We often hear these questions from small business owners: What is the cheapest option for my casual consulting business? How much does it cost to incorporate a small business like mine? Shall I form an LLC?
The best type of company for a small business is generally an LLC. This is owned by members and operated by either third-party managers or the members themselves. It is a very flexible form of business, which accounts for why almost 75% of new businesses are LLCs today. The LLC Operating Agreement is the governing document to allow you to arrange the LLC’s affairs as the members choose.
Why Should You Consider an LLC for Your Small Business?
By forming an LLC, you safeguard your personal assets by building a shield between them and your business liabilities. This means that if the business itself cannot pay a creditor, this shield makes it difficult for creditors to penetrate into your personal assets, such as your house or car. If the single-owner business does not form an LLC and chooses to operate as a sole proprietorship, the sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company. With an LLC, you will be able to make certain tax elections which may save you thousands of dollars per year.
The State of Incorporation Matters
Aside from choosing the entity, you also need to choose the state of incorporation. Since the law where your business is located may not be favorable to your company, such as California, Pennsylvania and New York, you should look to the “gold standard” state for incorporation, which is Delaware. Choosing to incorporate in Delaware may help resolve problems with ownership disputes and other issues down the road. Delaware is known for having the best corporate laws and courts to resolve corporate disputes. See https://www.incnow.com/delaware-llc/ for more information on why the Delaware LLC provides the most predictability and protection.
The advantages of operating a Delaware LLC for a small consulting firm in another state include providing for more protection for you. If the LLC does not have an office or employees in your home state, then it may not need to file a Certificate of Authority to register your company in the state where you operate your business.
In General, the Cost to Incorporate Is Low
The cost to form and maintain a Delaware LLC is low and you can form an LLC in Delaware without visiting, opening an office, or maintaining a bank account in Delaware. The Delaware LLC Act requires any company incorporated in Delaware to have a Delaware Registered Agent with an in-state street address (most states require a Registered Agent). The annual cost to maintain a Delaware LLC includes a State of Delaware flat tax of $300 and a registered agent fee. It is important to choose a reliable and reputable agent like IncNow that also keeps its start up and agent cost low. Our registered agent fee is $99 a year, so for an annual maintenance fee of about $400, you protect your personal assets and limit your liability and access the legal and tax benefits afforded by the state of Delaware.
As a consultant, you will still be responsible for your personal negligence. Therefore you should obtain insurance to cover those risks. You will have to weigh LLC costs and benefits to determine what is best for you.