Sole Proprietorship, LLC, or S-Corp: Which is the Best Legal Entity for Your Freelancer Business?

Although there are many freelancers who have had success running a completely bootstrapped company without thinking over how best to organize their business legally, there are some major benefits freelancers can enjoy when they integrate their operations.

Taxes and legal protection are the top two!

But there isn't a "one-size-fits-all" method to incorporate as a freelancer.

It is essential to be strategic, intelligent, and knowledgeable about the way you construct your company from the ground up, especially when you go through the incorporation process.

Below, we'll go through several of the aspects you need to consider before settling on the topic you want to focus on and hopefully shining a more bright illumination on the subject, making sure you feel confident about moving forward.

Like all things, getting advice from a stranger on the internet isn't likely to compare as to when meeting with an attorney who specializes in helping freelancers integrate their businesses. It is always beneficial!

Legal Liability Protection is a Key Consideration

From the beginning, the legal liability insurance freelancers get when they choose to incorporate a great match is a major reason why a lot of freelancers opt to incorporate it in the first place.

It's not a secret that we're living in a highly litigious environment for business at the moment.

Just one unhappy client to sabotage your business, slash you with massive legal liabilities, and fill you completely in legal issues that you might never even be accountable for--but by the end, it'll be way too late for you!

Limited Liability and S Corporations provide significantly more protection than sole proprietorships. If you're in need of security from liability, then having an LLC or S Corp may be the best option for you.

Proper Tax Planning: Pointing You in the Right Direction

Obtaining legal liability protection is only one aspect when you're trying to ensure the security of your freelance firm (and your financial stability).

Another reason you should make the choice of incorporating is the ability to enhance your tax situation legally and ethically, safeguarding more of your earnings by establishing the correct legal entity structure. You don't have to worry about IRS.

The amount of income and revenue you earn and the location in which the business is incorporated have a major impact on whether it is an LLC route, as well as the S Corporation, is the most appropriate option when you are looking to enhance your tax situation.

As a rule, the tax benefits of a properly-structured S Corp are going to exceed those that an LLC can bring to the table (though it might not be as substantial as you would like).

LLCs Should Be Entrepreneur's Jumping Off Point

The vast majority of the freelance companies considering incorporation could benefit by creating an LLC instead of continuing as a sole proprietor or investing all of their time, energy, and effort (and money) into forming the foundation of an S Corporation.

Of course, LLCs aren't a "one-size-fits-all" type of solution. Your situation might be more suited to one of the two alternatives we've discussed in this guide. However, LLCs are relatively simple to establish, cost-effective to keep, and can provide amazing tax and legal advantages in addition.

In addition, changing an LLC to a sole proprietorship or even an S Corp is relatively simple and easy to accomplish, and also, if you're looking to alter your corporate structure later on down the road.