Many of our CVPA’s have never owned their own business. And that’s okay! At OMH Agency, we make sure that our CVPA’s are trained with the right skills and access to ongoing services for podcasters. It is also important to understand that there are several ways to do it.
IMPORTANT! We researched and wrote this article this so you have an overview of your options, but keep in mind that there is more to it than is presented here and we are not providing legal or tax advice. Be sure to consult your accountant and attorney to get a better idea of the details, requirements for each and which is the best fit for you.*
Here are 3 of the most common basic business structures we’ve seen that you can model your new business under. Luckily, these different business structures are very easy to understand.
In this quick guide, we’ll break down what LLCs, corporations, and sole proprietorships are and the pros and cons of each structure.
How to Structure Your Business as a Freelancer
When starting your business, the easiest part comes first — Picking your business name! Consider a list of ideas and brainstorm which name ideal reflects your mission, style, and business practices. Virtually all business structures benefit from a business name, though freelancers who work solo can opt for their own name.
From there, consider any and all permits and licenses involved in your business for your specific niche. This is also a good time to brush up on tax laws for your specific state.
Once all of this has been established, it’s time to choose the structure. Here are 3 of the most common options: an LLC, a sole proprietorship, or a corporation.
Limited liability corporations or LLCs are business structures that combine pass-through taxation with the limited liability typically found in a corporation. However, an LLC is not a corporation. Rather, it is a type of company that provides some protection and less (limited) liability to any owners involved. Think of an LLC as a mix between a corporation and a sole proprietorship. Taxes can be a bit more complicated for LLCs and can involve Form 1040, Schedule C, E, or F, and Form 1120 or 1120-S.
Pros of LLCs*
- You can be taxed as sole proprietor, a partnership, a C corporation, or an S corporation, which is quite flexible compared to the other two business structures.
- You’ll have to deal with less paperwork and significantly lower costs for filing.
- LLCs can be formed with only one person, but you can also have more members involved.
- Taxes are often simple, as you are subject to flow-through income taxation.
- Your LLC members are protected from some liability if your business runs into debt or legal problems.
- Your LLC members can receive revenues that are larger than an individual ownership percentage.
- You could be able to write off forfeitures.
Cons of LLCs*
- LLC members cannot pay themselves wages.
- There are high renewal fees and publication requirements involved, but this depends on the state in which you operate.
- There are quite a few states that require franchise tax and capital values tax for LLCs. These taxations can be a flat fee or based on your business’s revenue.
- Compared to a corporation, investors are less like to put money into an LLC. This can make it difficult to raise capital.
- If you’re running your LLC with other members, the business’s ownership is spread across all members. This, however, can be a pro in some cases.
A sole proprietorship is a business structure in which you own and run your business alone. An unincorporated route to take, sole proprietorships are very simple and very easy to understand. Freelancers who work alone would be considered sole priorietors. If this is your first time running a business or getting involved in entrepreneurship, a sole proprietorship could be the best route to take. In terms of taxes, sole proprietors are taxes as single entities and only need to file a Schedule C and a form 1040.
Pros of a Sole Proprietorship*
- You’ll have complete control to run your business the way you want.
- There’s more flexibility.
- Unlimited liability means that your credit is more likely to be extended if needed by your creditors.
- All of your business’s profits go directly to you.
- Because there is less capital involved, your organization will be easier to run.
Cons of a Sole Proprietorship*
- You will be completely liable for all business debts.
- Banks tend to be less likely to give out loans because sole proprietorships tend to have high turnover rates and smaller assets.
- Because you completely own your business, creditors can seek personal property to satisfy claims if your business assets aren’t sufficient.
- Your business relies on you only, so it can be difficult to raise capital for long-term assistance.
Finally, a corporation is a business structure that separates the business as an entity from its owners. Corporations can get involved in contracts, take legal action, give and take loans, own assets, and pay taxes. Corporations are limited liability, so its shareholders can participate in the corporation’s profits via stocks and dividend. However, they are not help responsible for any debts or legal problems the corporation may suffer from. Corporations are quite complex and not very flexible, so it isn’t always recommended to jump into a corporation if you have not run a business before and do not have a hefty chunk of startup capital. Corporations are typically taxed with IRS form 1120.
Pros of Corporations*
- Owners of corporations are separated from legal liability. This means you won’t be entirely responsible if your business runs into debt or legal problems.
- You can sell stock, which thus raises your likelihood of acquiring financial capital.
- Corporations have properly established structures and clear roles. Accountability and ideal agendas are better organized in a corporation.
- Employees can buy stock at fixed prices and receive additional stock benefits.
Cons of Corporations*
- Corporations can be very time consuming.
- They can also be very expensive and result in a significant amount of paperwork
- There are many regulations involved in corporations, making them not as flexible as LLCs and sole proprietorships.
- It’s possible to get double-taxed, in which both your corporation’s profits and your stockholders’ paid dividends will be taxed, depending on your location.