship is the simplest and most common business structure. It requires no paperwork or filing fees in most states, and you will be personally liable for any debts or liabilities your freelance writing business incurs.
Benefits of working as a sole proprietor include:
• Lowest cost of entry
• Easy to set up and maintain
• Freedom to make decisions quickly
Disadvantages include:
• Unlimited personal liability
• Harder to get funding from lenders or investors
Partnership / Limited Liability Partnership (LLP)
A partnership or limited liability partnership (LLP) is similar to a sole proprietorship but allows for two or more owners. Unlike an LLC, the partners are personally liable for any debts or liabilities the business incurs.
Benefits of a partnership include:
• Ability to pool resources and share responsibilities
• Low cost of entry
Disadvantages include:
• Unlimited personal liability
• May need to pay self-employment taxes
Corporation or “C” Corporation
A corporation, or “C” corporation, is a more complex business structure that offers greater protection from personal liability and potential tax benefits. However, it can be more expensive and time-consuming to set up.
Benefits of a corporation include:
• Limited personal liability
• Potential tax benefits
• Ability to attract investors
Disadvantages include:
• Expensive and complex setup process
• Double taxation (corporation and shareholders)
Factors to consider when deciding whether to form an LLC
You’ll need to consider a few factors when deciding whether or not to proceed with LLC forming. These include:
Type and size of the copywriting business
The type and size of your copywriting business will dictate what kind of legal structure is best for you.
If you are planning a large, long-term venture then an LLC may be better suited than a sole proprietorship or partnership due to the additional protection it provides from personal liability.
Short-term ventures or other businesses with limited resources may be better suited to a sole proprietorship or partnership.
Risk tolerance
Are you comfortable taking on full responsibility for your business? If so, then a sole proprietorship or partnership may be suitable. However, if you are looking for more protection from personal liability, then an LLC can provide that.
Risk-averse copywriters may feel more comfortable with the additional protection that creating an LLC offers, however, it will also mean more paperwork and filing fees.
Future growth plans
Scaling a business can be difficult and time-consuming, so it is important to consider what legal structure will best accommodate your future growth plans.
An LLC may provide the flexibility and protection you need, while a corporation can provide additional benefits such as access to investors or lenders.
Personal financial situation
Your personal financial situation will also play a role in deciding which type of business structure is best for you. An LLC may be more expensive to set up and maintain, while a sole proprietorship or partnership requires less paperwork and filing fees.
Also, you should consider the taxation of each structure; an LLC provides pass-through taxation, meaning the business won’t be taxed twice.
That said, no matter what structure you choose, it is important to do thorough research and speak with a legal professional to determine which one is best for your own business.
Final Thoughts: Do you need an LLC to be a copywriter?
Ultimately, when deciding whether to form an LLC or sole proprietorship as a freelance writer, it’s important to weigh the pros and cons of taking this step.
Forming an LLC offers protection from personal liability, provides tax benefits, and can help to streamline operations. However, there are costs associated with forming an LLC — such as filing fees and ongoing maintenance requirements — that you need to take into account.
Talk to an accountant or attorney for specific advice before you decide whether it’s the right move for you as a business owner.