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I've done freelance work as an independent contractor for years, which works well-enough for sporadic freelance work. But as I get more gigs and an established portfolio, are there benefits to forming an LLC to serve as the agent being hired, rather than myself individually, even though there's only one of me? What other benefits/disadvantages of forming an LLC should I be considering as well?

  • This question is good, although very limited to certain regions of the world. – ashes999 May 22 '13 at 1:15
  • @ashes999: Good point; there should probably be a Meta discussion about what areas of the world legal questions can/should cover. – MidnightLightning May 22 '13 at 3:57
  • Maybe just tag your question with a country and state tag? As @ashes999 mentioned, I think the definitive answer depends a great deal on location. – Osteoboon May 22 '13 at 5:36
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    Tagging by region is not really a good practice. We should have a meta about this. Questions are often closed as "too localized," but this probably isn't a good one to close as localized. – ashes999 May 22 '13 at 16:27
  • @ashes999 however, that is not the correct use of "Too Localized". Mentioning a region doesn't make it too localized. saying "why is there a big purple giraffe outside my house" does. – Amelia May 24 '13 at 17:06
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LLCs were created for just this scenario: you're an individual or small business who wants to enjoy the protections being a company or corporate entity entails without becoming a full-blown corporation.

An LLC allows you to operate as an individual without putting your personal assets at risk. You pay taxes as an individual (in the US anyways) but enjoy protections against lawsuits and other risks operating a business brings.

Given that the costs of establishing an LLC can be trivial depending on the state you incorporate in, it's better to set up an LLC and protect yourself than to take on personal risk.

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Besides liability limitation, which Paperjam covered well in his answer, LLCs also provides tax flexibility. You can elect to have your LLC taxed as a disregarded entity or as a corporation. As a disregarded entity, it's as if you there was no LLC. As a corporation, there is more paperwork; however, besides paying yourself ordinary wages, depending on your income sources, you may be able pay yourself dividends, which are not subject to self-employment tax.

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    Oooh...dividends. I like that. – Jeromy French May 22 '13 at 14:46
  • Note that the affordable care act imposes payroll taxes on sub-S corporate dividends. I assume the same goes for LLC's too. – Chris Travers May 22 '13 at 15:01
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It has always been a simple answer for me... start an LLC as soon as you make your first $125. I chose this because that is the minimum to start the LLC for paperwork in Ohio and to open a bank account.

That is my standard and I do it just to protect my personal assets. That is the core reason for an LLC.

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    I think the amount is more like $400 in RI, and there is an annual fee of some sort too, maybe somewhere between $250 and $400. So the answer to the question depends a great deal on location, I think. – Osteoboon May 22 '13 at 5:35
  • Maryland specific: here there is a business property tax filing for LLCs that costs $300 per year to file. IANAL, but it appears that whether or not you file determines whether or not your business "is in good standing in the state of Maryland". – GSP Feb 26 '14 at 15:30

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