There are many reasons to incorporate your business, things like lower taxes, less liability, and many others. So let’s see why successful freelancers have chosen to incorporate their businesses rather than put everything under their name.
I run my business as an LLC for two reasons. First, it tends to lend a bit of legitimacy with larger companies looking for freelancers. Second, it was much easier to open a business banking account with a company name and EIN so that I can keep my finances solid.
- Nick Ohrn, WordPress Development Services
Limited Liability.
- Jason Seifer, Twistedmind
Using your own name says to potential clients ‘I am a one person show’ which limits the kind of work you can take on. Also, incorporating can improve your taxation basis, with some liability protections in the case that things go badly wrong.
- Ron Evans, The Hybrid Group
I decided to become an LLC because I owned property, and the thought of it being taken away if I was sued was a scary thought! Also, it made me feel like a professional business lady, and I like tricking myself into thinking that I am.
- Michelle Ward, When I Grow Up Coach
Legitimacy. Bigger clients want to know they’re doing business with another business not an individual. Legal Protection . ‘Nuff said. Separate identities for tax purposes. I have a corporate card and a personal card. Makes keeping financials easier.
- Cody Swann, Gunner Technology
My #1 reason would be the threat of having my personal finances in jeopardy because of a business liability. I’ll admit that this was learned from others with businesses, so maybe it keeps getting passed on by word of mouth, but it sounded like something I wanted to prevent at all cost.
- David Browning, Two Guys
It was easy for me — when I had two friends and we wanted to join forces to work on contracts, we incorporated. Before that, over years of contracting, I had always worked as a sole proprietor.
- Rick Bradley, RickBradley.com
The primary reason I’m planning to incorporate soon is because a few of my clients are larger companies that don’t work with individual freelancers. To work with them, I have to go through a contracting agency, which tacks on a 15% fee (paid by my client, not by me). I’d rather add that 15% to my rate!
- Pat Maddox, PatMaddox.com
I incorporated to pay taxes on profit instead of income, and for the legal protection, although I’ve since learned that the legal protection needs a considerable legal team to reinforce it to have value.
- J.B. Rainsberger, Diaspar Software Services
Incorporation can shield personal assets from the reach of creditors, lien holders and lawsuits. As a business owner, you may be personally liable for business losses, defaults, commercial or personal injuries and have to pay damages not covered by insurance. Incorporating and segregating business and personal assets reduces financial exposure from claims and business creditors.
- Dena Lefkowitz, Coaching for Success
From the standpoint of a freelance writer, the answer is easy. It’s because there are people called “Lawyers” and “Attorneys” out there, who will sue at the drop of a hat. If that were ever to happen, they would quickly discover that my corporation has no assets except a computer and related office equipment. My personal property would be beyond their reach.
- Bob Baker, Copy To Go, Inc.
In a word, LIABILITY. The biggest reason to incorporate is to create a barrier between you and the client in the event something goes wrong. The other thing that’s nice about incorporating is that a corporation is considered to be a “virtual person” by the government, and your corporation will do whatever you tell it to. So in essence it’s your personal “slave” at least on paper. This allows you to do things like have the corporation buy cars, planes, boats for your personal use that you don’t have to pay taxes on…….. whoops! The laws have changed and you can’t get away with even half of what you used to be able to.
- Benjamin John Coleman, Origami Bonsai
Incorporating takes most liability issues off of me personally and can help protect my personal assets that aren’t part of my business. It also helps with taxes as sole proprietors are commonly on a shorter leash than corporations (not much but some). Also as a LLC I’m allowed to take some of the profits from my company instead of only a paycheck, this is taxed less. Note: I’m NOT a tax person lol… this is just some tidbits I think I know about and have been operating under for years now
- Chuck Reynolds, ChuckReynolds.us
There are a million names out there and it’s hard for people to remember a name unless they have something extraordinarily unique…….Calvin Klein anyone!! So incorporate with a classy name that tells what the business does or is unique enough to stick in people’s minds. For a corporation, unless you are a Calvin Klein, it also sounds much more professional. Even Virgin is not Richard Branson!
- Craig Wolfe, Celebriducks
From an accounting standpoint, incorporating helps keep your personal and business finances totally separate. But more importantly, when you’re doing business in the most litigious country in the world, it’s smart to protect your personal assets (through incorporating) in the event an irate client decides he’s going to come after you!
- Barb Getty, The Landlord Chronicles
I felt the future of my business shouldn’t be limited to me; if I wanted to hire employees or create an agency I wouldn’t want my name to my company name. I also didn’t want to worry about building a new brand if I ever did want to change from my personal name to something more fitting. Incorporating isn’t an issue, you just do business-as whatever name you decide on. Have your clients write checks to your personal name or go through the process of getting a fictitious business name. It took me a year before I finally completed my FBN and another 6 months to get a Tax ID number.
- Daniel Cameron, Sprout Venture
Not a reason that applies as well to me, since I have a relatively unique name, but one reason is to track brand awareness. If your name is “Joe Smith” and you operate as yourself it’s not going to be very easy to tell how deeply your brand has penetrated the market. Choose a unique name for your business, however, and a quick Googling will tell you just how effective your marketing has been.
- Avdi Grimm, wide Teams
The two most important reasons a business might want to incorporate are to reduce the owners’ taxes and to insulate the owner(s) from liability. Passive (investment) income from the success of a company one owns is taxed at a lower rate than active (salary) income. A business owner paying self-employment taxes on business earnings can save money by attributing part (or in some cases all) of that income to the success of his business, rather than the fruits of his own active efforts. In the case of a properly-formed and maintained corporation, owners, like the shareholders of any stock, are only liable to the extent of their investments in the corporation. If the corporation is sued, it may go belly-up and the owners’ investment may become worthless, but the owners’ house, car, bank accounts, and other property should be protected. Sole proprietors do not benefit from this insulation.
- Brian Blum, Maverick Solutions IT
Because I want to look reputable. I want to show that I have a team or a pool of resources at my beck and call, and that I have a real business.
- Holly Jordano, Angel Fish Connections
I LLC’d, because it seemed like it offered more legal protection. It is also nice to give people an employer ID number rather than my SS#, but that was an unexpected perk.
- Toby Cryns, WordPress Design And Development
My personal brand is more than just client work. Having a separate entity allows me to talk about my passion work, my side-projects or my nonsensical designs outside of the context of needing to be “professional” and allows me to experiment more. It’s either a mullet or a venn diagram, you pick the metaphor you like the best.
- Mark Dudlik, MarkDudlik.com
Deciding on the right business structure is vital to the long-term success of your venture. Incorporating your business offers a number of benefits other forms of business structures simply can’t provide. The most important is the corporation has its own rights and liabilities separate from the owners. Meaning, the personal assets of the owners of the company aren’t comingled with business.
- Andy LaPointe, Winner of Scovie Awards and Author of Start a Food Business
Convinced?
If you’re convinced and want to incorporate your business, get the link to the right corporation commission for your state.
What Is Your Reason For Incorporating?
Let us know in the comments why you chose to incorporate.
Thanks for the link! Would you mind changing it to http://wideteams.com, though? That’s my biggest project at the moment.
Changed and thanks for the input for others.
A word of advice: I recently started talking to an accountant, and discovered that in my home state of PA, an LLC is useless and confers no protection from a liability standpoint. Ironic but true. In my case she recommended an S-Corp instead. You may want to check with someone knowledgeable about case law in your state when deciding what kind of company to form.
That’s a very important piece of advice thanks Avdi.
And just to expand on that, there may be a difference between what the regulations *say* and what precedents actual case law has established. This is why it’s important to talk to someone who is has a been operating in your state for a while – it might not be as cut and dried as what you read on the Internet.
But Avdi, I thought the Internet was always right?!
It is always suggested to check with an attorney or CPA/Accountant on the most recent tax laws as they change regularly.
Does anyone have experience with a Portable Employers of Record (PER)? MBP Partners is an example of this (mbopartners.com). All freelancers who work for my employer must be either incorporated in some way or use a PER.
MBO Takes 5% (pretax) off your gross, but their value prop is that they take care of all the administrative “headache” of being a freelancer.
… and that’s MBO Partners, of course, not MBP Partners